I broke one of my own investment management rules….

I have to make a confession. I broke one of my investment rules. I traded in May instead of in June when I normally would.

I typically trade only quarterly, but this time was different. I only lasted two months.

What was the trigger? One of our stocks has been soaring past single-holding thresholds lately and I thought I’d like to re-balance on a high note.

Find out more here.

Why I am not changing my portfolio even though the yield curve has inverted

On Friday it was reported that the yield curve in the US inverted for the first time since the last (great) recession. This is supposed to be a reliable harbinger for a future recession in 12-18 months.

What does it mean when the yield curve inverts?

It means the US short-term interest rate (as measured by the 3 month Treasury Bill rate) is now higher than the long-term interest rate (as measured by the 10 year Treasury Bill rate). An inversion like this is generally regarded as a negative market/economic sentiment that can affect economic and market behaviour.

The yield curve inversion has sent some scurrying to make changes to their portfolios by raising cash, selling riskier stocks and becoming more defensive (buying utilities, telcos, REITS and consumer staples equities).

Why I am not scurrying to do anything on the news:

  1. I already have some cash (about 10% of my portfolio, including high-interest savings and short-duration bonds maturing later this year)
  2. I already have good exposure to defensive equities: ~18% utilities + ~11% consumer defensive + ~6.5% communications services + ~3.5% real estate = ~39.0% defensive
  3. I have less than 50% of our total portfolio in equities so a market downturn should be offset somewhat by non-correlated holdings in fixed income, cash and bullion (this was true in 2018, when my portfolio returned ~+1% in spite of equity drawdowns in Canada and the US)
  4. If I sell something to raise cash there could be tax consequences in our non-registered accounts, due to potential capital gains being taxed
  5. I don’t know which non-defensive equities to sell to raise cash – I like all my holdings for the long haul or I wouldn’t own them
  6. Recessions tend to be short and I believe my long-term portfolio is structured well for riding out short-term events
  7. An inverted yield curve has reportedly accurately predicted upcoming recessions eight times (by some sources) since 1968 but, if on January 1, 1968, I bought and held the S&P 500 (^SPX) I would have made a return of 2.81K% in spite of the eight recessions (including the Great Recession of 2008-09)
  8. According to Forbes, the chance of a recession in the next year is always about 27% (based on their data pointing to 16 recessions since 1960) and today the chance is 30%, hardly more than average
  9. If the chance of recession is 30% next year there is also a 70% chance there won’t be a recession next year which means, based on probabilities alone, I should be buying risk-on stocks
  10. If the US Fed surprises by lowering interest rates, that could change the situation immediately
  11. I don’t know how to time when to start re-buying the risk-on equities I am supposed to sell now – presumably when the yield curve corrects to non-inversion

I am not saying a recession won’t happen in 2019-20. It may well.

What I am saying, as a long-term investor who buys, holds and monitors a portfolio of retirement assets designed for all markets, who relies primarily on asset allocation rules when making security weighting decisions, and who makes limited and selective trades intended to improve overall portfolio quality, I don’t react to news like this.

Do you?




Previewing my next quarterly household portfolio review

September brings my next quarterly portfolio review and my next, self-imposed, securities trading window (I only trade four times a year). I have been giving a fair bit of thought this summer to what’s next for our portfolio.

Here’s a preview of my thinking….






My latest article on secular trends and investing has been published in Canadian MoneySaver

Canadian MoneySaver published my latest article on thematic investing in the July/August 2018 edition.

This time I discuss the investment opportunities in alternative energy. While there are headwinds in the short to medium term, long term this theme offers considerable potential, especially in Asian markets.

See more here (paywall): Canadian MoneySaver

Second quarter secular trends fantasy portfolio results are now posted

With the second quarter completed, I’ve updated my secular trends fantasy portfolio performance report.

It’s been a strong year so far for the overall performance, but some themes are doing much better than others.

The total portfolio has delivered a 5.89% total return so far this year. The leaders are Amplify Online Retail ETF (IBUY), up ~25% and ETFMG Prime Cyber Security ETF (HACK), up ~17%.

The laggards are Vanguard FTSE Emerging Markets ETF (VWO), down ~7% and iShares Global Clean Energy ETF (ICLN), down ~5%.

By contrast, my secular trends benchmark is up only ~1% year to date. Other major indexes have total returns year to date as follows:

  • NASDAQ (QQQ) +10.6%
  • S&P 500 (SPY) +2.52%
  • TSX Composite (XIC) +1.14%
  • Dow Jones Industrial Average (DIA) -0.91

So, secular investing this year so far has done fairly well even though performance varies widely by theme. See the full performance report here.


