Interest rates on the rise… or not!

In opposite direction to interest rates, fixed income investments have been going down in price.  In my portfolio, my fixed income allocation is filled with preferred shares.  During November, the decrease in price has been noticeable.  So much so that my Allocation of funds indicated that it was time to sell off some common shares to move over to fixed income and buy additional preferred shares.

Also typically moving in opposite direction to increasing interest rates are another result of changing interest rates is the changing price of interest sensitive stocks such as Real estate (REIT) and Utilities.  These two sector’s impressive growth in November seems to indicate that the markets believe interest rate increases are over.  Nonetheless, my stock allocation indicated that these two sectors were overweight.  Therefore, I did some “pruning” by selling some shares.  Interesting note, stocks in these two sectors were having a bad 2018.

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In November, three sectors spiked up in price.  Therefore, I sold some of the following stocks :

  • American State Water (AWR-N) – Utilities
  • RIO CAN (REI.UN-TO) – Real estate
  • Johnson & Johnson (JNJ-N) – Health

With the sale proceeds and the monthly dividends I added to these not so popular stocks :

  • AFLAC (AFL-N) – Finance
  • Canadian Western Bank (CWB-T) – Finance
  • Dollarama (DOL-T) – Basic consumption
  • Helmerich & Payne (HP-N) – Energy
  • Oracle (ORCL-Q) – Technology
  • Tecsys (TCS-T) – Technology

Please note that these stocks are not recommendations.  Stock picking is very personal.  So please have fun selecting your own “businesses”.

Until next month,

And the sale goes on!

Wow… stock markets where on sale in October!  Will the sale continue in November?  We will see…

This stock market decline highlights the difference between « traders » and long term savers.  This decline in the market scares “traders” as they usually borrow money to buy and sell shares in a rising market.  Of course, when the market has down days, day after day, traders sell at any cost.

On the other hand, long term savers like you and I appreciate the opportunity to buy additional shares at lower prices.

It is important to keep in mind that stock markets are not very precise at determining business value in the short term.  For a while shares are way overvalued and then they are way undervalued.   That is why as a long-term investor, it is important to not pay attention to this “noise” and just continue on following a savings plan that includes regularly buying shares using an objective decision tool.

Warren Buffet maintains that, “In the short term the market is a popularity contest; in the long term it is a weighing machine”.  Therefore, keep your focus on long term goals.

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In October, my Stock allocation for 2019 indicated that I had to sell some Procter & Gamble (PG-N) and buy other shares on sale:

AT&T (T-N), 3M (MMM-N), Transcontinental (TCL.A-T), McDonalds (MCD-N) and Lowes (LOW-N).

I added to my existing position of these stocks on days when they experienced significant drops in price.

My Stock allocation for 2019 also indicated that I should sell some shares of Helmerich & Payne (HP-N) at the beginning of the month and then buy them back at month end… 15% cheaper .

Until next month,

Sale, sale, sale!

Wow… October brings a great stock exchange sale.

When is the best time to buy shares?  When you have cash in your long term savings plan.

Which stock should I buy?  Base your decision using an objective decision tool like the 2019 stock allocation.

I have already completed my October stock shopping.  I will be back at it again in November.  I hope the sale lasts for a while and even gets better.

Happy shopping!

Until next month,

S&P 500 index capital allocation modifications to three sectors

Last week, the S&P 500 index managers decided to move several stocks from both the technology and the discretionary consumption sectors to the newly renamed communication sector.  This change involves 24 stocks.  On this list, are big names like Alphabet, Facebook and Walt Disney.

All this to let you know that my 2018 stock allocation tool has been adjusted to reflect theses changes ahead of my normal year end update.  The bottom line, more money now goes into the communication sector and less money goes to the both the technology and discretionary consumption sectors.

Therefore, to help you and I make investing decisions; I’ve uploaded and posted my Stock allocation tool for 2019.

—————————————————————————————————————————————–With the changes taking place in the stock allocation tool, I now have my eyes on buying shares of Walt Disney in the communication sector.  Its dividend increases regularly, and more importantly to me, I really enjoy its movies and would be proud to be associated with the name.

By the way, my other communication stock holding are AT&T (T-N) and Telus (T-T).

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During the month of September I sold some shares of Pepsi (PEP-N).  The basic consumption sector in my portfolio and more precisely this stock was getting too high in value.  With these funds added to the dividends I received, I added to my shareholdings of Novo Nordisk (NVO-N) in the health sector and Trans Continental (TCL.A-T) in the discretionary consumption sector.

