June 2014 Report
The Canadian market is finally showing some life, up over 3% in June and 0ver 10% YTD. The US markets continue to set records, but at a slower pace. Given my mix of Canadian and US stocks plus the unexpected strength of the Canadian dollar, my portfolio was somewhere in the middle with respectable gains of 1.3% for the month and over 8% on the year-to-date.
Comparative Results: (My results expressed in Canadian dollars)
“What gets measured gets done.”
This axiom has been attributed to several management gurus who have been involved in Total Quality Management or Management By Objectives. What means that the simple act of regular measurement results in actions that actually improve the measurement itself.
This is why it is important to calculate your returns regularly, so you can take actions to fix problems and keep your portfolio working for you.
There are a variety of methods of calculating and comparing returns. It doesn’t really matter what method you use, but it is important to be consistent on how you measure your returns and how you compare your returns to market returns.
It is a relatively simple task, but you need to account for any money going into your portfolio and going out and the associated timing.
I use a method that seems to be popular with brokers and investment analysts. I take the balance at the end of the month, divide by the balance at the end of the previous month, subtract one (to get the increase) and multiply by 100 to get the percent increase for the month.
If I added or removed money in that month, then I adjust the current month end balance accordingly to make it comparable to the previous month.
For yearly returns I then add the individual months and it gives you a number which is roughly the compound annual growth rate (CAGR). I do the same for any benchmark against which I am comparing (DJIA, S&P, TSX).
A More Precise Method
Click HERE to see a precise calculator for measuring compound annual growth rate (CAGR).
This calculator has you fill in the beginning balance of your portfolio and the date, the ending balance and the date, and any money going in and out by date. It gives a more precise measure as it computes using the actual date of money in or out, rather than just assuming it was at the end of the month as I do.
When using this calculator, I get a number that is slightly less than my calculation (eg 10.82%, vs my number of 11.2% for one particular five period).
One of the readers of this blog (Peter in Thailand) has been grappling with this issue and has developed a unique and relatively simple approach. Thanks Peter for showing me this. I hope you don’t mind my sharing it and correct me if I have made any errors.
He takes a particular start point (any date will do, but the first day of your portfolio is the best) and assumes that he bought shares or units at a price of $1.00 per unit to arrive at an artificial number of units owned. Then he divides the dollar value of the portfolio by that number of shares at the end of a period to get a new unit value. If he puts new money in, he assumes that he bought units at that price. If he takes money out he assumes it was redeemed at the unit value at that time and reduces the number of units accordingly.
I have modelled this method and it seems to provide comparable return values.
Use whatever method works for you and stay consistent. The simple act if measuring will end up improving your returns.
Here is a chart using Google Finance to track my off-shore returns for the first six months of 2014. I am slightly ahead of the S&P and considerably ahead of the DJIA. None of these lines include dividends. My dividends are almost double that of the S&P and a bit higher than the DJIA. This translates into a 13% annualized return.
HERE is an excellent website for checking individual stock, their returns and their dividends. For Canadian stocks type “.tsx” after the symbol.
Click HERE to read an article that both challenges and supports my method of selling some stocks in the spring to raise cash for a fall purchase. You will find pros and cons for making this move.
Intel has been a bit of a concern for me lately because it has not increased its dividend since August 2012 – almost two years. It is getting close to falling off my list of suggested stocks. The only thing that is keeping it there now is its high dividend yield and Valueline’s A++ rating. Its past dividend increases have kept its long term average up – 9.27% in 2012, 25.98% in 2011, 12.86% in 2010 and it even had healthy dividend increases during the crash. Analysts are all over the map on their predictions of the future of INTC, with some saying get out now, while other say buy more, the best is yet to come. Generally, this type of performance and uncertainty would make me consider dumping the stock as I prefer stability over potential gains, but I have hung on. So far this year, holding on has proven to be the wise choice. It is up 15% for the year, with almost 7% of that coming on Friday the 13th, just as I was doing my dividend analysis. I will continue to hold for a while, but if we pass the two year mark with no dividend increase, I may take my profits and move the cash to another holding. I’ll keep you posted.
On June 18, I was asked to give a presentation to teachers at CNAQ. The link below is a video of my slides. If anyone has questions, feel free to contact me at firstname.lastname@example.org.
This Month’s Stock List (A++, dividends >2%, dividend growth)
One stock I have not noticed on before on the list is PEG. I’m not familiar with it, so will look at it and report later.
|Company||Ticker||Financial Strength||Dividend Yield||Dividend Growth 10-Year|
|Royal Dutch Shell ‘B’||RDSB||A++||4.34||7.00|
|Public Serv. Enterprise||PEG||A++||3.74||2.50|
|Unilever PLC ADR||UL||A++||3.46||9.00|
|Procter & Gamble||PG||A++||3.22||11.00|
|Novartis AG ADR||NVS||A++||3.04||16.00|
|Merck & Co.||MRK||A++||3.02||1.50|
|Baxter Int’l Inc.||BAX||A++||2.82||10.00|
|Johnson & Johnson||JNJ||A++||2.70||11.50|
|Exxon Mobil Corp.||XOM||A++||2.69||8.50|
|Deere & Co.||DE||A++||2.62||15.00|
|Automatic Data Proc.||ADP||A++||2.60||13.50|
|Int’l Business Mach.||IBM||A++||2.41||19.00|