Breaking my own asset allocation rules

I have a confession to make. I have broken my own asset allocation rules with my second quarter trades.

I bought more equities even though I was already a bit overweight in them.

Why did I do this?

My reasoning is as follows:

  • I have a relatively low target equity weight to begin with (46% of our portfolio)
  • I had a lot of cash on hand (way over 10% of our portfolio)
  • I have more cash becoming available due to savings, bond maturities, dividends and interest in the next 12 months or less
  • quite a bit of that cash was in our TFSAs and I wanted to get that money working at better than than bond returns since the returns are tax free
  • bond yields are still not that attractive in spite of rising rates (~3.1% yield-to-maturity on a five-year investment grade corporate bond)
  • there are a lot of relatively good deals in consumer staples, utilities and telecommunications right now – several companies are off their highs and are trading at reasonable multiples
  • these three sectors are pretty defensive and could do OK in a recessionary environment
  • I only bought high quality equities with relatively low risk and often decent dividends (with one or two exceptions)
  • I did not add any new positions, just added to our existing holdings to increase their position size to something more in line with our average position size
  • Next quarter is another opportunity to review our portfolio and decide if we should trim some of the big gainers, especially in technology, which are starting to become more dominant single positions in our holdings

What I bought (all in our TFSAs):

  • Algonquin Power (AQN) – initially bought in my Canadian TFSA and journalled to my US TFSA to get the dividend that is paid in US dollars without conversion back to Canadian dollars
  • Bell Canada Enterprises (BCE)
  • Fortis (FTS)
  • Loblaw (L) – has a relatively low dividend
  • ONEX (ONEX) – this is an exception as it is a growth stock with a very small dividend in the multi-sector holdings industry
  • North West Co (NWC)
  • Telus (T)

I also bought some bonds:

  • CALLOWAY-I 3.985% 30MY23
  • FAIRFAX FINL 4.5% 22MR23
  • CANADIAN WESTERN BANK Maturity Jun 16 2022 Coupon 2.737

So, after this investment “spree,” our weightings vs. targets are as follows:

Asset Type Planned Actual Variance
Equities 46.0% 51.9% 5.9%
Bonds 36.0% 29.6% -6.4%
Bullion 9.0% 9.1% 0.1%
Total Cash/Near Cash 9.0% 9.4% 0.4%
TOTAL 100.0% 100.0%

All in all, we’re still in a pretty conservative posture and continue to have flexibility with cash levels if needed.

More to come in early July when I publish my Q2 portfolio review.

The decks from the April 2018 OSC meeting are posted

The decks from Mark Seed on DRIPping and from myself (Michael Patenaude) on the Q1 2018 OSC fantasy portfolios and sector allocations presented at the April 17, 2018 Ottawa Share Club meeting are posted here.

Be greedy when others are fearful?

Just a quick post to point out that for the third time so far this year, CNN’s fear and greed index is down below 10 (on a scale of 0 to 100). This suggests, by its seven measures, investors are “extremely fearful” of the US equity markets right now.

Hmmm. What’s on sale in the markets? (Hint: telecoms, consumer staples, energy, utilities and materials).

June’s December 12, 2017 proposal for the OSC growth portfolio was accepted

At the December 12 OSC meeting June proposed selling all of Emera and replacing it with PNC Financial services on the OSC fantasy growth portfolio. The change was accepted by vote of the membership.

Trades will be effective at close of business, per portfolio rules, five business days after the vote was taken.

Her presentation is here.

The October 17, 2017 OSC member presentations are available

Three presentations from OSC members made at the October 2107 meeting are now posted:

  • Peter McMurtry’s presentation on Understanding Financial Statements
  • Peter #1’s presentation (in collaboration with myself, Michael Patenaude) on the third quarter review of the OSC fantasy growth and income portfolios
  • Peter #1’s OSC fantasy portfolio trade proposals

These presentations and other OSC member content can be found here.

Is it time to sell Shopify?

In a reply to an email from friends today about Shopify’s stock pullback due to the recent short report issued by Citron, and a related article in the Globe and Mail about SHOP’s future prospects (paywall), I pointed out the following considerations that I consider relevant (at least from my point of view):

Maybe the stock price rises are over. Maybe not. Certainly caution is warranted. Keep allocations reasonable if holding. I sold half my position last month. I am watching it closely now and may sell more in December when I next trade (I only trade four times a year). I am still up 167%.