Until next month,

Which sector will do best?

This week I came across this sector performance chart.  I first saw such a chart in 2005 when I was a financial advisor with Edward Jones on the South shore of Montreal.

Sector performance chart

Its main message is that when you have a diversified stock portfolio, it is difficult to predict which sector (i.e. stocks) will do best.  Note the dynamic nature of the various sector returns over the years.  To help me manage my stock portfolio, I use two simple rules:

  • Never have more that 5% of my portfolio in one stock – Protects me from the next Nortel
  • Allocate funds by sector in a manner similar to the S&P 500 index

In order to allocate funds similarly to the S&P 500 index, I use my Stock allocation tool.  By inputting the value of each stock I own, the table shows me if any sector is “due for harvesting” and which sector is below my allocation target.  Such a tool is what the investment industry calls “neutral sector allocation”. Basically, it’s a stock portfolio that follows the same funds allocation as the S&P 500 index.

As the S&P 500 index sector allocation varies from year to year, I revise my tool’s sector allocation to the average of the previous 10 years.

This tool definitely keeps me away from stocks prices that increase too much too quickly.

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Which stock in each sector will do best?  I have no idea.

Actually, I do not worry much about stock selection.  I look for companies I understand, that increase their dividends on a regular basis.

I’m more careful about keeping my asset and stock allocation in line with my targets.

Note that when a stock’s price takes off… I sell part of that holding to buy a stock that is not so popular.

Until next time,

Tech and healthcare stocks are hot!

Over the month of July, my tech and healthcare stocks increased in price.  So much so that my stock allocation was telling me that my portfolio’s share of these two sectors was above their targets.  Therefore, I sold some shares of Microsoft (MSFT-Q), Tecsys (TCS-T) and Novo Nordisk (NVO-N).

I ploughed the proceeds into sectors that were below my portfolio’s targets.  Therefore, I added to the following sectors that were below my sector targets:

– Magna (MG-T) Industrial

– AT&T (T-N) Telecom

– Allied Properties (AP.UN-T) REIT

– Helmerich & Payne (HP-N) Energy

– Mcdonalds (MCD-N) Consumer discretionary

– Nutrien (NTR-T) Material

– TD Bank (TD-T) Finance

With the PCC model portfolio I use, it is easy to sell high and buy low!

Note that these stocks are not recommendations.  They are stocks that I have held for many years.

Please select stocks that meet your criteria.  You are welcomed to use my asset allocation and stock allocation tables to build your portfolio.

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Note that I’ve added a button to allow donations to pay for my blog’s expenses and my time.

Until next time,

Using my margin account

Over the years I have been able to pay back most of my mortgage loan.  Presently I have a condo on the South shore of Montreal.  I am both content and frustrated by this loan situation.  My frustration stems from all the sunk into my condo which seems to increase in value at the same slow rate of inflation.

To tone down my frustration, I have been using a margin account for my taxable stock holdings.  Basically, a margin account allows me to use stocks as guarantee for additional stock purchases with funds I borrow from the broker.  My broker charges me interest on this borrowed money, but since this expense is incurred to generate taxable revenue, the government allows me to deduct this interest.

My strategy is to borrow an amount equal to the value of my condo less the mortgage loan balance.  This means about $140,000.  When I sell my condo, I will simply pay off both the mortgage loan balance and the margin balance with my broker.

I deal with Interactive Broker.  This online broker offers its margin account at an interest rate of 2.72% for Canadian dollar margin and at 3.41% for US dollar margin.  These rates are much cheaper than the 3.95% interest rate my bank charges me for my mortgage secured line of credit.

In the end, I am in no hurry to pay off my fixed rate mortgage loan.

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June is a big month for dividend and interest revenue in my portfolio.  This year, my June revenue is $7,745.  To reinvest this amount, I checked my asset allocation and stock allocation to identify which sectors my stockholdings are below my allocation targets.  At this time, the following sectors are below target; Consumer staples, energy, technology and finance.  Therefore, I added to my holdings the following stocks:

CCL Industries  (CCL.B-T)               Consumer staples

Brookfield Energy Partners (BEP -N)        Energy – this is the American version of BEP.UN in Toronto

Helmerich & Payne (HP-N)          Energy

Oracle (ORCL-N)               Oracle

AFLAC (AFL-N)                  Finance

Until next month,