November 12, 2017

Portfolio Update November 2017

Once again, it’s time for another update of our DIY Portfolio. As usual, our following update can be expected in about 12 weeks, in February 2018.

Meanwhile, you can have a look at previous portfolio updates here:

The weak US dollar is still hurting our DIY Portfolio a bit, but the bleeding at least stopped in early September and we have seen signs of a meaningful turnaround since. As we talked about before, we can still expect more interest rate hikes from the Bank of Canada that should put additional pressure on the relative value of US vs CAN dollar.

From a personal finance standpoint, we’ve exposed some Ideas to Deal with Rising Mortgage Rates in the present context.

Investing wise, our philosophy remains reacting after the fact or if you prefer, after having all the facts. In that sense, as with stocks, our only viable option is to buy in (certainly not sell out) a falling US dollar. We still evaluate the current US dollar situation as quite normal with the Canadian dollar worth just under 80¢ and won’t make any ensuing moves soon.
But, learning from recent experience, when the US dollar eventually gets stronger and significantly climbs back up (Canadian dollar worth around 70¢), we will certainly consider selling some US positions or at least convert available US cash to Canadian. We have a feeling this eventuality may come sooner than later.

Opposite measures like buying proportionally more US stocks will only be contemplated if the US dollar plummets further (Canadian dollar worth more than 90¢).

Otherwise, our DIY Portfolio continues to do fine. It could have been a lousy quarter, but markets substantially rallied in late October. Canadian stocks have particularly done quite well lately.

Our intention is not to sound alarming, but throughout modern history, this time of year has often been synonymous with stock market turmoil. In present circumstances, we have to admit a crash or at least a major correction would not be a complete surprise. Like this year’s monster hurricanes, we never know when and where it will strike the hardest. That’s why we always like to be mentally prepared for these troubling possibilities.

The theory is quite simple: when storms hit the markets, avoid selling in panic and be ready to take advantage of tremendous buying opportunities. We know, easier said than done in practice!

Also plan on leaning on a dependable source of income or having some reserve money aside because, apart from dividends, you won’t be able to rely on stock market money to get you thru the eventual yet inevitable next big storm.

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. 

Headwinds in Retail

Meanwhile, some disturbance already hit some sectors like the wind of change we can really feel in retail. A noteworthy shift towards online sales is seriously threatening many conventional-style stores. Major players like Walmart and Metro are adapting fast for instance by pushing online grocery order and delivery or least transitioning into it by offering quick in store pick up options.

Consequently, we will be extra careful about retail stocks investing. Only a handful will remain competitive in that ever-changing hostile environment. Only a few giants with loyal in-store customers like Canadian Tire can somewhat afford to ignore the present online frenzy. Many will simply not survive this historic change in consumer behavior and the actual unprecedented online sales wave.

The online retail race is now on! In that race, you have to wisely pick your runners. They have to be innovative yet have the stamina for the long haul. As usual, successful investing is more like an excruciating marathon than a quick sprint. Runners have to be fast but more importantly, they have to possess the ability to keep up pace. In that sense, a steady pace is much more easily maintained.

One of the latest retail victim has been Sears, its liquidation already in the works. Probably well ahead of competitors when the internet era started in the late 1990s because of its famous catalog, Sears still could not adapt its successful structure to handle online sales. I also heard on the radio that Sears’ in-store sales suffered after retail competitors (like Costco and Walmart) adopted big shopping carts on a unique level as opposed to Sears predominant shopping mall multi-level setup. Full hands simply limited customers buying capacity at Sears.

In related news, Metro gobbled up Jean Coutu to boost up sales volume and buying power. At this to keep up with colossal competitors.

An interesting anecdote emerged from the Metro announcement. We were contemplating acquiring additional Metro shares on that exact morning. My finger was literally on the buy button, but I had taken quite a moment to think things through being already somewhat exposed to the retail sector. Just before I had time to act, trading on both stocks (Metro and Jean Coutu) stopped in anticipation of the announcement. My hesitation deprived us of a quick 500$ as Metro jumped way up after trading resumed...Snif!

Today, we laugh about it. In the end, our prudent style kind of prevents us to go after quick bucks. Fortunately, it also helps us often avoid sudden losses…We are confident our solid DIY Portfolio will be just fine in the long run!

A quick comment about another retail giant, Amazon. It may be a mistake, but contrary to many, we are not avid fans of Amazon. It sure can generate a lot of sales but we have doubts about its extensive infrastructure and related cost structure. We prefer to stay prudent with limelight stocks like Amazon. Amazon sure is an exciting stock to own but all that hype can have it move a lot both ways. In fact, it surged more than 13% on a single day in late October. Sadly for us in the short-term, we usually prefer more boring choices. Yet we rest a lot better and will settle for our long-term results every time.

We know many of our stocks are probably riskier than Amazon. But as far as specific stocks go, sometimes staying on the sidelines is the best choice when it doesn’t feel right. Just don’t let it paralyze you out of investing altogether.
Still Patiently Waiting for Opportunities

Observation kind of has been the theme as of late. And not much interesting movement has been detected. Our legendary patience is being put to the test. Because we would still like to invest a little more of our money, stock values have to go down to grant our interest.
So, we have made no significant change in our stock positions as buying opportunities remain marginal. Only a couple stocks started approaching buying worthy levels for a few days in September but rapidly resumed their path back up.

Our Portfolio Variations Chart confirms the story as average Dip Factor values near all time low hover around 1.

Patience served us well thus far. We can’t really complain. We will continue to be happy collecting dividends and watching our DIY Portfolio steadily grow.

Hope you appreciated our humble take on investing. Try to enjoy life and have fun till our next chat!

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