Overheard in the Men's Room in the Greek Parliament

Dimitri:  How are we going to solve this crisis?
Hector:  We've got to get the people to stop demonstrating and throwing fire bombs.
Dimitri:  How?
Hector:  We'll get them working in the private sector for the first time, non-government jobs.
Dimitri:  Then what?
Hector:  Then, for the first time, we get them all to pay taxes.
Dimitri:  How?
Hector:  We hire a bunch of compliance officers and tax collectors.
Dimitri:  You mean honest people who would not accept bribes?
Hector:  You right, we're screwed.

Who Should(n't) Be In Funds?

Blogging works for me on two levels. Firstly, I enjoy writing, always have. Secondly, the brief, simple posts work well with my short attention span. I also read a lot of Blogs. Again, works on two levels. Firstly, I enjoy reading about new stuff. Secondly, the brief, simple posts work well with my short attention span. Do I hear ADD?

Because I believe that the majority of Blog readers also tend to be short in the attention department, I try to have each post fit a single screen...otherwise I suspect you lose them before they read the whole thing. Hey, I'm not trying to write the Great Canadian Novel here, but when you put it out there, you do hope somebody reads it.

Because of my ADD my investment research tends to be brief and sporadic. I've mentioned using Globe Fund & Morningstar for fund research. I read several Internet financial pages and a number of financial Blogs. As you can guess, because of numerous mentions, when I'm at home BNN is on in at least two rooms.

In all the years that I've been investing I've only read one book on the subject...and I'm guessing that many of you read the same book. The Wealthy Barber by Michael Chilton was loaned to me years ago by finance guy. I think he had a dozen copies and circulated them among his clients. This entertaining, well written book must have been commissioned by the Mutual Fund Industry. Surely it was difficult to read it and not be convinced that you just had to get into funds.

I don’t remember much about the book. I do however, remember the message about when to invest in funds and when to get out. Chilton’s strategy was simple. Get into funds when you’re young, continue adding through your working years by taking advantage of dollar cost averaging and get out when you’re old. What’s this about getting out? Again, the message was simple. Chilton’s advice was to pick a time, when the markets are up, somewhere around 5 years before your planned retirement date and get the heck out! Why? Simple. Don’t be greedy and risk the possibility of a market meltdown devastating your nest egg close to your planned retirement date.  Got it?  Young Guys In, Old Guys Out!

FOUR QUESTIONS:

1. How many of us took a huge hit in the past few years?
2. How many of us postponed retirement plans because of it?
3. How many of us came out of retirement and went back to work because of it?
4. How many of us received a call from finance guy, when the markets were at their peak, suggesting that the time had arrived to move away from funds, lock in the gains and preserve our capital?

FOUR ANSWERS:
Lots…  Lots…  Lots and NONE!

IMPORTANT REMINDER:
Nothing on this site should ever be considered to be advice, research or a suggestion or invitation to buy or sell any securities. Every investor should do their own research and consult their own finance guy. See full  DISCLAIMER.

Did Pretty Well Sittin' On My Duff...

Regular readers know that I live and die by fluctuations in the TSX because I'm pretty much all Canadian, all the time.  Other than simply trying to make money, I have a sub-goal...if there's such a thing, of matching or beating the TSX.  I'm happy to report that I beat the TSX for the quarter!

As of March 31 the TSX was up 2.48% for the year.  My portfolio value was up 3.34%.  What I like is that I did nothing.  Well almost nothing.  The only change I made in the quarter was to re-balance the one mutual fund account 50/50 between the Resource and Endeavour Funds in early January.  This worked out well as the change involved transferring to the Endeavour Fund which out performed the Resource Fund for the quarter.  Isn't is great when a plan comes together?  With a whole lot of eggs in two baskets, I would like to diversify this account by adding one more fund but I just can't seem to find a fund that has been performing like these two since the market bottomed in March of last year.

