August 12, 2017

Portfolio Update August 2017

Time really flies; two full years already have passed since we published our first Portfolio Update. For us, the whole process has been quite satisfying and as usual, you can expect a brand new update in November 2017, in about 12 weeks.

If you wish, you can have a look at our actual portfolio and previous updates here:

By this time, one would think that Trump’s rally should have faltered or at least slowed down with all his unorthodox politics. But after a brief pause possibly announcing some sort of decline, against all odds, markets continued piling up records (or US markets to be more precise).  

The powerful US president should be able to positively influence the economy with constructive laws and policies. Luckily for all, the US economy kind of got better on its own and still seems to be getting stronger day by day. Some portion of the recovery can probably be attributed to residual effects from the previous administration and the general improvement of global state of affairs.

In the same fashion, north of the border, markets are sort of out of whack with oil prices still lingering.  Fortunately, the rest of the Canadian economy is also amazingly very vigorous. This even led the Bank of Canada to hike its prime interest rate for the first time in a while.

Rising Canadian interest rates also mean the Canadian dollar is going up. Indirectly, this hurt our DIY Portfolio quite a lot in the last months as we hold an important proportion of it in US stocks…in US currency. So today, we will first briefly discuss about currency implications.

After that, we will update you on our Portfolio Spring Cleanout announced in our last Portfolio Update in May.

On vacation most of July, we didn’t really have time or access to a computer. Some of you may wonder what we did to manage our DIY Portfolio during that busy yet wonderful time.
The short answer is simply nothing! Or at least, nothing different…You can expect a more elaborate article on the subject in a couple weeks. A post on our exciting UK summer venture is also in the works…

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. 

Aching US Positions

Since May, our portfolio value got down by about 4970$. And a huge 7890$ decline can be attributed to the fall of the US dollar (or rise of the Canadian dollar). So this signifies our portfolio still went up by 2920$ if we exclude currency fluctuations. 
As a rule of thumb, we consider a Canadian dollar around 80¢ as the norm so we were not that surprised about these late developments. With the Canadian economy recovering nicely and interest rates virtually just above zero, it won’t be a shock either if the Bank of Canada continues to slowing increase the basic rate. So the US portion of our portfolio may suffer a bit more. Then again, probable US interest hikes by the Fed may counterbalance that ill effect.  
As usual, we are not that worried about all this because long-term impact should be limited and we don’t have a lot of control over it.
We still favour buying US stocks when the Canadian dollar is strong (US dollar weak) like we did a few years back when the two currencies were nearly at par. The same way, we prefer buying Canadian stocks when the Canadian dollar is weak (US dollar strong).
In a selling mode, we would apply the same logic with opposite actions: more inclined to sell Canadian stocks on a strong Canadian dollar and US stocks on a relatively weak Canadian dollar.
Currency values are never at the heart of our investing decisions. Nonetheless, they are one of many factors we take into account when we buy or sell stocks.

Recent Cleanout Sales

In our May Portfolio Update, we talked about cleaning out of portfolio reaffirming our long-term investing standpoint. Our main July post detailed how to use Long-Term Chart to Evaluate Stock Potential.

After all that easy talk, it was time to act. Actually translating what seems like good common-sense theory into practice is often tougher than it looks.

With markets still hovering around record highs, the occasion for selling was great. We took time to look at our entire portfolio, trying to identify some bad apples and getting rid of them. The whole point of the process is to increase the long-term average grade of our portfolio.

It’s against our nature to make a lot of transactions or to sell our stocks in the first place, so this would never become a fire sale. We still managed to single out and pull the trigger on two eviction candidates.  

General Electric (GE)

General Electric, a veteran of our portfolio, was one of the first individual stocks we bought back in 2008. GE’s giant industrial division sure has provided interesting results over the years.

This respectable corporation may have become one of the rare cases of being too diversified. For instance, GE’s venture into the financial sector has seriously hurt its performance.

GE’s stock took us on a wild ride right from the get-go, its price plunging after it cut its dividend, but slowly creeping back up after 2009. With retrospect, we were lucky to obtain a decent 6% return out of it, factoring in currency fluctuations.

International Business Machines (IBM)

IBM is another reputable company that everybody seems to know.

Then again, its stock performance has unfortunately been kind of all over the place in the past two decades.

We almost broke even with IBM, once more taking currency fluctuations into account.

Our timing may be a little off in selling IBM at this point as it may still do well short-term. We don’t mind because what really matters to us is steady and effective long-term performance. We think selling IBM has been a great decision to help the overall sturdiness of our portfolio.  

Still Buying with Long Haul Perspective

Having all that cash on hand, a lot more than usual, we were kind of eager to buy something yet identifying rare interesting buying opportunities was a bit of a challenge.

Then markets flattered a tad a couple days early into July so we managed to acquire some shares of reliable corporations that should solidify the long-term perspective of our Portfolio

Looking back almost a month after that point, maybe we could have been a little more patient…but it probably won’t make much of a difference 10 or 20 years down the road.

Note that despite these recent buys, we still have quite a bit of cash (more than 16K$) to take advantage of future interesting buying possibilities. But with markets near highs and most Dip Factor values quite low, waiting for decent opportunities may be a key.

Canadian Tire Corporation (CTC.A)      Down 16.25% Dip Factor 3.62

In recent months, the struggling Canadian economy and a limited online presence seemed to concern investors about Canadian Tire being able to repeat and reproduce its strong numbers.

These worries lead to Canadian Tire’s stock price struggling a bit. We benefited from the situation and acquired additional shares of one of our favourite right-from-home retailers. 

We are confident that purchasing Canadian Tire at a Dip Factor of 3.62 will be profitable for our Portfolio in the long run. For one thing, it sure strengthens its general long-term grade and outlook.

Despite battling most of July, Canadian Tire already got back in line early in August with the economy well on its way to recovery and last quarter’s results reaffirming it can grow at a steady manageable pace always around 3%.

Enbridge (ENB)      Down 13.50% Dip Factor 2.75

Enbridge is another stock putting up solid 20-year trend grades.

Because of its prominent involvement in gas and oil, this pipeline monster has not been very popular in these more environment friendly times and has also indirectly suffered from lower crude oil prices.

We know fossil fuel energy is not the way of the future but the reality is that we won’t be able to get rid of it for another 20-30 years. Although we will eventually have to get rid of it at some point, Enbridge should continue to put up solid results still for a while.

Enbridge stock being so steady, we were content to buy it only at a Dip Factor of 2.75.

Costco Wholesale (COST)      Down 13.74% Dip Factor 2.14

We have been interested by Costco for a long time. The problem to acquire it was that its stock price almost never dipped.

We like Costco’s business model a lot: limited expenses, huge thru-the-roof sales, focus on quality and respect for both customers but also employees.  

After Amazon acquired Whole Foods, out of fear, most food retailers’ stocks like Costco and Metro faltered. We always like bad news that temporarily affects our favourite stocks and we finally got a chance to acquire Costco at a reasonable price and a Dip Factor of 2.24. Again, a little more patience could have helped us here.

Be sure to join us next time for more investing talk and to see how our somewhat conservative DIY Portfolio fares in probable turbulent times. 

Stock charts images extracted from
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