May 12, 2020

Portfolio Update May 2020

Another quarter has gone by and it’s already time for a brand new DIY Portfolio report.  For quite a while now, we’ve been doing these about every 12 weeks.

You can access earlier portfolio updates here:

We tried to avoid as much as possible talking about the main thing in all our lives right now. We hear or read too much about it every day. Despite our strong intentions, you’ll see that it won’t be possible to ignore it. At this point, let’s just say that luckily, all our family is doing ok, and we hope yours can also remain safe and well.

So today, after sone comments about the current state of this unparalleled situation, we’ll talk about how our DIY Portfolio fared in these trying circumstances and how we’ve managed it so far during that wild ride. Surprisingly, our portfolio is only down about 3% year to date but the worst of it may still be coming.

You’ll see that despite being well prepared, we probably could have done better buying wise. We’ll also report on our new and recent experience with bonds.

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. 

An Unprecedented Test to Our Resolve

So far, the last few months have been a great test to our resolve. This is a tragic crisis and despite too many losses, Humanity’s resolve is still holding on so far. We are seeing numerous real-life examples of people that have the courage to fight not only for themselves but more importantly, for others. Let’s remain strong and continue combating because we may not see the end of it for another year or more.

We also have to salute the authorities in all their relentless efforts. They are doing their best in these overwhelming situations. Let’s hope it can be enough to minimize human tragedies.

Some of our leaders responded swiftly and made some tough early calls not really knowing what was coming. But once again, we are profoundly worried about the reaction of some of them. Not to name just the one that remains in an unreal state of denial, multiplying bogus statements and selfish acts in the so-called interest of the country. Propagating misinformation on top of it does not help.

We hope our leaders would seek more cooperation. In the long run, being aggressive and cutting ties with others is not the answer. This is not a time for puny political fights as in the end, we are all in this together and the only way to truly get thru this is to stick together.

It is a giving that the survival of Humanity is crucial and much more essential than investing. But we’ll remark that in these trying tines, our resolve as investors is also getting put to an unmatched test.

As experienced investors, we were prepared for an eventual downfall. But, to be frank, nothing could prepare you to what is happening right now. It’s unreal and somewhat insane for everyone. As usual, panic is usually never a good avenue to take. It could be disastrous especially now. As investors, patience and maybe some bold buying should help you triumph.

As humans, let’s hope basic decency, support and collaboration can prevail!

Some Wild Ride

The last few months were certainly wild! And, despite what some think, it may not be the end of the ride. That kind of ride can be exhilarating but can certainly make many feel iffy.

Markets, after being up 15-20% at the start of the year, swiftly went down as much as 40%. It is never a good sigh when we pile up record daily gyrations, in one direction or the other.

Russian comrades sure were of no help as their manipulation of oil prices was an accelerating factor in the initial market downfall. Oil prices quickly going down sure fueled panic and volatility in markets already starting to fear that vicious virus-thing.

In French, rollercoasters are not called Russian mountains (montagnes russes) for nothing. Coasters can be fun but too wild ones can turn your stomach upside down. That may be why we prefer the Disney-family-friendly type. Funny enough, it also tells a lot about our cozy character as investors.

These days, we are seeing gyrations that could literally take you out of your seat. Strong safety belts may not even be enough to hold you down. They also must be fastened and secured properly.

Volatile market conditions like the current ones amplify variations. That’s why it may be a good idea to choose smother attractions (stocks) to start with, unless you like extreme sensations.

Remember that when your own hard-earned money is involved, your level of tolerance may be much lower. Maybe all this can make you realize how much boring steady growth can be your friend.

Lower oil prices also greatly affected the Canadian loonie. In the coming months, on top of the pandemic, this could continue to slow down our economy, especially for oil-dependant provinces like many out in western Canada.

Despite that, our DIY Portfolio managed to do well because of a big chunk of US content. Before the crisis, we were at about 60-40% in favour of Canadian holdings. We are almost even at 50% each now. So, expect us to transfer some of our cash to the Canadian side of the portfolio in the next few months. Canadian stocks are cheaper, time to buy some.

The most surprising aspect of the whole situation was how quickly markets recuperated. They bounded right back up at the bottom. We have to say that the absence of a pause at or near the bottom raises doubts about the persistence of the recovery. Markets usually think things over before they get in another direction for good. It was not the case this time around.

Easier Said Than Done Buying

That instant rebound complicated buying. We know it’s always next to impossible to catch the bottom. It was even more difficult in this occurrence. We know better than to try to do that, but we usually manage to still acquire our stocks at very attractive levels, normally closer to near-bottom prices.

