May 12, 2016

Portfolio Update May 2016

Note that, as usual, you can expect our next update in about 12 weeks or so, in August 2016.
Meanwhile, you can also have a look at our actual portfolio and previous portfolio updates here:

After a yo-yo start to 2016, markets have rallied back and many Canadian securities have provided solid performance once again.

As a result, many of our existing positions have put up interesting gains and our capital return figures are trying to reverse their trend back up.   

The recent fall of the US dollar still hurt the relative value of our US holdings and affected our overall performance a bit. For some time, we have noticed a negative correlation between the US dollar and the price of resources like oil and indirectly, Canadian stocks. This phenomena has somewhat protected our portfolio from ailing Canadian stock prices in the past year and now from US dollar woes.

Things have been very nice for our portfolio apart from some hurtful blows in the later part of April. 

The burning question that remains is:
Did we have time to pull the trigger and buy something before this spring’s rally?

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

Happy with Mature Portfolio regardless of Market Movement

Rest assured, we did acquire our fair portion and we will expose some of the details further down this

For a long time now, we have remained very happy with our portfolio regardless of what the markets are doing.

When markets go up…the value of our portfolio goes up…a good outcome!

When markets go down…amazing buying opportunities arise…still a very interesting from our long haul perspective!

So as far as markets fluctuations are concerned, our morale always remains cheerful as our confidence in a long term upward trend prevails. With time and putting our legendary patience to good use, we will simply continue to collect hefty profits from it.

With around 36 different stocks (our 3 groups of 12: Canadian Prime 12, US Prime 12 and Extra 12), we consider our portfolio somewhat mature and diversified enough.

So our main focus will now be to consolidate existing positions and to occasionally get rid of bad apples (probably not AAPL)…

Buying the Un-Flavor of the Month

As we often mentioned before, we try as much as possible to acquire stocks of solid companies that are temporarily out of flavor.

Using our Dip Factor Tool and buying at those special reduced prices assures us of an additional margin of safety and so far, this method has rewarded us with attractive returns in the long run.

More Buys and a Rare Sell

Things are no different this time around except for the fact that we terminated one of our position, a very rare feat in our case as we almost never lose patience on a stock we initially careful analyzed, chose and bought.

Last couple months have been great for acquisitions and good bargains were pretty easy to find.

Already leaning toward financial stocks in our Last Portfolio Update, we remained true to what we said then with our acquisitions in February. After that, we expanded our buying frenzy to several other sectors in March.

Additional acquisition candidates available at attractive prices may be harder to find after the recent market rally. Our Variations List reflects it with average Dips significantly down.

We will continue to monitor the evolution of the situation as potential interesting candidates will still probably be available from time to time.

Royal Bank of Canada (RY)      Down 20.27% Dip Factor 4.03

Along with TD and BMO, Royal Bank (RY) has been one of our favorites. We really feel those Canadian big banks have a very solid structure that will ensure profitable results for many years to come.

Despites their presence in the American and international markets, strict Canadian regulations make these gigantic financial institutions safer than their American counterparts.

A multitude of bad news could have explained RY relatively low price at the time like a mix-up in some RRSP receipts sent to the wrong clients. RY was also affected by falling oil prices as its commercial loan division is somewhat exposed to the energy sector.

As with most corporations of that magnitude, we nonetheless remain confident in the long term perspective for RY and we were glad to add to our existing position, especially with its Dip Factor above 4.

Manulife Financial Corp. (MFC)      Down 34.55% Dip Factor 4.88

We kind of consider Manulife (MFC) as an equivalent to the big banks but in the insurance industry: a huge corporation that offers similar profitable possibilities.

Yet, our investing horizon will surely be shorter for MFC as we consider it a bit more volatile.

Even if we won’t keep MFC forever, we believe the time is right to tackle on some risk with this stock and its Dip Factor approaching 5 gives us some additional leeway.

Bed Bath & Beyond (BBBY)

Mid-march, we decided to pull the plug on BBBY, one of our bad apples.

BBBY was one of the rare non-dividend payers in our portfolio. By itself, this fact does not necessarily makes it a bad stock as we have experienced quite the opposite with other holdings like the CGI Group (GIB.A), one of our best performers.

Nevertheless, not getting paid regular dividends sure adds to the burden of owning underachievers.

We were patient, but in the end, BBBY results have been staggering too long. That’s the fundamental reason we sold it.

Looks like our initial analysis on this one was wrong and as a successful investor, you have to accept that you cannot be right every time and making one bad decision should not affect your overall results that much.

Walt Disney Co. (DIS)      Down 19.32% Dip Factor 3.49

Disney (DIS) is a great example of a stock that offers incredible performance while paying a relatively low dividend (only about 1.40% these days). As in investor, money reinvested in Disney’s projects sure can be more profitable than in your pocket.

For years, Disney literally has been an amazing profit-generating machine and as we reported in our last summer Disney Vacation Article, Disney’s values are quite in sync with our own.

Just before we bought additional shares last month, Disney’s stock price was affected by difficulties in their cable network division (mainly ESPN). There also has been concerns about the replacement of their soon-to-retire CEO.

Disney’s strength relies in their wonderful team and values and we are sure their success story will continue to flourish and prosper. On its own, their revitalisation of the Star Wars franchise will generate astronomical benefits for years to come.

Canadian Utilities (CU)      Down 16.08% Dip Factor 3.46

Canadian Utilities (CU) is yet another Canadian stock negatively affected by low oil prices as we stated back in our November 2015 Update.

We decided to add to our existent position in CU with its attractive Dip Factor around 3.5.

We considered buying ATCO instead considering it owns more than half the shares of CU.

In the end, we considered CU more predictable as its activities are more concentrated in the utility sector. To balance our asset allocation, a good old conservative stock is what our portfolio needed most. 

Agrium Inc. (AGU)      Down 19.40% Dip Factor 3.39

Our latest move was to increase of position in Agrium (AGU).

AGU is mainly involved in the production of nutrients for the agricultural industry. The activities of this robust Calgary-based company now expand worldwide.

We consider AGU as one of the safest play in the broader basic materials sector.

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