A wild ride

It’s been a wild couple of months for the major indices.  The TSX (^GSPTSE) fell 4.26% in September and a further 2.32% in October.  The Dow (^DJI) fell 0.32% in September but then recovered 2.04% in October.  This is a pretty significant divergence and a lot of volatility.

Oil prices have fallen to around $80 and gold to $1,170, which has impacted the resources-heavy TSX,.

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Portfolio Update – Up 1.00% in May 2013

My portfolio balances at close of trading on 31st May were:

Ticker Price (C$) Price Change Percentage Industry
POW.TO $ 29.10 7.26% 6.8% Finance, Specialty
FTT.TO $ 22.66 n/a 6.7% Industrial Services and Supplies
TCK-B.TO $ 27.69 3.32% 6.5% Basic Materials
DII-B.TO $ 41.25 n/a 6.4% Consumer Cyclical
IFC.TO $ 61.35 n/a 7.1% Finance, Insurance
LB.TO $ 44.15 n/a 6.6% Finance, Diversified
XRX $ 9.11 n/a 6.9% Technology
S&P Fund $ 143.64 5.14% 12.9% US Equities
Bond Fund $ 225.35 -1.48% 33.3% Bonds
Cash 6.9% Cash
Total 100.0%

Overall my portfolio is up 1.00% since last month.  There were no cash contributions.  For comparison my TI Index is up 0.48%, the DOW is up 1.86% and the TSX is up 1.56%.

My investments have performed well against the TI Index, which was dragged down by gold and bond prices, but not so well against the pure equities indexes: the TSX and Dow. This is to be expected: it was a good month for equities but not for bonds.

The two value stocks that I bought last month did very well: Teck Resources (TCK-B.TO) is up 7.26% and Power Corp (POW.TO) is up 3.32%.  My S&P Fund is up 5.14%.  My bonds are down 1.48%.

The table above does not show the performance of stocks that were bought during the month (it only shows month-on-month performance).  I bought quite a few stocks this month so I am including an additional table to analyze their performance, as follows.

Ticker Cost basis Price today Gain (Loss)
TCK.B $27.03 $27.69 2.44%
POW.TO $26.20 $29.10 11.07%
IFC.TO $58.60 $61.35 4.69%
LB.TO $44.30 $44.15 -0.34%
FTT.TO $22.89 $22.66 -1.00%
XRX $8.90 $8.79 -1.24%
DII.B $41.01 $41.25 0.59%
Average 2.32%

In summary, my value stocks have gained 2.32% since buying them.  Performance would have been much better were it not for a sudden downturn in the two hours of trading today, during which the TSX fell 0.5% and the Dow fell 1%.  I bought Xerox (XRX) and Laurential Bank (LB.TO) today, and both are down materially!

My bond holdings are at 33.3%, which is very close to my target of 33.5%.  I have 6.9% cash which I can use to add another new position if prices fall.

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Markets (nearly) always fall after elections

Barack Obama (Democrat) was re-elected last night.  The Dow (^DJI) is down around 280 points (2.2%).  Does this mean that Obama is especially bad for stocks, or that Mitt Romney would have been better?

No.  Markets almost always fall after an election, regardless or who (or what party) wins.  George W. Bush (Republican) was elected on Tuesday, 7th November 2000.  The Dow closed at 10,952 that day.  At the end of the week it closed at 10,602, down 350 point or 3.2%.  The following Monday it hit a low of 10,369, down 583 points or 5.3% in just four trading days (see chart).  It took a full month to recapture the pre-election levels.

Conclusion: The dip is a buying opportunity.

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Sell in May and Run Away!

The first half of this month has been terrible: sell in May and run away!  The Dow (^DJI) is down 5% and the TSX (^GSPTSE) is down a whopping 8% in only 13 days of trading.

My portfolio has fared quite well.  It is down only 1.4% at this point.  I owe my capital preservation to my bonds (up 1%) and my well chosen stocks.

I sold Apple (AAPL) and Enerplus (ERF.TO) last month.  They are down 12% and 22% respectively since I sold them.  Those might be the best two trades I have made yet, netting me an avoided loss of an average of 17% in just a month!  I will do a more detailed analysis of winners and losers at the end of the month.

