May 12, 2019

Portfolio Update May 2019

Time to report our DIY Portfolio progress has come again. Unsurprisingly, you can expect our next update in about 12 weeks, in August 2019.

You can also access our earlier portfolio updates here:

After a tough patch in late 2018, markets are still growing strong and have been on an impressive roll for about the last six months. Many investors currently rejoice. We are also glad about our significant gains. But as usual, we remain cautious and expect the unexpected as far as what the future of stock markets holds for us.

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. 

Patience Still the Name of the Game

Once more, staying patient has been quite beneficial to our DIY Portfolio. As we now know, freaking out and acting on it in the last few months of 2018 could have been costly. Those like us, that did not panic are glad today.

With retrospect, putting new money in could have been even better. We artificially did that with a few buys, but accessible funds were still limited for us. We still appreciate the ongoing run. But in the end, it does not really matter with our persistent long-term perspective.

We don’t have much to mention. Apart from the fact that I have been enjoying the concretisation of my 8-month leave for the last couple weeks. It’s already the third time I’ve done this, but I still have to adapt in the first weeks, if not months. I know I’ve earned it and planned for it, but I still feel a little guilty about it. Sometimes, it’s tough to enjoy all that free time when so many other people are struggling.

Despite a less hectic schedule, it’s strange how time still flies by. New things to do always seem to pop up. Some think I’m doing nothing because I don’t go to work. Let’s just say my days are quite occupied. Not that I what to complain but, I know I will struggle for some time before I can get in complete enjoy-life-to-the-fullest mode.

Speaking of doing nothing, that’s probably what’s often best for your stock holdings. The recent months were a great example.

Looking to Sell Weaker Stocks

We have a confession to make, we are not really doing nothing about our stocks. We will never make hastily decisions or transactions but, we are always looking for ways to make our DIY Portfolio stronger.

The main objective is to make it more robust ahead of more turbulent times because the question is not if they will come by but more when. We know we can’t predict when an inevitable downfall will occur, but we’ll try to be as ready as possible.

In that perspective, we have been looking for a way to identify our weaker stocks. Selling a couple of these and keeping our stronger holdings should put us in a better position to get thru the eventual storm or storms.

Like we talked about Here, we’ve been using a 20-year span to identify stocks that would best mimic the Perfect Stock and its Trend. Our grading system also considered long-term returns in that same span.

After some analysis, we have decided that our additional focus will now be dividends, and particularly their growth and sustainability. We think stocks that can sustain steadily increasing dividend payments will be the best candidates to survive a downturn. Healthy dividends will also help us remain patient in those more difficult circumstances.

We are not only looking for stocks with constant dividends but rather for stocks with constant growing dividends. Our standard is an average 10% dividend growth over at least 10 years. We will consider stocks with only an 8% average acceptable but will slightly slide down their grade.

As constant dividend growth is also a key, we will prefer stocks that steadily grow their dividend at a slower pace as opposed to stocks with figures all over the place even if the latter provide more aggressive growth.

With that concept in mind, we added the new Overall column to our Portfolio, Watch List and Monitor List reports. That grade is half the old one and half the new dividend grade. We’ll probably elaborate more on it at another occasion.

New Buy and Sell Candidates

That dividend-focused process generated new potential sell and acquire candidates.

We are not completely surprised about some of the sell nominees that have been lagging for a while like AT&T (T) or RioCan REIT (REI.UN). Others also have been going nowhere like Fairfax Financial Holdings (FFH).

But a few sell candidates have been quite good for our DIY Portfolio in the past like CGI Group (GIB.A) with an annualized return over 24%, a veteran in Pfizer (PFE) at around 11.5% or Merck (MRK) and American Express (AXP) both at almost 14%.

We won’t get rid of all these overnight, but we consider the current market run an appropriate period for some selling. In the actual context, we just consider many of these stocks a little too risky.

You will note that we’ll probably get out of another resources stock, Nutrien (NTR)…simply not our cup of tea. Our only remaining ETF (XIU) is also on the chop.

Canadian insurance companies have been on a wild ride for more than a decade. That’s why we are looking to replace Manulife (MFC) with a more robust US stock from the same industry, Travelers (TRV).

TRV is one of the new contenders emerging on our renewed list. We can notice old favorites like Canadian National Railway (CNR) and Automatic Data Processing (ADP).

New faces include Alimentation Couche-Tard (ATD.B) and AXP replacements in Visa (V) and Mastercard (MA). Look for these to be introduced in our DIY Portfolio in the coming months.

We are still debating about Suncor (SU) being added to our Buy List. Like we said, we don’t really like resources dependant stocks.

Because all those probable sells will boost our buying power, we will also have to reinforce establish positions. That’s why stocks with better grades have been moved towards the top of our Watch List.

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