November 12, 2015

Portfolio Update November 2015

Note that you can expect my next update in about 12 weeks or so, in February 2016. Meanwhile, you can also have a look at our DIY Portfolio page.

Back in August, after carefully thinking about it, I published my First Portfolio Update.

Since then, markets gave fragile investors a good scare from late August through most of September.

What did we do about it?

Again, 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 to do all necessary research and consult a licensed financial professional if need be. 

Missed Opportunities

The short answer is: Nothing!

Usually, it would the correct response as to be a successful long-term investor, you have to stay calm and avoid panic when market turmoil comes around. During those inevitable downturns, more frequent than most people think, selling is never a profitable action. So doing zilch is normally the correct thing to do.

But an even better option is to buy additional stocks when markets go sour and capital return is trending down.  

Even though we were expecting it and prepared to act accordingly, we couldn’t pull the trigger enough and missed outstanding buying opportunities this time around. New money got to our investing account just a tad later than originally anticipated and we hesitated too much after that in September.

As I often say: nobody’s perfect; we all make mistakes.

We are still confident that new opportunities will eventually present themselves in a not so distant future. We are ready and won’t make the same mistakes twice!

Despite not being the best investor out there, we still manage to save and grow our portfolio quite effectively.

As a matter of fact, our DIY portfolio grew by more than 20K$ up to this point this year, all this in a shady investment environment where moody markets are struggling and maintaining their ground at best. 

In that fashion, we are quite happy to maintain our resolve and feel our efforts are being rewarded appropriately.

Still Beating Fund Benchmarks

Back in July, we told you about how we are Using Popular Funds as Portfolio Benchmarks.

Analysing our performance again applying the same method, we get another indication that we are doing very well. Our updated comparative stats are even better than back in the summer.

Once more, some might say that our standards remain quite low and that Canadian markets kind of have been sluggish lately.   

But our achievements are far from trivial as our low-maintenance yet effective approach is almost doubling the return of both our benchmarks, leaving more than an extra 40K$ in our pocket. 

Comparing actual results to our older investing methods and concretely seeing we are doing much better really motivates us to continue our successful journey down the DIY investing path.

Dip Factor Too High

We have to be happy and grateful about our accomplishments but we also must remain vigilant.

A quick glance at our Portfolio Variations immediately gets us back down to earth. The Dip Factor of several of the stocks we currently own is precariously hovering around and above the dreaded mark of 4.

Let’s take a closer look.

Canadian utilities (CU)      Down 22.30% Dip Factor 4.03

Results of this electricity and natural gas distributor were indirectly affected by falling oil prices and the overall economic situation in Alberta as an important part of its business comes from that province.

We still remain optimistic about long-term perspectives for this fairly conservative stock.

Home Capital Group (HCG)     Down 42.84% Dip Factor 4.68

Home Capital Group is another stock greatly affected by Alberta’s economic slowdown. Recently purchased, this lender is one of our riskier acquisitions.

Through its consortium, HCG offers loans to clients who were rejected by traditional lenders, like banks. It’s a risky but very profitable venture.  

Their business model is solid and they recently reviewed their credit approval process. Their results should not suffer too much from the economic downturn and mid-term improvements can be expected.

We have to admit that we are losing patience a bit with this one. It will probably be moved to our replace/sell list if we don’t see some significant progress soon.

Contrary to our usual long-haul more conservative approach, we tend to be less patient with riskier positions or often just choose to avoid them. We try it from time to time but we have to accept that we are not as skillful with those types of investments. It’s simply not our style.

McDonald’s (MCD)      Down 19.59% Dip Factor 3.96

McDonald’s performance was somewhat influenced by global economic turmoil and a stronger US dollar.

Some investors were also critical of McDonald’s recent decision to start serving at tables.

We consider McDonald’s as a great leader in the foodservice industry and innovation is one of their strong suits. Their often try to implement new ideas. Some of them work, others don’t.

In that sense, we remain confident in McDonald’s ability to innovate and generate interesting long-term value for our portfolio.

TransCanada (TRP)      Down 26.05% Dip Factor 4.00

A couple of TransCanada major projects have encountered resistance both in the US and Canada like their Keystone Oil Pipeline project and Energy East Pipeline project.

TransCanada is still generating huge revenues and the long-term outlook is still quite bright. We will continue to be extremely patient with this type of stock. 

Wal-Mart (WMT)      Down 37.08% Dip Factor 5.37

Like McDonald’s, Wal-Mart was afflicted by a strengthen US dollar and a struggling international economic context.

Some of Wal-Mart’s expenses like US employee wages are also on the rise.

Through the years, Wal-Mart’s stock value has been fluctuating a lot but its general trend has remained upward. Again, we are confident in the long-term prospects from this retail industry leader. 

More worried investors could possibly be reassured in a medium term perspective as both US and global economy situations have already shown some signs of improvement. Even if we don’t really care about short-term gyrations, a potential notorious Santa Claus rally may even restore their confidence sooner.

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