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Portfolio Update – Down 1.71% in April 2012

My portfolio balances at close of trading on 30th April were:

Ticker Price (C$) Price Change Percentage Industry
BCE.TO $ 40.02 0.20% 0.0% Telecommunications
T.TO $ 59.31 2.47% 6.0% Telecommunications
COS.TO $ 21.83 3.75% 4.8% Energy
ERF.TO $ 18.28 -18.17% 0.0% Energy
PHY-U.TO $ 14.03 -2.88% 5.6% Gold
RY.TO $ 57.09 -1.25% 0.0% Financials
POW.TO $ 27.35 3.44% 4.7% Financials
SJR-B.TO $ 20.36 -3.55% 3.8% Consumer Discretionary
SLF.TO $ 24.22 2.32% 0.0% Financials
TA.TO $ 16.38 -12.41% 7.8% Utilities
TRP.TO $ 43.46 1.47% 0.0% Energy
AAPL $ 577.23 -3.60% 0.0% Information Technology
S&P Fund $ 115.03 -1.78% 18.6% US Equity Fund
Bond Fund $ 216.85 0.12% 24.6% Bond Fund
Cash 24.0% Cash
Total 100.0%

Overall my portfolio is down 1.03% since last month, including cash contributions. Without these cash contributions the portfolio would be down 1.71%.  For comparison my TI Index is down 0.70%, the DOW is up 0.01% and the TSX is down 0.80%.

My investments have done quite poorly compared with the TI Index, the TSX, and the DOW. Winners this month include Canadian Oil Sands (COS.TO) and Power Corp (POW.TO). Losers were TransAlta (TA.TO), Apple (AAPL) and Enerplus (ERF.TO).  I closed out my positions in Enerplus and Apple during the month, but have kept TransAlta.

My bond holdings are at 24.6%, which is acceptably close to my target of 25%.  No rebalancing is required this month.

Portfolio Update – Up 0.75% in March 2012

My portfolio balances at close of trading on 30th March were:

Ticker Price (C$) Price Change Percentage Industry
BCE.TO $ 39.94 -1.48% 0.0% Telecommunications
T.TO $ 57.88 0.52% 5.8% Telecommunications
COS.TO $ 21.04 -10.96% 4.6% Energy
ERF.TO $ 22.34 -6.68% 4.0% Energy
PHY-U.TO $ 14.44 -1.01% 5.7% Gold
RY.TO $ 57.81 3.83% 0.0% Financials
POW.TO $ 26.44 5.76% 4.5% Financials
SJR-B.TO $ 21.11 3.94% 3.9% Consumer Discretionary
SLF.TO $ 23.67 8.83% 0.0% Financials
TA.TO $ 18.70 -10.48% 3.4% Utilities
TRP.TO $ 42.83 -1.70% 4.4% Energy
AAPL $ 598.77 11.61% 4.9% Information Technology
S&P Fund $ 117.12 4.79% 14.4% US Equity Fund
Bond Fund $ 216.60 -0.33% 27.9% Bond Fund
Cash     16.5% Cash
Total     100.0%  

Overall my portfolio is up 2.80% since last month, including cash contributions. Without these cash contributions the portfolio would be up 0.75%.

For comparison my TI Index is down 0.18%, the DOW is up 2.01% and the TSX is down 1.99%.

My investments have done quite well compared with the TI Index and the TSX, but not as well as the DOW. Winners this month include Apple (AAPL) and Sun Life (SLF.TO). Losers were TransAlta (TA.TO) Canadian Oil Sands (COS.TO) and Enerplus (ERF.TO).

My bond holdings are at 27.9%. I will rebalance to 30%.

Raising Cash – Sell in May and Go Away

In the past two years the market has performed well in the first three months of the year, and poorly in the summer. This is referred to as sell in May and go away. I discussed this in May 2011, but did not act upon it. In the first 3 months of 2012 we have seen the TSX rise by 3.8% and the DOW by 7.6%. These are heathy gains.

In both 2010 and 2011 the market turned down in mid to late April. I want to reduce my exposure now by selling stocks and raising cash. So, which stocks should I sell?

I began my assessment with two basic principles (based upon my investment policy):

  • Fundamentals: I assessed earnings and earning growth (based upon analyst estimates for 2012-2014), dividend yield and coverage, PE Ratio, PEG Ratio and the Gordon Return.
  • Diversification: I don’t want to hold too many stocks in one sector, e.g. Finance (Banking and Insurance), Energy (Oil and Pipeline), Telco, etc.

