A Little More About Exchange Traded Funds (ETFs)

Some friends don’t believe that I qualify as a Passive Canadian Investor. They say this simply because I maintain a small trading account rather turn everything over to finance guy to plough into his favorite mutual funds. My trading account, a self directed RSP, represents just 6% of my holdings. The remaining 94% is made up of mutual funds and GICs with more GICs than funds. The portfolio I speak of on this blog is just the trading account and funds.  I’d say that’s pretty passive. In fact, active traders would consider such a portfolio to be ultra conservative. Very Canadian eh!

I tend to pay the most attention and have the most fun, with my small trading account. It’s a hobby. Among all the available choices, I believe that ETFs are the easiest to understand and present a best opportunity for a novice investor like myself.

When I first posted about ETFs I failed to mention that most of my trading success, since then, has involved ETFs. Not to say that I’ve never made a decent stock pick but I tend to buy and hold stocks rather than trade them. That’s the difference between trading and investing. Traders buy and sell, investors pick good companies and hold them for the long haul. My trading activities are an attempt to recoup the HudBay Mineral loss as described in my last post.

ETFs seem ideally suited for trading, especially if you stay with commodities. When oil or gold are way up, they inevitably cycle down. At some point on the way down, you pick an entry point and jump in. Hopefully, you catch the bottom, or very nearly, and soon enjoy the ride up.

I’d be fibbing if I didn’t admit to being tricked on occasion. I bought the gold ETF (XDG) once while gold was at $900US having just fallen from $1,000US. I wrongly believed that it would jump back up to and possibly over $1,000US. I misunderstood something about that cycle as gold dropped all the way to $750US. Needless to say, the shares of the gold producing companies held within the ETF dropped off accordingly. I held those XDG units for several months before selling at a very small profit.

I recently bought XDG once again at 19.01. Figuring that a quick 6% gain would be nice, I put in a sell order the following day for 20.20. The following month the transaction was executed at 20.20. A nice return in 40 days. Had I exercised a bit more patience I cold have held them for another two weeks and received 21.00. On the other hand, they are down to 19.13 today.