October 2013 Investment Update

 

What’s the definition of mixed emotions?

1)      Watching your mother-in-law drive your new Lexus over a cliff.

2)      Watching your portfolio grow by over 4% while you have $100,000 sitting on the sidelines waiting for a placement.

 

I experienced # 2 this month.

 

My portfolio grew by almost 4 ½ % in Canadian dollars (3 ¼ % in US, due to weakness in the Canadian dollar).  In absolute dollars, it was the largest monthly gain I have ever experienced, almost equalling my annual salary.  My return to date is almost 17% in Canadian dollars and over 10% in US dollars, with 2 months left in the year.

 

The TSX and S&P grew by almost 4 ½ %, while the Dow was only up less than 3%.  An exceptional month for sure.

 

However, I had planned on making significant purchases but missed the boat on the timing, proving again that market timing is a fool’s errand.  But it did expose my risk profile, which I am satisfied with.  I always say that I am prepared to give up large gains to avoid large losses.  I am a conservative, risk-averse investor and it showed in this purchase cycle.

 

Around Oct 9 the markets hit their low, the week before the US government finally did what they should have done all along.  I was tempted to buy at that time, but if the US congress had failed to reach an agreement, the markets would have collapsed and I wasn’t prepared to risk it.  So I waited while my portfolio set records, but my cash sat idle.

 

I will now re-evaluate my purchase timing.  I have missed my planned October purchase, but I have made successful purchase decisions in November, December and even March.  The US government again just kicked the can down the road and in a couple months will be revisiting the issue.  I doubt if it will cause as much turmoil this time, but it may create an opportunity.

 

 

Below is another article on house buying vs renting and lower down is my usual stock screener.  As always, feel free to contact me with questions.

 

 

 

 

The Economist Who Just Won a Nobel Prize Thinks Owning a Home Is a Terrible Investment

 

Yale economist Robert Shiller won a Nobel prize on Monday (or, rather, a third of one) for his work suggesting that financial markets might not always be quite as efficient as we think, in large part due to human miscalculation about the value of assets. He famously predicted soon-to-burst bubbles in the stock market during the tech boom, and later in the housing market (he gets particular credit for sounding these warnings in print, in a book meant for mass consumption).

The New York Times’ David Leonhardt has the most digestible summary here of Shiller’s long career:

Boiled down, Mr. Shiller’s central insight is that people make mistakes – and they tend to make the same mistakes over and over.

In the many realms where we make said mistakes, the housing market now stands out as a big one (the Nobel prize committee actually mentioned the single-family house in awarding part of the prize this year to Shiller).

Conventional wisdom says our own homes are a great place to invest money because the value of a house will inevitably appreciate. One of Shiller’s most eye-popping findings actually says quite the opposite: Historically, between 1890 and 1990, the actual rate of return on owning a home has been virtually non-existent. We think housing is a great investment. Shiller says it’s not.

Here he is predicting the fall of housing prices to Leonhardt in 2005:

This is the biggest boom we’ve ever had. So a very plausible scenario is that home-price increases continue for a couple more years, and then we might have a recession and they continue down into negative territory and languish for a decade.

Here he is discouraging people from investing in housing on CNNMoney in 2007:

Well, human thinking is built around stories, and the story that has sustained the housing boom is that homes are like stocks. Buy one anywhere and it’ll go up. It’s the easiest way to get rich… It can’t be true that homes rise 10 percent a year. If they did, in the long run no one would be able to afford a house.

Here he is talking to Bloomberg TV just this February, looking back on the idea that housing should be treated as a sure-fire investment:

So, why was it considered an investment? That was a fad. That was an idea that took hold in the early 2000’s. And I don’t expect it to come back. Not with the same force. So people might just decide, ‘Yeah, I’ll diversify my portfolio. I’ll live in a rental.’ That is a very sensible thing for many people to do.

This is not to say that no one should own a home. There are plenty of other reasons to own rather than rent (maybe you don’t want to deal with a landlord, maybe you want the freedom to remodel your bathroom). Shiller’s work, however, says that you shouldn’t buy a house simply because you’re hoping to pump money out of it in the long run.
 

 

Suggested stocks this month: (standard criteria; A++, 2% minimum dividend, history of dividend growth)

Company

Ticker

Financial   Strength

Dividend   Yield

Dividend   Growth 10-Year

3M Company

MMM

A++

2.06

6.5

Abbott Labs.

ABT

A++

2.37

8.5

AT&T Inc.

T

A++

5.28

5

Automatic Data Proc.

ADP

A++

2.39

14

Baxter Int’l Inc.

BAX

A++

3

8.5

Bristol-Myers Squibb

BMY

A++

2.84

2

Cardinal Health

CAH

A++

2.22

25

Chevron Corp.

CVX

A++

3.32

9

Coca-Cola

KO

A++

3.12

10

Colgate-Palmolive

CL

A++

2.25

12.5

ConocoPhillips

COP

A++

3.76

13.5

Deere & Co.

DE

A++

2.42

13

Du Pont

DD

A++

3

1.5

Emerson Electric

EMR

A++

2.47

6.5

Exxon Mobil Corp.

XOM

A++

2.85

8

Gen’l Dynamics

GD

A++

2.61

13

Home Depot

HD

A++

2.03

19.5

Honeywell Int’l

HON

A++

2.06

6

Illinois Tool Works

ITW

A++

2.14

13

Int’l Business Mach.

IBM

A++

2.17

18

Intel Corp.

INTC

A++

3.79

26

Johnson & Johnson

JNJ

A++

2.86

12.5

Kimberly-Clark

KMB

A++

3.11

9.5

Lockheed Martin

LMT

A++

3.7

22.5

McDonald’s Corp.

MCD

A++

3.42

27

Merck & Co.

MRK

A++

3.72

1.5

Northrop Grumman

NOC

A++

2.27

9.5

Novartis AG ADR

NVS

A++

3.16

16

Occidental Petroleum

OXY

A++

2.82

14.5

PepsiCo, Inc.

PEP

A++

2.77

13.5

Pfizer, Inc.

PFE

A++

3.14

6

Procter & Gamble

PG

A++

2.99

11

Raytheon Co.

RTN

A++

2.89

8

Royal Dutch Shell ‘A’

RDS/A

A++

5.28

8.5

Smucker (J.M.)

SJM

A++

2.14

10.5

Texas Instruments

TXN

A++

3.01

21.5

Total ADR

TOT

A++

5.2

15.5

Travelers Cos.

TRV

A++

2.3

4

Unilever PLC ADR

UL

A++

3.49

9.5

United Technologies

UTX

A++

2.2

15.5

Verizon Communic.

VZ

A++

4.21

2.5

Wal-Mart Stores

WMT

A++

2.62

18

 

 

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About borgford

Feel free to contact me with questions: brianborgford@hotmail.com
This entry was posted in Commentary. Bookmark the permalink.

One Response to October 2013 Investment Update

  1. Joyce Zomer says:

    Hi, Brian

    Love your updates! I missed the boat in October as well.

    I have sad news. Mom passed away yesterday afternoon in Edmonton. Herman and I are flying out on Wednesday.

    Hugs to you both Joyce   “And in the end, it’s not the years in your life that count. It’s the life in your years.” Abraham Lincoln

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