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Assessment of Energy Stocks:

  • Enerplus looks good. Dividend yield is strong at 9.6% (with coverage of 141%). HOLD
  • Canadian Oil Sands looks OK, but earnings growth is quite low (less than 6%) and the dividend is smaller than Enerplus’ dividend. HOLD
  • TransCanada has marginal earnings growth of around 7%, a high PE Ratio of 18.2, and a high PEG Ratio of 2.6. It looks overpriced. SELL

Assessment of Financial Stocks:

  • PowerCorp has great growth of around 12%, a decent dividend of 4.4% and a PEG under 0.9. It looks good. HOLD
  • Sun Life has low earnings growth of 5%, and a PEG of 1.8. Power is better in every measure. SELL
  • Royal Bank has a low dividend (under 4%, but with excellent coverage over 200% – needs to pay out more), marginal growth around 7%, and a high PEG of 1.6. SELL

Assessment of Telcos:

  • Telus has decent growth of over 9% and the other fundamentals are good (PEG is a bit high). HOLD
  • BCE has low growth of under 4% and a PEG of 3.3, which is highest in the portfolio. SELL

Other Stocks:

  • Shaw is another low growth (5%) and high PEG (2.38) stock, like BCE. It will lose revenue as people switch from cable TV to internet TV (e.g., Netflix, AppleTV, other internet TV services) but should compensate with its cable-based high-speed internet services and telephone. HOLD
  • TransAlta is the only stock with a dividend coverage of under 100% (it’s 95%) but it has decent earnings growth of 9%. Price is down recently, making it good value at this point. HOLD
  • Apple is scary due to high price increase, but fundamentals are good: 14% growth, PEG under 1, and a dividend announced. HOLD but watch for price to fall back into long-term channel.

Other assets:

  • Gold is around 5.7% of the portfolio. This is fine. HOLD

After discussion with my financial advisor I decided to sell TransCanada Pipeline, Royal Bank, Sun Life and BCE.

  • Sell SLF.TO @ $23.78
  • Sell RY.TO @ $58.13
  • Sell BCE.TO @ $40.00
  • Sell TRP.TO @ $43.00

Note: Three of these four sell orders were processed on 29th March. The TRP order did not process until 2nd April (it was a limit order). So, TRP appears in the March month-end holdings.

I also decided to increase my holdings of TransAlta. The business is very stable and the dividend yield is over 6%, making this a better place to park my cash than in cash. This purchase also happened after the month end.

  • Buy TA.TO @ $18.45

The net result of these trades is that my asset allocation will be:

  • 25% cash
  • 30% bonds
  • 6% gold
  • 39% stocks

POSTMORTEM

Writing one month later, on 27th April 2012, this trade has seen mixed results. Since selling on 29th March the TSX (^GSPTSE) has gone down 1.5%, so my call was good.

But the stocks I sold are up 0.2% on average, so my call was bad?  Let’s wait to see how things go over the summer before we make a final judgement.

Ticker Sell price Current price Change
TRP.TO $43 $43.19 0.44%
SLF.TO $23.78 $24.36 2.44%
BCE.TO $40 $39.93 -0.18%
RY.TO $58.13 $57.03 -1.89%
Average 0.20%

I also bought more TransAlta (TA.TO) stock, which is down 12% during the month. This was a bad call!  Very candidly, I did not want to buy more TransAlta but was persuaded to do so by my financial adviser.  I need to listen to my intuition more, and push back.

UPDATE

Writing today, 28th May, the decision to raise cash is looking better and better.  North American markets continue lower on European Debt worries.  The stocks I sold are now down an average of 6.34%, led by financials.

Ticker Sell price Current price Change
TRP.TO $43 42.01 -2.30%
SLF.TO $23.78 21.15 -11.06%
BCE.TO $40 40.5 1.25%
RY.TO $58.13 50.43 -13.25%
Average -6.34%

UPDATE

Writing today, 10th July, this decision is still looking good.  The stocks are still down an average of 2.22% and I think there could be more trouble ahead (August was horrible last year).

Ticker Sell price Current price Change
TRP.TO $43 43.34 0.79%
SLF.TO $23.78 22.14 -6.90%
BCE.TO $40 42.64 6.60%
RY.TO $58.13 52.69 -9.36%
-2.22%