March 2014 Report
Both the Canadian and the US markets had modest gains this month with each of the TSX, DJIA and S&P500 gaining just under one percent. The Canadian market is showing some strength with over five percent in gains year-to-date. The US markets are just about even year-to-date with the S&P up slightly from December and the DJIA down slightly.
My overall portfolio had a good month with about 2 3/4 % gain (as expressed in either US or Canadian dollars) and close to 6% gain YTD in Canadian dollars or just under 2% gain in US dollars. The strengthening US dollar has helped my overall position as I will be retiring in Canada. (Less than three months to go). Again I beat the market, which seems to be a common occurrence even though that is not my objective or strategy (see comments on Warren’s Buffets letter below).
My individual investment accounts (I have several of them) ranged from a low of 1.78% gain to a high of 3.31% gain for the month.
Although the Canadian market is around its record highs, the US markets are still off from their records. In spite of the high markets it looks like there might be some good buys out there. I have listed a few below.
As I’ve often said, no one can predict what the market will do in the short term but I am preparing for a peak and will not be doing any buying for a while. I want to preserve some of my available cash anyway for setting up our retirement life this summer. I may look at culling out some stocks come spring (remember “Sell in May and Go Away”) to build up some cash for my annual purchasing in the fall.
See some of my other commentaries and links below:
Click on the above to see The Oracle’s recommendations. He strongly advocates ETF’s if you want to track the market. I have followed XIU (for the TSX market) and DIA and SPY (for the US Markets). Each of these ETF’s have been remarkably close to the each of their respective markets and even though there is a small management fee imbedded in the fund, that has not impaired their ability to stay on track.
The key to investing is to have clear objectives and a strategy that matches those objectives. My objectives are to produce a retirement income and preserve my capital, not to match or beat the market. Those objectives are not consistent with market matching. I have been fortunate to be close to market and often beating the market, but that has been a by-product rather than by design.
Each of those indexes as well as another index I have used in the past (DVY for dividends) took a major tumble during the stock market crash of 2008-09, losing 40 to 60 % of their value at the bottom. Those numbers scare me. Due to action by most western governments with stimulus budgets, the world was able to escape the type of financial catastrophe that followed the 1920 stock market crash when stocks fell by 90% over the period of a few years.
This is what I mean by capital preservation. My strategy is to also ensure I don’t lose as much as the general market in a major downturn and in exchange I am prepared to sacrifice big gains in the up markets. During the most recent financial crisis, my portfolio fell by no more than 15% compared to the above numbers of 40 to 60 % and many people were down as much as 80%.
So if you want to track the market – ETFs are probably the best way. The main point is to clearly state your objective and build a plan to meet that objective. My portfolio continues to meet my objectives, with my data providing evidence.
“You have to diversify your investment. Don’t rely on only one country. Think of developing or emerging markets.” How often do you hear that mantra. Again it is often spouted by those who are selling such instruments that propose to offer international exposure. And again I ask, “Show me your portfolio and returns.” Seldom is there a response.
How well do you know these emerging and developing markets? What do you know about their stock exchanges and associated rule and regulations? Having lived in China, as much as I loved the experience, it taught me that this would not be a good place to put your money. Yes many of the economies are doing great, as are companies and businesses that operate within them, but how do actual individual investors do, especially in the long run?
I think that prudent international exposure is a good thing but what better way to do it than from the sanctuary of reasonably controlled and regulated market place. With all its flaws that are often exposed through frauds, the NYSE still is the most tightly controlled market in the world. Many of the large US based companies derive much of their income from emerging and developing markets. In addition, many non-US companies trade their shares on the NYSE through ADRs which stand for American Deposit Receipts which is just a method for international companies to raise equity through the NYSE
Here are some examples of US stocks traded on the NYSE that have heavy international exposure based on 2012 annual reports:
Conoco Philips (COP)- 50% of revenues from non US operations
Coca Cola (KO) – 55 % of revenues from outside of North America and almost 60 % outside of the US.
McDonald’s (MCD) – almost 70 % of its revenues come from outside the US.
3M (MMM) – produces 65% of its revenues from outside the US.
Merk (MRK) – almost 60% of its revenues come from outside the US
Dupont (DD) has active operations in 90 countries
Kimberley-Clark – KMB receives half of its revenues outside the US.
Johnson and Johnson (JNJ) gets over half of its revenue from outside the US
The following companies are based in other countries but are traded on the NYSE using ADR:
Novartis (NVS) is a pharmaceutical company based in Switzerland.
Royal Dutch Shell (RDS-A) is an international oil and gas company headquartered in the Netherlands.
Total (TOT) is an international oil and gas company headquartered in Paris.
Unilever (UL) is located in London, UK providing consumer goods worldwide.
You will find if you go through most of the companies listed on my suggested list that a high percentage of their operations are outside the United States. How much more international diversification can you get? Would you rather have your international exposure managed under the auspices of the New York Stock Exchange, or would you be happy to take your chances with the Dubai Financial Market, or the Hang Seng out of Shanghai, or a market regulated in Nigeria, or Mumbai or Dhaka? Think about that when some uninformed observer advises you that you must go international or you will miss opportunities around the world. Again, as them what their track record is – you likely won’t get a response.
Investing in Real Estate
Another article on the wisdom (or not) of considering real estate an investment.
Now that we are heading back to Canada, my RRSP comes into more focus and will require some planning. I manage my offshore investments by myself according to the strategies you have read. However I do use a financial adviser for my RRSP money which has sat in Canada since I left 12 years ago. I set the strategy and they make the trading decisions within the parameters I set and we confer several time each year to check on results and to see if there is any adjustments necessary. I have been quite pleased with the results we have been able to produce over the years. Although it is not as much as I get in returns on my self-managed portfolio they are facing a few restrictions. I have instructed them to keep at least 30% in fixed income and due to Canadian RRSP rules, most of the investments must be in Canadian securities. As we know, fixed income has produced poor returns and the Canadian market the past few years has been very poor. In spite of the restrictions I have produced almost 7 1/2 % per year for the past 10 plus years. Here is the chart showing the returns:
ValueLine A++, 10 years dividend growth, dividend greater than 2%
Note: Timeliness is Valueline’s indicator of a good time to buy – 1 = best, 5 = worst
Note: I have indicated in BOLD stocks that are significantly off their 52 week highs which may be an indicator of a good time to buy.
|Company||Ticker||Timeliness Rank||Dividend Yield||Dividend Growth 10-Year||Current PE Ratio|
|Automatic Data Proc.||ADP||5||2.53||13.50||24.71|
|Baxter Int’l Inc.||BAX||3||2.89||8.50||13.54|
|Deere & Co.||DE||2||2.33||13.00||10.30|
|Int’l Business Mach.||IBM||3||2.10||19.00||12.06|
|Illinois Tool Works||ITW||5||2.08||13.00||19.12|
|Johnson & Johnson||JNJ||4||2.81||12.50||16.54|
|Merck & Co.||MRK||3||3.17||1.50||16.40|
|Novartis AG ADR||NVS||5||3.04||16.00||73.92|
|Procter & Gamble||PG||3||3.08||11.00||18.01|
|Royal Dutch Shell ‘A’||RDS/A||3||5.28||7.50||12.56|
|Unilever PLC ADR||UL||5||3.74||9.50||17.69|
|Exxon Mobil Corp.||XOM||3||2.79||8.00||12.27|
In addition some good Canadian companies are down for the year – GWO, PWF, TRI