Canadian Capitalist » My Portfolio

Do as I say, Not as I do?

Canadian Capitalist — Thu, 04 Jan 2007 03:49:44 +0000

Dave at Investing Intelligently noticed that my benchmark Sleepy Portfolio returned a stellar 14.7% in 2006 and asked the obvious question: Why do I even bother with individual stocks instead of taking a passive approach using ETFs? It is a good question and as a matter of fact, I am slowly increasing the percentage of portfolio that is indexed. However, there are some very good reasons why I am not getting there sooner:

I still plan to represent the Canadian equity portion of the portfolio using stocks because our capital markets are concentrated in just two sectors: resources and financials. The financial sector can be captured using just a few stocks and I am not very keen on the resource sector for the long-term: it is too volatile and too cyclical.
It is possible that my stock selections would be truly awful (I once held Nortel and JDS-Uniphase) but I am willing to live with that. Canadian equities form just more than 20% of my total allocation.
Most of our new money is invested through RRSPs, ESPPs and RESPs. I’ve noted before that I invest my RRSPs in a Canadian mutual fund. We do not have much choice in ESPPs and the RESPs are indexed using TD eFunds.
I do plan to eventually replace every US stock I hold with ETFs such as VTI, EFA and EEM/VWO. I do not think that it is prudent to sell them en masse but as I sell them periodically, I will buy an index fund with the proceeds.

In a few years’ time, I hope to have a mostly indexed portfolio with a handful of Canadian equities.

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Merits of ESPPs

Canadian Capitalist — Thu, 02 Feb 2006 03:49:10 +0000

Many companies offer a Employee Stock Purchase Plan (ESPP) that is almost always a sure way to make some extra money. A typical ESPP plan allows employees to contribute some percentage of their pay and the shares are bought at a 15% discount to the lower of the starting or ending date. Even in the worst-case scenario (stock at a low point on the purchase date), there is potential for a 17% gain. The key is to sell the shares as soon as they are deposited into the brokerage account.

When I started on a new job last year, one of the first things I did was sign up for the ESPP program. Six months later, the shares were deposited into my account recently and I turned around and sold them all as soon as the market opened. Total profit: 25%. I wouldn’t mind a few more free lunches like this one.

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The 2005 Reportcard

Canadian Capitalist — Wed, 28 Dec 2005 23:30:36 +0000

According to Microsoft Money, my portfolio returned 13.5% in 2005. My target “Sleepy” portfolio composed largely of ETFs returned 12.6%.

I bought the following stocks over the course of the year:

Anheuser-Busch (BUD): Buy: $46.71. Now: $43.51.
AIG (AIG): Buy: $53.84. Now: $68.41.
Home Depot (HD): Buy: $38.26. Now: $41.09.
Bank of Nova Scotia: Buy: $42.07. Now: $46.84.
Bell Canada Enterprises (TSX: BCE): Buy: $28.36. Now: $27.84.
AGF Fund Management (TSX: AGF.NV): Buy: $16.40. Now: $22.20.

I also sold the following stocks:

Canadian Natural Resources (TSX: CNQ): Sold: $39.97. Now: $58.20.
Sears Canada (TSX: SCC): Sold: $23.72. Now: $17.85 (after a $18.64 dividend).

I track most of my buy and sell decisions through this blog and when I look back, I sold my winning positions too early. Sears Canada, for instance, was able to command a much higher price for its financial division than I had anticipated and its American parent also bought out its retail operations. But, as they say, hindsight is always 20/20.

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Selling XIN; Buying EFA

Canadian Capitalist — Wed, 30 Nov -0001 00:00:00 +0000

I am selling the iUnits MSCI International Equity Index RSP Fund (TSX: XIN) and buying the equivalent iShares fund that track the MSCI EAFE Index. The XIN ETF has a total expense ratio of 0.5% versus 0.35% for the EFA and provides currency hedging for the extra fee. Since, I am investing for the very long term, I’ve decided to forgo the currency-hedging feature and save the small fee differential between the two ETFs.

It probably doesn’t make sense to sell the XIN and buy the EFA with the proceeds, but I am in the process of increasing my international equity exposure to my target levels. It would take a $20,000 investment in the EFA for a full year just to get back the commission involved in selling the XIN. And of course, there are the currency conversion charges on top of it. But, over ten or twenty years, I am hoping that the small savings will add up.

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Portfolio Update

Canadian Capitalist — Wed, 30 Nov -0001 00:00:00 +0000

It occurred to me that though I track the performance of my portfolio, I never wrote about its actual composition. Currently, it is 94% equities, 4% cash and 2% other. I don’t have any exposure to bonds or REITs.

Top 5 holdings are:
Altria Group (NYSE: MO): 8.7%
TD Bank (TSX: TD): 7.5%
E*Trade (NYSE: ET): 6.4%
Canadian Natural Resources (TSX: CNQ): 6.3%
Anheuser-Busch (BUD): 6.3%

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Buying (More) Home Depot

Canadian Capitalist — Wed, 30 Nov -0001 00:00:00 +0000

I am buying some more Home Depot (NYSE: HD) for my retirement account. The company needs no introduction. It is a Dow component and most home owners spend a good chunk of their home maintenance budget at their stores. I am planning on making the stock a core holding at roughly 6% of my portfolio and I hope to hold it forever.

