What we have here is a failure to communicate

I wrote recently about my failure to stick to my own Investment Process by failing to take profits on Canadian Oil Sands (COS.TO) when the price rose.  Well, I had an opportunity to redress this failure when the price rose again yesterday. I had most recently bought COS at $18.25.  I was able to sell yesterday at $20.27 (an 11% increase).

  • SELL COS @ $20.27

There was another problem though.  I instructed my Financial Adviser to sell around 30% of my holdings (my strategy is to trade around a core position, the core being the 70% that I did not plan to sell).  My Financial Adviser sold the entire position (oops!).  I take some responsibility for the communication breakdown because I did not emphasize the fact that I wanted to sell only a portion of my holdings.  However, I did communicate the number of shares to be sold in an e-mail and again in a follow-up conversation.  Mistakes happen, but not the same mistake twice.  We will not repeat this.

So, should I undo the error right away and jump back into COS?  Maybe not.  Before I assume that I need to rebuild my core position I need to do a little fundamental analysis to ensure this is the best energy stock for me.  Perhaps this error provides an opportunity.  Plus, I was always a little leery of the former income trusts, like COS and Enerplus (ERF.TO).  Maybe I should look at Husky (HSE.TO) or Suncor (SU.TO).

UPDATE

Over the weekend I took a look at all the major Canadian oil companies and Canadian Oil Sands is still the best value in terms of IRR and dividend yield.  I felt that the stock was likely to take a dip after last week’s run up so I asked my Financial Adviser to place a buy order at $19.70.  The price did indeed fall on Monday and I was able to buy back my core position for $0.57 less than I sold it for.  A profit (or, more accurately, an avoided loss) of almost 3%!

  • BUY COS.TO @ $19.70

For added luck, the stock rose again after my trade was executed, closing at $20.57, for a further profit of over 4%.  If we had never sold the core position we would have made only 1.5% today.

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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Forget the Debt Crisis, What About the Energy Crisis?

I spent many years consulting in the oil industry.  I am very proud and impressed by what engineers have achieved (hitting an oil reservoir with a drill from 8km away in 1km of seawater is impressive).  I’m also a free market capitalist.  I invest and trade in the stock of companies including oil companies, pipelines and utilities that burn coal.  In general, capitalism is great: it creates innovation, wealth and choice.  But there’s a problem…

Actually there are two problems:

  1. Capitalism does not seem to work well when it’s allowed to exploit public assets (oil, potash, water,…).  Canada has been incapable of creating a royalty and tax regime that provides a fair share of income to Canadians.  Put simply, we are allowing private companies to profit from public assets (the oil in the ground belongs to Canadian citizens) without charging them a fair price for raw materials.
  2. What are we going to do when oil and coal are used up?  Where is our long-term (100yr+) national energy plan?

So what’s the solution?  I think it’s simple:

  1. Establish a fair royalty and tax regime for companies that mine fossil fuels.
  2. Take ALL royalty and tax monies from fossil fuels (i.e. the windfall that Canadians have received from our natural resources) and invest it in alternative energy R&D.

This will create a generation of alternative energy experts in Canada (I’d like my kids to have a job) and it will create post-fossil energy solutions so we don’t have to sit in the dark when the oil runs out.

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.

Enerplus is a Value Trap

In my January 2012 and March 2012 portfolio updates I noted that Enerplus (ERF.TO) was one of the biggest losers. Enerplus has continued its decline since then, with no sign of stopping.

When I bought Enerplus in February 2011 it had good fundamentals and a healthy dividend of 7.1%. That healthy dividend has now bloated to 12.1% as the price has fallen. This is not a sustainable level of cash distribution and, if the dividend is cut, the stock will likely fall again. Time to get out.

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I am selling Enerplus here:

  • Sell ERF @ $18

It is worth noting that David Stanley deliberately excludes former trusts from his Beating the TSX system. I chose to ignore his advice when I adopted his system in October 2011. Oops!

POSTMORTEM

Writing today, 18th May, Enerplus is at $14.00 (down 22%).  This was a great call.

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%.

Portfolio Update – Up 1.39% in January 2012

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

Ticker Price (C$) Price Change Percentage Industry
BCE.TO $ 40.88 n/a 6.4% Telecommunications
T.TO $ 56.52 n/a 6.3% Telecommunications
COS.TO $ 24.86 6.92% 5.9% Energy
ERF.TO $ 23.90 -7.54% 4.7% Energy
PHY-U.TO $ 15.17 7.29% 6.5% Gold
BMO.TO $ 58.29 4.31% 5.2% Financials
POW.TO $ 24.38 2.35% 4.6% Financials
SJR-B.TO $ 19.90 -1.73% 4.0% Consumer Discretionary
SLF.TO $ 20.09 6.30% 3.8% Financials
TA.TO $ 20.36 -3.14% 4.0% Utilities
TRP.TO $ 41.25 -7.37% 4.7% Energy
S&P Fund $ 109.09 2.88% 16.0% US Equity Fund
Bond Fund $ 218.20 0.50% 26.7% Bond Fund
Cash     1.1% Cash
Total     100.0%  

Overall my portfolio is up 17.34% since last month, including significant year-end cash contributions. Without these cash contributions the portfolio would be up 1.39%.

For comparison my TI Index is up 3.83%, the DOW is up 3.40% and the TSX is up 4.16%.

My investments have not done as well as the benchmark TI Index, the Dow or the TSX. Winners this month include Canadian Oil Sands (COS.TO) and gold. Losers include Enerplus (ERF.TO) and TransCanada Pipeline (TRP.TO), whose Keystone XL pipeline is still be used as a political football in the US.

The additional cash contribution, which was used to buy stocks, has diluted my bond holdings down to 26.7%. I will rebalance to 30%.