I note the stock, after the big pullback Wednesday, has remained weak, but it’s not collapsing. It is now (this morning) back where it was August 22. I expect the November 2nd earnings report will be very significant for its short-term future price behaviour. So far it has beaten estimates every time. We’ll see if that continues. Also, guidance towards profitability will likely be scrutinized closely. It’s expected to be profitable in 2018.

I personally believe the short report is exaggerated. Aside from that, this stock has had a meteoric rise this year (not likely to be repeated next year) and it remains vulnerable to any shock – shorting, earnings miss or market correction. That doesn’t necessarily mean this stock must be sold provided weightings are reasonable and a long-term position is the game plan.

I also note that Shopify has defended its marketing practices and business model.

Having said all this, SHOP is possibly going to breach one of my sell rules I’ve identified in our household portfolio planconsider selling any security if its fundamentals change negatively such as chronic negative sentiment among investors (including short-attacks).

I know sentiment changes are *not* (corrected) truly fundamental. But in some cases sentiment can be far more important than fundamentals.

I’ll watch SHOP closely over the next few weeks to see how to proceed. As implied, November 2nd’s earnings report will be very important for short-term sentiment beyond the short report. I will try to look past it.

My current stance: hold.

Please see the important disclaimer for additional important caveats and limitations about the information provided on the money4retirement.ca site. 

Reasons why DIY investors might avoid seeking and paying for investment advice

In a recent discussion with a friend and colleague, we were trying to understand why do-it-yourself investors might not take advantage of low cost advice to help improve their investment performance.

Of course there are many different investors out there with many different approaches to investing. We do encounter quite a few who are do-it-yourself, or seeking to be DIY, or simply seeking to be better informed, or maybe even just seeking the next hot investment idea.

I put together a list (below) of all the reasons I could think of as to why a DIY investor might not pay for low cost but potentially highly valuable advice.

Here is my list of reasons why investors may not seek and pay for advice:

  • the investor is actually satisfied with the advice they currently get and see no need for more
  • the investor only manages a small portion of their portfolio – the rest is managed by a professional so why pay for advice on the “fun money”
  • the investor actually doesn’t manage any of their own portfolio and is afraid take on a more active role in their financial future (even if the advice they get from their advisor is not satisfactory)
  • the investor feels a loyalty (earned or imagined) to their existing advisor and doesn’t want to pay anyone else on top of that and have to potentially deal with breaking a relationship with their existing advisor
  • the investor uses a professional and mirrors much of what the pro does in the self-managed part of her/his portfolio at lower cost
  • the investor is an expert or professional in another field and sees no reason why they cannot also be an expert or equivalent to a professional in the investment field (rightly or wrongly)
  • the investor has a big ego, or believes he/she has a market-beating system already, and thinks advice won’t help them because they’ve got it figured out already (rightly or wrongly)
  • the investor is lost at sea, so much so he/she doesn’t even realize how badly help is needed
  • the investor has a method for investing that focuses on a different timeline or approach than that of an advisor or advisory service (e.g., trading short-term vs. investing long-term; technicals vs. fundamentals; seasonal vs. value, active vs. passive, etc.)
  • the investor, by the very nature of being “self-directed” or “DIY” avoids costs of all kinds with a vengeance and seeks out information for free all the time – even if in reality it is costing them a lot in terms of missed opportunities
  • the investor’s portfolio isn’t actually that big or important to them (maybe it’s more of a hobby) because they already have a pension or other source of income that takes care of most or all of their financial needs – therefore she/he has no perceived need to spend money on advice
  • the investor suffers from lack of experience, and does not realize how a well-timed and relevant piece of advice could easily pay for an entire advisory service for a long period of time
  • the investor, similar to the previous point, does not understand how to place a value on advice, and therefore does not want to spend money on it in case they are overpaying
  • the investor believes there is already sufficient free information available to them through networks, forums, blogs, libraries, etc. and sees no reason to pay for advice
  • the investor actually feels ripped off by advisors, doesn’t trust them, and makes a point of not using them nor paying for them
  • the investor has received paid advice previously that didn’t work out exactly as expected, so they gave up on advice
  • the investor is deceiving them-self into believing there is a “golden goose” or “home run” out there if only they can find it – anything else is not what they are looking for
  • the investor is not actually an investor; he/she is a gambler and gamblers are motivated by other things than reasoned advice and decisions
  • the investor is pretty passive and goes with a “couch potato” approach that simply involves re-balancing and does not feel the need for advice
  • the investor actually has a pretty good idea what they are doing and prefers to access multiple sources of information, including books on investing, mostly or always for free

This list does not contain necessarily mutually exclusive ideas and more than one item may apply to a single investor.