I have great hopes for the Resource Fund for April.  With the recent spike in oil price and gold holding well over $1,100.00, this fund should do well.  It's up 2.88% after three trading days, handily beating the  Endeavour Fund.

April started off very well.  Three trading days...new highs for the year for the past two days...my portfolio that is, despite a downward tick for the TSX yesterday. 

My April Fool's Day Cenovus (CVE) trade still bites.  The best I can say about that is the money I got for the shares hasn't gone down...in fact, I guess I could say that it's gone up as the Loonie touched par with the Greenback yesterday before dropping a tick.  Now, there's a spin.

Happy Investing! 

I'm not the sharpest knife in the drawer...

and here's more proof.  Yet another item for the Note To Self file.

I didn't buy Cenovus Energy (CVE) shares, but I didn't get them free either.

One day I had Encana (ECA) shares valued at $57.63.  The next day I an equal number of Cenovus shares which traded at $26.30 that first day.  Needless to say, the Encana shares dropped by more than $26.30 to $30.13.  Such is life when a public company divides itself into two entities.  In this case, Encana the giant became Encana the gas company and Cenovus the oil company.

Initially the talking heads suggested keeping Encana and blowing off Cenovus.  Since then, sentiment has turned and there's a fairly even split between:  A) Keep both  B) Dump Encana  C) Dump Cenovus and D) Dump them both.  As usual, every analyst that BNN drags out of the woodwork has their own, and very different opinion. Not surprising retail investors get confused.  Who are you supposed to believe?

I've been holding Encana since last July and Cenovus since the split on December 1.  I've been getting pretty bored with both.  Cenovus has been as high as $27.84 so when I put in a sell order at $27.00 on March 22 when when it was trading at $25.24 it was a bit of a flier.  I figured, what the heck, if it happens to drift up there in the next while I'd be happy to unload them.

I reviewed the sell order last Monday.  Cenovus closed at $25.11 on Friday the 26th. As it had been trading in a tight range between $24.50 and $26.00 for some weeks, $27.00 seemed a long way off.  I renewed my sell order through April 2. 

I was in a bit of a fog when I staggered to my computer at 4:30 AM on April Fools Day.  Don't ask.  I noticed that Cenovus has spiked to $26.53 the day before.  I should have gone to (Bloomberg Commodities) to check the overnight price of oil.  I should have noted that the whole energy sector had gone up on Wednesday.  Gosh knows, I hold four major energy players and am monitoring ten others right on my Yahoo! Home Page.  Instead, I checked email, read a few blogs, stood on the scale and declared to my wife, for the tenth time since Christmas, that I am starting that diet right after the long weekend.  No way I starting before I get those chocolate bunnies!

You gotta know, I got taken out at $27.00 on the way up to $28.12.  That's the disadvantage of being a part-time trader.  Any self respecting day trader would have been all over the winds of change and canceled the $27.00 sell order before the markets opened, watched for a while and made an extra buck a share...or held if he could see some more upside.

On a positive note, I now have some liquidity in my trading account.  Just have to source out the next home run!

I should rename this bog, The Lazy Canadian Investor!

One, two, three months and counting...

Canadian investors seem to embrace each new month with renewed enthusiasm and optimism.  Evidence the run up in the TSX during the first week of January.  After 6 trading days my portfolio value was up 3.1%.  Nice start to the new year.  Regrettably, by month end it was all gone and I was down 3% for the year.

Again, February began on a positive note.  Up 2.6% after just 2 days!  Day 3 was a slight tick down and things fell off the cliff on day 4.  By month end, things recovered to the point where my portfolio was up a fraction of a point for the year.

Here we go again.  Except for a tiny downward tick on Thursday, last week was fantastic!  The TSX closed at 11,975, a new high for the year...up 2.9% for the week.  With an increase of 2.5% I didn't fair quite as well partially because my little grease collector stock, Organic Resource Management (ORI.V), dropped on Friday.  Organic Resource reported second quarter results Monday morning and the stock jumped to a new 52 week high, albeit on very low volume.