At its current price of $38, Home Depot is trading at a reasonable 15 times its estimated (from ValueLine) 2005 EPS of $2.56. The company has been growing sales at 16%, earnings at 20% and dividends at a 25% annualized clip over the past five years. It is also buying back its shares (note the decreasing share count).

Home Depot is also growing aggressively by expanding its services business (like roofing, countertops etc.), making strategic acquisitions to supply merchandize to builders and professionals and gearing up to open stores in China. Looking ahead, ValueLine expects the company to grow earnings at double digits over the next five years.

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Enrolling in ESPP

Canadian Capitalist — Wed, 30 Nov -0001 00:00:00 +0000

Recently, I enrolled in the Employee Stock Purchase Plan offered by my employer. The plan is typical of its kind and allows employees set aside a portion of total compensation to purchase company stock at a discount to market value. A potentially profitable feature is locking up a low stock price for a 24-month period.

I do plan to be disciplined with the plan. Every six months, as soon as the stock is deposited in my account, I plan to sell at the market price and earn a sure 17% return. Of course, the plan has the potential to deliver outsized gains. As fellow blogger Jose Anes points out in this post, ESPP is the closest thing to a free lunch, so I plan to take full advantage of it.

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Selling Sears Canada; Buying AGF Funds

Canadian Capitalist — Wed, 30 Nov -0001 00:00:00 +0000

I bought Sears Canada (TSX: SCC) about a year ago for around $17, for much of the same reasons described here. Recently, Sears announced that it is looking into strategic alternatives, including a possible sale of its financial services division. In response, the stock has strengthened considerably. I have sold my entire position, as Sears will now be left with a weak merchandising franchise and a lot of value in the stock has been realized.

With the proceeds, I am investing in a high-dividend paying financial company: AGF Management Inc. (TSX: AGF.NV). AGF is a well-known mutual fund and wealth management company with $32 billion in assets under management. However, AGF has been operating under a very challenging environment, with the trend of negative net sales (new sales less redemptions) continuing in 2005. Partly, the negative trend is due to strong demand for high-yield products, where AGF’s offerings have been traditionally weak. The company has introduced new income-generating funds.

On the positive side, the company is a strong cash-flow generator, has strong brand recognition, earned $0.85 per share in 2004 and pays an annual dividend of $0.60. I believe AGF has the potential to deliver strong total returns over the long-term.

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Portfolio Spring Cleaning

Canadian Capitalist — Wed, 30 Nov -0001 00:00:00 +0000

The shaky minority government has put my portfolio spring-cleaning efforts on hold. In May, the federal budget (Bill C-43) passed the second reading narrowly and avoided the fall of the government. When the budget bill is finally passed into law, I plan to sell the following losers in my portfolio:

JDS-Uniphase (TSX: JDU) – Very small portion of portfolio. Better to sell at a loss and move on. Even if the stock quadruples from here, the effect on the portfolio would be really small.
Nortel (TSX: NT) – The Nortel saga provides entertainment value in the business section and little else. Again, it is such a small part of the portfolio that it is better to sell.
Millenium Pharmaceuticals (NASDAQ: MLNM) – An excellent example of buying money losing, pie-in-the-sky companies being speculation, not investing. I am planning to sell this stock only because I just don’t have the time to follow the company closely anymore.
Labour-Sponsored Mutual Fund – I believe these mutual funds are a bad idea for most investors. They invest in small, illiquid start-up companies and charge outrageous fees for the privilege. Unfortunately, these funds have a mandatory eight-year holding period, so I will be stuck with this loser for a while.

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Buying BCE

Canadian Capitalist — Wed, 30 Nov -0001 00:00:00 +0000

Last week, I bought Bell Canada Enterprises (TSX, NYSE: BCE) for my spouse’s retirement account. BCE and its subsidiaries offer a wide range of services including telecom (fixed line, long distance and wireless), data (dial-up and high-speed internet access) and video (Bell ExpressVu satellite TV). BCE also has significant stakes in Bell Globemedia (CTV and The Globe and Mail media properties), Aliant Inc. (TSX: AIT), Telesat and CGI Group Inc. (TSX: GIB.SV.A).

BCE is expected to earn $2.16 in 2005 and $2.28 in 2006. At its recent price of $28.50, it has a P/E ratio of 13. The stock also pays a dividend an annual dividend of $1.32, which yields about 4.6%. At the end of 2004, BCE had 12.9 million local phone service, 5.3 million wireless, 1.8 million DSL and 1.5 million video customers. Wireless, high-speed internet and video are showing growth, but local telephone declined about 1.1% in 2004 and 0.8% in 2003.

My rationale for investment is that earnings growth could come from BCE’s growing service offerings and cost reductions. Risks include competitive pressures in the local telephone business and unfavourable CRTC rulings like this recent one.

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