Can you think of any other reasons why a DIY investor may not want to pay for advice? Leave a comment below if you wish.

What to make of Shopify’s 8% pullback yesterday?

Yesterday technology stocks experienced a pullback from recent highs. The NASDAQ fell 1.8%. Many stocks did much worse….

  • Enghouse Systems: -10.57%
  • Shopify: -7.48%
  • NVIDIA: -6.46%
  • Netflix: -4.73%
  • Apple: -3.8%
  • Alphabet: -3.4%
  • Facebook: -3.3%
  • Amazon: -3.16%
  • Microsoft: -2.27%

So, on this list, Shopify was amongst the worst (Enghouse happened to report earnings last week and missed, so was likely punished even more as a result). Other companies fared much better: IBM was actually up 1.31% on the day for example.

To me it is no surprise that Shopify had such a big pullback. It has been on a meteoric rise for quite some time (up 228% in the last year), and it is an easy stock for nervous investors to sell to lock in big gains.

So, does that mean it’s time to pull out? I don’t think so. It closed at $122.80 on the TSX yesterday. That knocked about a week of gains off its chart. I won’t be surprised, but can’t predict, if it pulls back further for a few days.

As a long-term shareholder, I went in with my eyes open. I expect this stock to be volatile in both upward and downward price moves. As the chart above shows, it has been volatile mostly upwards. So it is no surprise to me it has had a sell-off.

But fundamentals have not changed and in five years from now, $122.80 could look very cheap. We’ll see.

Wow, that was a relief!

Times have changed. The US Fed raised rates today and what did the stock market do? It went up of course!

Remember back in the dark days of December 2015 to February 2016, the period after the Fed first raised rates since the financial crisis? The market had a tantrum, didn’t it?

I guess today’s relief was the Fed chose to increase by only 0.25% rather than the 0.5% some were anticipating.

I love how many people say these rate increases are all “baked in” to the market before they happen. If that were truly the case, there would be no reaction at all once the rates change. Unless it’s selling on the news which today was clearly not the case as buyers were out in force.

As a side note, today was my self-imposed trading date (coincidentally) and I tried to be super clever and made my sells in the morning and my buys in the afternoon, hoping for a bit of a pullback. Well, that didn’t work out as I should have been buying in the morning and selling in the afternoon.

Goes to show how hard it is to predict the markets. Good thing I am a long-term investor and a small change in one day isn’t going to make much difference to us.

Jan’s presentation on 2016 stock markets in review is posted

Jan’s excellent presentation to the Ottawa Share Club on January 10, 2017 reviewing stock markets in 2016 is available.

He uses ETFs to track sector performance and provides detailed analysis of how different sectors performed in 2016, with some hints about 2017….

Please go here for more.

Some investment trends I am following

As a long-term investor, I am always on the lookout for emerging trends and ideas that could represent solid opportunities.

The main ones on my radar right now are:

  • e-commerce: while not a new trend, it seems to continue growing at a fast clip and represents some good, if sometimes high risk opportunities
  • water scarcity: this trend is not that new either, but it seems to not be going away anytime soon, making for opportunities to invest in companies that have, for instance, products or services in the extraction, transportation, purification or disposal of water
  • robotics: like it or not, robots are increasing in usage in many industries, and in particular in manufacturing making the companies that produce and service robots of considerable investment interest
  • alternative energy: with a possible resurgence in carbon-based energy exploration and development in the US under the new government, and with apparent oversupply of oil and gas on markets, alternative energy has been in a short-term slump, which longer term, given climate change accords, will quite possibly reverse
  • disruptive technologies: more generally, there are disruptive technologies emerging in many sectors and following them can be challenging but potentially rewarding – whether in health care, technology, manufacturing, analytics or internet of things, opportunities are presenting themselves on a regular basis

Trying to select investments in these sometimes risky areas of endeavour can be tricky, so I tend to prefer a diversified approach to thematic or secular investing via ETFs.

To get a sense of some of the ways to invest in these trends, visit It’s My Portfolio dot-ca’s Investment Resources for Canadians and see the entries for investment theme/secular trend.