As is so often the case, after a great week, the TSX gave up 11 points on Monday and another 45 yesterday.  Yesterday's great results from Scotia Bank (BNS) failed to keep the TSX in the black.  I believe that this was partially because the analysts spent the whole predicting a build in US oil inventories.  Of course, an inventory build has a negative effect on the price.  Inventory up - price down.

US oil inventory figures come out every Wednesday at 9:30 AM 'Peg time.  Why the heck the analysts have to make their crazy guesses and predictions the day before (each and every week) makes me wonder who they're trying to trick.  Remember, these are guys that have never owned a barrel or oil or even pumped their own gas.  I guess it's just too much to ask them to just SHUT UP on Tuesday and let the truth on Wednesday set the direction. 

They good news is that they were wrong...again.  The inventory build was much smaller than they predicted and gasoline inventories are down.  The price of oil is up over a buck!  Accordingly, the TSX is up 60+ points!  Will we have our first 12,000 plus close today?  Here's hoping.

Canadian Banks - Buy 'em and Hold 'em

This is going into the Note To Self file.

I bought RBC (RY), at at a bit of high point, at $50.25 in February, 2008.  For the next few months the share price wandered in the $45.00 - $50.00 range, seldom reaching my purchase price.  After late October, 2008 RBC shares joined everything else on the slippery slope, all the way to $27.07 on February 17, 2009.

Again, like everything else, they clawed their way back after the February/March lows.  By July they were back in the $50.00 range.  I'd been holding for nearly a year and and half and was becoming bored. I placed a sell order the last week of July believing that I could pick something better if I could free up the RBC funds.  The price finally caught up to my sell order and I was taken out on the way up at $50.49.  RBC closed that day at $51.00.  That was my first clue.  Within hours I'd missed a further 1% upside.

After selling my RBC shares the price rose steadily, all the way to $56.00 by the end of August.  Yup, because of my boredom and impatience, I'd missed a full 10% gain in four weeks!

While holding RBC shares I did do a bit better than my purchase and sell prices would indicate because of very nice quarterly dividends which steadily flowed into my account.

RBC closed yesterday at $58.24...up nearly $1.00 ahead of today's earnings release.  The numbers are out this morning.  Missed estimates by a penny a share but did turn a profit of 1.5 Billion for the quarter...a 35% increase!  Not too shabby for 90 days.

Thankfully, I held TD (TD) shares throughout the same time line...mainly because TD never got back up there as quickly as RBC.  TD earnings out tomorrow.  Should be interesting.

Yup, my new rule for Canadian bank shares is buy 'em and hold 'em!

The January Effect...NOT!

In a recent post I mentioned the Santa Claus Rally. I naturally assumed it was a good thing as mention of the word rally is a positive thing. Toward year end, the talking heads on BNN confirmed that we were enjoying a Santa Claus Rally. To get an understanding of this I turned to (Google) for some in-depth research. What did we do before Professor Google?

A Santa Claus Rally, I learned, is a run up in the market between Christmas and year end. This occurs, from time to time for various reasons, one of which is anticipation of The January Effect.

Further arm chair research revealed that The January Effect is an extended rally resulting from, among other things, investing by happy people celebrating having made it through another year with the shirts on their backs. Surely, given the gains of 2009 and the year end rally we would be looking for a classic January Effect. Heck, we didn't just get out of 2009 the shirts on our backs, we got whole new wardrobes!

I think our December rally was even jollier than usual. I say this because the good stuff began well before Christmas and continued right through to year end. As mentioned previously, my portfolio hit a high for the year on December 30 and dropped just lightly on the 31st.

January got off to a great start! After the 7th trading day my portfolio was up 3.17% WOW! Sitting on my duff doing nothing sure was paying off!

