August 12, 2016

Portfolio Update August 2016

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

Since May, markets have continued to soar up. This is a great thing for our DIY Portfolio value but kind of makes it very difficult to find interesting stocks to buy.

We were hoping Brexit (the possibility of Great Britain leaving the European Union) could provide some short term disturbance to make solid stocks more affordable, but looks like the scary Brexit-leave-vote-bomb was a dud after all.

Then the agonising question comes back to haunt us yet again:

Should we be worried about these skyrocketing markets?

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. 

Brexit Scare Quickly Went Away

A couple weeks before the Brexit vote, world markets, anticipating a stay vote, mounted quite a rally. Things were running smoothly and we were almost ready to talk about Brexit as a past remote possibility. Heck, less than 24 hours before the vote, even bookmakers heavily favoured the stay side and you know and no sane person would dare bet against these guys…

But then, the unthinkable happened, real votes were compiled and the leave option passed. What!? And, as the popular song tells us, is it going to be the end of the world has we know it? 

We don’t think so; still we were looking for some short term tremors. As expected, markets stumbled the following days after that surprising result. Finally! We could smell opportunities lurking...

Not so fast Johnny! Then again, in a flash, markets unexpectedly rose back to their pre-Brexit levels. Wow! Bye bye opportunities…So two weeks later, we were back to about the same point. I know; no one can really predict what the markets will do, especially short term.

And when you take time to analyze and think about it, as a country, Great Britain is probably one of the best candidates for a successful exit from the Euro Zone.

The British economy is strong in itself. Their currency, the pound, is quite robust and still widely used. Over their rich history, on numerous occasions, British people have effectively dealt with change and adversity. British citizens cultivate healthy democratic values: they discuss and argue a lot yet we pull together and respect their collective decisions in the end. The legendary phlegmatic nature of British people should also help smooth the transition. After some discussions and adjustments, prosperous economic exchange and trading should remain active with Europe (and with the rest of the world as well).

As a matter of fact, immigration turmoil probably induced Brexit more than real economic troubles.

After a while, both British citizens and their European counterparts should be able to manage and negotiate the transition and their economic separation.

On the other hand, we still probably should be a little worried about Brexit enticing weaker countries to try an exit of their own and that they might not be as successful. The potential cascading effect could really throw a wrench in Europe’s and the world economy. Yet, we may have to wait several years for that situation to occur and we should cross that bridge when we come to it.

Just don’t despair, interesting stock buying opportunities will eventually present themselves, they always do!

We could also divert our attention on the whole Trump/Clinton spectacle that, soon enough, could provide us all the desired commotion. Let’s hope they don’t completely derail the economy because depression like consequences are just no fun for anybody.

Even though depressions can provide terrific investing possibilities and will inevitably happen at some point, it may not be a wise thing to play with fire and provoke them too often. On our part, we could easily be content with occasional heathy corrections.  

Why We Have Kept More Cash

By now, you surely have noticed that we are ailing from the lack of interesting buying opportunities. That’s the main reason we have a little more cash on hand right now. We have about 10K$ sitting in our DIY Portfolio…not much would you say but still a bit more that we’re used to.

As opposed to all acquisitions reported in our May Update, we have not bought any stocks since.

We usually acquire new stocks as money comes along because we believe that time in the market is always more important than timing the market. Yet we won’t buy stocks at any price, we have to remain somewhat patient and wait for more attractive prices and valuations.

A quick look at our portfolio variations confirms that attractive occasions are rare. Likewise, a noticeably lower Dip Factor average just over 1 tells us the same story. As a reference, the equivalent average was around 2.5 both in our November 2015 and February 2016 updates.

A low Dip Factor average suggests that many stocks are near their high value and that they might dip soon.  

This leads us to our next point: we have to confess and admit to presently be a little worried about the markets and their unprecedented high levels. And that may be the other reason we are so frigid about committing new money. Let’s just say we have a bad short term vibe.

Still, we fundamentally won’t change our investing approach that much, except for being a little more careful with our acquisitions. Hence, we won’t panic and sell any actual positions.

Having some fun with predictions can do no harm as long as you remember this reality: no one possesses the ability to truly predict markets movements. But it does not really matter if stock markets tank or not, or to be more precise, when markets will tank because they will eventually do. In the long run, our faith still prevails and our portfolio will perform just fine regardless of short term gyrations.

Happy About a Full Year of Updates

Even though we were initially very hesitant before publishing portfolio updates, we are now very happy with the whole process after a full year circle.

Our overall portfolio numbers and progress continues to be quite pleasing.

And looks like better performances recently observed has reversed both total return and capital return tendencies that have gone from slightly down to slightly up.

Writing and reflecting on many aspects of our financial situation through our DIY Portfolio has definitively been an enjoyable process as well.

The best way to know is you truly grasp a subject is to try to teach and explain it to others. We are far from perfect and won’t pretend to be masters at it but the entire portfolio update process sure has helped us to reflect, grow and improve on it. That may be the most important point of all this as we really feel like better DIY investors today because of it.

It may also be one of the secrets of the 12-Minute Approach: to regularly invest time to gradually get better at something.

In the hope that reading about our updates has also been pleasant and entertaining for many of you!

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