Again, it’s DIY Portfolio report time! As
usual, you can expect our next update in about 12 weeks.
You can have a look at previous portfolio updates
here:
All Portfolio Updates
Portfolio Update August
2018
Portfolio Update
November 2018
Portfolio Update
February 2019
Portfolio Update May
2019
Portfolio Update August
2019
Portfolio Update
November 2019
Portfolio Update
February 2020
Portfolio Update May
2020
Portfolio Update August2020
Note that the last words of this report have been
written on November 1st, before the US presidential election.
Despite all unprecedented events, our DIY Portfolio
is still in the positive this year, which is surprising. Year-to-date capital return
is around zero and are modest return essentially comes from dividends. Not that
bad waiting for better days.It would be doing even better if it were not for the
last week of October where it abruptly went down by a little more than 4%. We can sense markets are getting nervous about
the upcoming US election. Contested results would probably cause the most
turbulence. That’s why today, we’ll try to reason not giving into fear, essential
for any successful investor.
After that, we’ll discuss our own portfolio management
for the upcoming months and years. For now, let’s just say things are not
getting simpler. We’ll conclude with our usual roundup of portfolio transactions.
You’ll see we have been doing a little bit more lately.
Once more, I’ll remind you that I
am not an investment or tax professional of any kind. The intent of this blog
is not to give specific investing advice. Before investing yourself, we suggest
you do all necessary research and consult a licensed financial professional if
need be.
Resist
Giving into Fear
With all that is happening in the world, you may be
tempted to give into your fear and cash in all your investments. We have to
confess that even us, as committed investors, are sometimes afraid and have our
moments of doubt.
We still believe you have to resist and remain patient
as efficient investing always has to be approached with a long-term perspective.
When you are in a situation where your life is in
immediate danger, your instinctive fear can help you get out of arms way. For
instance, this is great when a bear is lurking, and you go away before it gets
too close.
Unfortunately, our primal instincts may not serve us
well as investors. In fact, they are mostly in the way.
To some extent, as investors, we should fear our
instincts, not the next market crash. Being afraid can prevent us to embrace
remarkable opportunities provided by every market crash.
Remember that people who loose money on the stock
market often panic sell and buy in euphoria.
You can’t wait for perfect conditions to invest or
reinvest in the markets because so-called perfect weather never exists in
investing. Look at the last few years. There always have been good reasons to
worry and not to be invested. Yet people who stayed on the sidelines listening
to their afraid inner voice missed out on solid returns.
We expect occasional storms on the market and prepare
for them. In fact, we like they can provide us amazing buying opportunities.
So, don’t fear the upcoming big market crash. Just embrace it as it could
provide you cheaper entry points in the markets for your favorite stocks.
Shuffling
Positions
On a completely different front, a phenomenon has
started to complicate our portfolio management even though we have been
anticipating it for while. A lot a money is coming in and out of our various
investment accounts.
Let’s give you some insight to let you understand
better. For one thing, Lady C is now in college so that means RESP withdrawals
have begun. In my case, because I work less, RRSP withdrawals are now a reality
too. Soon, I will also have access to manage pension plan funds from a previous
employer.
We don’t need much if any of that money to live. We
still are making withdrawals from registered accounts for fiscal efficiency.
It’s better to pay a little tax now that a lot more later. So, a lot of
withdrawal money will be investing right back in TFSAs.
This all means quite a lot of juggling. We have to
liquidate some positions before withdrawals and buy some of it right back after
that money arrives in our TFSAs. We have to be extra careful with the timing of
all those operations. For instance, a stock surging after we liquidated it
could mean losing money if we don’t buy it back in time. And volatile markets
are no help to avoid those risks.
So far, we have managed to use our available
liquidities to move all that money smoothly. Most of the time, withdrawals and
corresponding buybacks can be almost simultaneous. But we have to admit it can
be a tad confusing and complicated.
In that context, maybe index investing could make
things a lot easier for us.
Despite indexing would be much simpler, we have been
reluctant to abandon our dividend stock investing strategy because we think it
provides us better results. In our mind, indexing would give us long-term
returns around 8%. Not bad but quite lower than our 12%ish portfolio return.
This may all change with some of our recent research
and discoveries. We will look further into it in the next few months, but we
realized luck and where we invest our money may be more important than our
ability the selection individual stocks.
For instance, as we talked about in our August 2020 Portfolio
Report, our Canadian content return as only been around 9%
which is much closer to our benchmark indexing return. There is still a
difference, but the gap is much narrower. Our US content did a lot better at
about 14%. Yet again, is it much better compared to a US benchmark? We don’t
clearly know.
In the end, maybe we were lucky to invest that much in
the US and that boosted our overall return to a 12% mark. Did currency
conversion also boost our US return? Maybe a tad.
Another point to consider is that because TFSAs are
not that fiscally efficient for US stocks, maybe our US content will start to
proportionally come down from now on.
We don’t have definite answers to all this. We now
only can say it will require some additional reflection and inquiry.
Portfolio
Additions and Subtractions
As we eluded to before, we did more than simple arithmetic
this quarter with our complexifying situation. Note that equal or close to
equal artificial stock transfers will not be discussed here.
Let’s talk about some of the recent moves we made.
Trying to diversify our financials, we initiated a
position in Intact Financial (IFC). IFC is one of the dominant players
in property and casual insurance in Canada and its financial metrics suit our
prudent style. For a while, we were looking at life insurance companies to play
that role in our DIY Portfolio
but life insurers seem to remain too variable for our taste. They especially
depend too much on interest rate levels.
We also looked into technology to diversify our
holdings within different sectors. Many players in that industry now utilize
subscriptions which means repetitive much more sustainable revenues. With that
in mind, we initiated a modest position in Intel (INTC) on the US market.
Intel, renowned microprocessor giant, has now diversified towards data-centric
businesses and that portion of their revenues is growing fast. Using short-term
lenses, INTC has been quite volatile lately as it’s not crystal clear how they
are doing. But that robust corporation should still do very well in the long
run.
On the Canadian side of things, we opted for Open Text
(OTEX). OTEX is even a tad riskier play. Relying a lot on repeating subscriptions, OTEX
is expanding rapidly and somewhat seems pandemic protected.
On a maintenance level, we sold some McDonald’s (MCD)
because it had grown too much and occupied a too big portion of our portfolio.
We finally pulled the trigger on Pfizer (PFE)
and Nutrien (NTR). They had been on our sell list for a while. Probably
too long. They are simply fluctuating too much and don’t really fit our fairly
conservative style.
In the telecommunications sector, we consolidated our
position in Telus (T). We had a small position in Bell Canada (BCE)
and bumped it up quite a lot.
In the present context, we also like utilities and
boosted our participation in both Fortis (FTS) and Emera (EMA).
The western Canadian economy has been suffering badly for a while and so did
Calgary-based Canadian Utilities (CU). So, we gladly replaced CU with Alqonquin
Power & Utilities (AQN) which is more into renewable energies.