So far, we stuck to our good investing reflexes and only bought after things went down. With just the little retrospect we have now, we may have been a little timid in our buying.

We had to resist panic buying when things quickly went back up. But because it may not be the end of it, our reserves could allow us the buy in phases.

We still managed to buy quite a lot and at some point, tried to concentrate on steady dividend income providers.

The first wave of our orders triggered while we were on vacation after the early tumbles of the market. Our buy orders were pre-set at very low prices for 5 stocks. Transactions went through for 4 of them, all newcomers to our DIY Portfolio, Automatic Data Processing (ADP) and Visa (V) on the US side plus Alimentation Couche-Tard (ATD.B) and Canadian National Railway (CNR) from Canada.

More stable dividend payments and steadier growth made us replace American Express (AXP) with Visa. CNR had been on our radar for quite long. The railroad stock was already battered by protestations and blockades in the last few months before the crisis. We were sad to just miss acquiring additional shares of one our favorites, Metro (MRU). Our 5th pre-set order did not materialize as the grocery chain stock initially fell with the markets but quickly turned back up being in one of the rare businesses effervescent in the crisis. You could note that Costco’s stock (COST) reacted similarly.

We could have been more aggressive in our buying after that. We still managed to nicely boost our positions in Fortis (FTS), Telus (T), Toronto-Dominion Bank (TD) and Johnson & Johnson (JNJ). Canadian big banks are taking a huge beating in the current turmoil, so we feel it’s a great time to stock up on them. JNJ looks to be in a wonderful position for the future.

We continued another phase of buying with Colgate-Palmolive (CL), some more Alimentation Couche-Tard (ATD.B) and United Technologies (UTX). In a spinoff, our UTX position partially transformed into Raytheon Technologies (RTX). You will note we cashed out the other two stocks involved in that spinoff.

We still have a few stocks on our radar. For instance, we are looking at getting more of Procter & Gamble (PG) and Canadian National Railway (CNR). You’ll note the Canadian side of our portfolio needs a little love.

Bonds Scary Report

To conclude, let’s talk about our not so great experience with bonds. Bonds investing is still new to us and we kind of learned some lessons the hard way.

A couple of months back, we decided to park some of our cash in bonds via bond ETFs. We’ve always been skeptical about bond ETFs, bond funds and the likes. And our apprehension was probably confirmed.

We were careful to choose so-called short-term bond ETFs. Our research let us to believe that if the markets happened to tank, those bond funds would appreciate or at least keep their value. In a similar matter, we were let to believe that those bond ETFs would go up if interest rates went down. At that while giving us some distributions, small but better that nothing we figured.

We did it in part for cash flow purposes but also to have some of that cash available in the event of the downturn.

We our recent experience, we learned things were not that simple. The downturn hit stocks hard. It was quick and swift! The problem is that many bond ETFs also went down. The panic was so omnipresent on the markets that it made many sell below the net adjusted value (NAV) of most bond ETFs.

On top of it all, those bond ETFs did not go up that much went interest rates got lower.

We were still lucky because some of our bond ETFs purchases were in US dollars and the American greenback surged in the crisis compared to the frail Canadian loonie.

We also have to tell you about a small but nagging problem we had with iTrade. After selliing a bond ETF, we wanted to convert those funds to buy some stocks in another currency. No specific form or interface exists at iTrade to do that. We had to do it by sending them a message. It would also have been possible over the phone.

It also took several days for the selling transaction to settle and it was not possible to convert that money right away because of it. By the time all this was said and done, the price of the stocks we wanted to buy had went up quite a bit. The same kind of transaction and currency exchange was much smoother with Questrade. Questrade offered easy and clear forms to fill and converted cash was almost accessible right away for acquiring our cherished stocks near rock-bottom prices.

In the end, you have to remember that the secret to not lose money with bonds is to hold them to maturity. And identifying bond ETFs maturity is far from obvious. We did not lose that much but that risk was unnecessary. It was a hassle to deal with all of it and try to get just a little extra benefit. Trying to time the market is never a good idea, even with bonds. Our money would have been much more accessible and just fine remaining in cash.

We are not saying to avoid bonds at all cost. Many investors use them the reduce risk and obtain decent returns while allocating a portion of their holdings to bonds. Just don’t toy with them and don’t use them to just park your hard-earned cash. Most of the time, bonds and especially bond ETfs won’t be a viable short-term option.

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