The TSX hit an intra-day high of 12,070 on January 11 and closed that day at 11,947. We haven’t seen 12,000 since September of 2008.  After January 11 it was pretty much all downhill. So much for The January Effect. Once again, we saw that share prices, and market indexes take the stairs up and the elevators down. By January 29 the TSX hit an intra-day low of 11,084 and closed the month at 11,094. Yup, nearly a 1,000 point drop from the high on the 11th.

In the final week of January good news rolled in day after day. Corporate earnings exceeding expectations along with other evidence that the recovery is for real. Despite this and reports of much stronger than expected growth in consumer confidence on both sides of the border, the markets sold off.

If I’ve learned one thing in the past few years it is that retail investors have difficulty getting ahead of the curve. We read the Globe & Mail, and a bunch of stuff on the Internet and watch BNN until we’re sick to death of their endless repetition, but it’s all yesterday’s news.  Based on the headlines, the final week of January should have produced a five day rally. Instead, we had a five day slide. The TSX dropped each day to new lows for the year. Apparently there are factors at play which neither BNN nor we are privy to.

Other than the previously reported rebalancing of my large fund account I made no changes in January. I still like the good ones and am not prepared to sell the under-achievers at a loss.

As I write this, February has begun on a positive note. The TSX is up 193, on track for its largest one day gain since December 1. Maybe I’ll do some trading this month…maybe.

Old Guys Getting $crewed - and it's not about Viagra!

Large US banks nearly destroyed the World economy when sub-prime mortgages, asset backed commercial paper, credit default swaps and other imaginary investment vehicles proved unsustainable. Sub-prime mortgages were a bad idea in and of themselves, then the BIG guys added insult to injury by bundling them into $100 Million packages and selling them to each other and off shore banks. Have they no conscience? On a positive note, the market collapse exposed flakes like Bernie Madoff and lesser Ponzi practitioners.

The US government stepped in to bail out the banks to the tune of hundreds of billions of dollars. Then, to stimulate a struggling economy the US Central Bank reduced interest rates to very near zero. The banks took their bailout money and took advantage of low interest rates. In the process, they managed to squeeze another point or two into the deposit/lending spread, enabling a miraculous recovery.

America’s second largest bank, J P Morgan (JPM:NY), managed to repay their full $25 Billion TARP loan in June of 2009, a scant eight months after receiving the funds. Heck, at that rate it was more like a revolving line. $25 Billion here, $25 Billion there, who cares? For the quarter ended September 30, 2009 J P Morgan reported profits of $3.59 Billion. Quite a turnaround in one year!

Naturally, the Canadian economy suffered along with the US. The overall slowdown along with the near collapse of the automotive sector forced the Canadian government to step in with stimulus money. The Bank of Canada went along for the ride and reduced interest rates to near zero.

Like the US banks, Canadian banks did very well during the recovery period. Similarly, Canadian companies benefited from historical low interest rates and continued to turn in decent numbers throughout the downturn. Young Canadians snapped up real estate and no longer asked, "how much house can I afford?"   Rather, the new question is "how much mortgage can I afford?"   At these rates, they can afford BIG mortgages. This undoubtedly contributed to the escalation of real estate values...during a so-called recession!

Good for the banks, good for business, good for young people buying homes. So who’s getting shafted by near zero interest rates? The Boomers! (that’s me) and elderly Canadians (that’s not me…yet).  Canadians who worked hard and saved all their lives are now offered  .5% in a Bonus Savings Account or 3% for a 5 year GIC.

The Bank of Canada provided the ultimate insult with the annual issue of Canada Savings Bonds. Remember the ads? The falling leaves…the flying geese. Yup, The Bank of Canada spent mucho dinero advertising CSBs, and they were paying…are you ready for it? .40%! Yup, four tenths of one percent for our hard earned money. I’m all over that. NOT!

My own retirement a number of years ago was based on deposit rates in the 8-10% range.

Hi Ho, Hi Ho, it’s off to work I go!

Plans For 2010

My last post was prepared in a bit of a fog on the Monday morning following the festive season. Since then, I've looked into things more closely and discovered some interesting numbers.

My portfolio has three main components. The largest is an account with a fund company which includes just two funds, both of which I've previously mentioned, the Canadian Resource and Endeavour Funds. The next account is a basket of five seg funds with a life company. It's one of those guaranteed income accounts...if I live long enough. Finally there's my trading account which a self directed RSP with a discount broker. As mentioned before, this is my smallest account and I have the most fun with it.

The value of my trading account increased by 56% in 2009! Whoopee! I started the year with six stocks in this account...four of which were still there at year end along with five new ones. Additionally, there were a couple that I bought and sold during the year. I completed eighteen trades in 2009. Not nearly enough to qualify for discounted active trader fees but at least I feel that I'm moving away from that passive mode. Taking charge...sort of.

One of the stocks I bought and sold within the year was Canadian Hydro Developers (KHD) which was taken over by Transalta (TA). I wanted to buy it when Transalta made the initial offer but had no cash in my account. Their offer was 4.55 but the shares quickly went higher as the market anticipated an increased offer to come. By the time I sold something the Canadian Hydro shares had risen to 5.00 which I paid. I was rewarded a couple of weeks later when Transalta revised their offer to 5.25. I was pleased with a 5% gain in a very short time. Had I been in a position to buy sooner I could have done much better. The lesson...keep some liquidity in the trading account for great opportunities when they arise.

My large fund account was up 34% thanks to rising commodity prices and strong performances by Canadian large cap companies. This account makes up more than 50% of my portfolio and the Resource Fund was a full 75% of this. I was in love with this fund when oil reached $147.00 per barrel. Not so much when oil fell to $33.00. Now that oil has recovered to the $80.00 range and the unit price has responded accordingly I felt it was time to make an adjustment. I rebalanced this account to divide the holdings 50/50 between the Resource and Endeavour Funds. My next step will be to source out a third fund for this account. I’ve done well with all the eggs in two baskets but wonder if a little diversification is in order.

My seg fund account increased by 18% in 2009…but not before going down 40% in the final six months of 2008. We’ve got a long way to go baby! Canada’s two largest players in the seg fund business suffered in 2009 as their balance sheets went out of whack because of the difference between the seg fund guarantees and the actual value of the funds. Not my problem, they’re the ones who provided the guarantees. My plan for this account id to get out of it sometime in the future when the Deferred Sales Charges are fully paid and value of the holdings equals or exceeds the guaranteed value. Guarantees are nice but 5% annual is pretty easy to beat in a normal market…and we all hope for a return to a normal market….right?

Looking Back At 2009

My portfolio is still under water from the beginning of 2007.  Three full years and it's not back yet!  Close, but still down 8%.

On a positive note, my portfolio value clawed it's way back a full 49% from the low point of last March.  I am thankful that I did not succumb to the urge to bail.  It did cross my mind.

We ended the year on a high note.  The TSX reached a new high for the year, 11,779, on December 2.  My portfolio reached a new high on December 30.  It didn't hold for year end on the 31st but very close.

The TSX began the year at 8,987 and ended at 11,746 for a gain of 31%.  The market went up on 146 days and down on 105 days.  The value of my portfolio rose by 33%.  AT LAST!  I beat the TSX!

South of the border, the DOW began 2009 at 8,776 and finished at 10,428 for a gain of 19%.  Once again, I'm happy with my decision of a couple of years ago to stay with Canadian investments.

All-in-all, I think most of us who held on are pleased with the past year.  Others, who took money off the table a year or so ago missed a nice upside but likely slept a whole lot better.  You've gotta do what you've gotta do.  What works for one doesn't work for all.

Here we are at the beginning of a New Year.  Oil, Gold, the Canadian Dollar and the TSX are all going up on this, the first trading day.  Let's keep our fingers crossed.