February 2016 Update

 

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Feb Investing post

Which would your choose??

Although February in Calgary has been OK, January was very cold and snowy.  I think next year we will be in Costa Rica for most of January.

Coming up in March – Arizona, California.  Then in May – China, Malaysia.

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February Results

This is a leap year, so the month doesn’t really end until the markets close on Monday February 29.  However as we are travelling that day, I decided to end the month early and use February 28 (actually 26) as the closing market for February.

After another tumultuous month, the Canadian markets closed down just under a quarter percent for a YTD loss of 1.63%.  The US markets gained slightly – 1% for the DJIA and 0.4% for the S&P for a YTD loss of just over 4 1/2%.  Still not shaping up to be a great year, but there seems to be a bit of stability emerging.

My overall portfolio dropped by about a half a percent. I had modest losses on my Canadian securities and good gains on my US stocks (over 2%).  However the Canadian dollar has strengthened by over 3% erasing my US gains – just the opposite of what happened last year.  My year to date returns (Jan and Feb) stand at -1.00%, still significantly better than the overall markets.

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Transactions in February

Although February saw considerable volatility, I used some of the upsides to make some disposals of undesirable securities and waited until I felt there was some market stability to make corresponding purchases.

REI-A

In February I sold my position in RIOCAN REAL ESTATE INV TRUST PREF A.  This was one of the dogs I inherited from my advisor that I fired last year.  It was meant to be a surrogate for fixed income securities, but it never measured up to the objective – quite the opposite.

You always hear that up to 40% of your portfolio should be in fixed income securities to protect you when the markets decline.  Sounds good, but often fixed income securities go down with the market and sometimes even go down on their own, thus defeating the purpose of having them.  This was one of those.  Actually almost all of the fixed income securities provided by my advisor met this fate – thus disproving the theory of fixed income securities and also discrediting advisors.  This was always one of my heated points of discussions with my advisor and the main reason that I sent him packing.  He was much better at spouting the jargon than I ever could, but my results out paced his 10% to 7% over a 10 year period.  Broad market knowledge seldom translates into superior results and never in the long term.

Although this security paid a nice “dividend”, the principle plummeted, giving an even higher yield, but losing half of its value.

Fortunately in early February, the host company decided to exercise its option to redeem the shares and did so at the face value, causing the market price to jump over 50% in one day.  Rather than waiting for the cash to come in the March redemption, I sold immediately, recovering my lost principle.  Now I can redirect the cash to securities that fit my strategy.

BNS-A

In addition I sold my position in  my preferred shares in Bank of Nova Scotia.  This was another brain child of my former advisor, supposedly to protect on the downside which it did not.  It also has a very low yield.  It recovered enough this year to allow me to dispose of it and redirect the cash.

G

Another disposition was Goldcorp, acquired by the same advisor.  The thinking was that you need to be diversified in all fields and you have to have some gold.  I disagree with this speculative play and low yield.  I will stick to my strategy that has worked. Goldcorp does not fit the profile and has performed poorly.

Purchases

With the cash raised from the above sales and cash from my dividends, I made several purchases in February, just increasing my position in several Canadian holdings – RY, BNS, CM, RUS, T, PWF, FTS, GWO.  I also had an accumulation of US cash that I used to double my holdings in MRK.

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Mutual Funds  per Rob Carrick

I follow Globe and Mail financial writer, Rob Carrick.  Not because his is a great financial mind, but because he is tapped into the broad financial press and posts some good articles, many of which I link in this blog.

Occasionally he will post a direct comment of his own based on his knowledge.  Here is once such commentary about mutual funds.  As you may know, I strongly oppose mutual funds and they will suck you dry over the long term. I also favour ETFs, but prefer strategic direct stock investing.

ASK ROB
The question:
“Why don’t you push more readers in the direction of highly successful mutual funds with multi-year records of beating indexes after factoring in fees? Yes, ETFs are simple and very cheap, but there are a few great funds out there that clobber them when it comes to performance.”

My reply: I have trouble with the idea of a few great funds because the list is always changing. Strong past performance is no indicator of future success. A handful of mutual funds do manage consistent success vs. the index, but they tend to be steady performers not stars. My thinking, and a growing number of people agree, is that you’re better off with an ETF that gives you index returns minus a tiny fee. So much money sits in mutual funds that had a good year or two but can’t match in the index over the long term.

My thoughts:  I still prefer direct stock investing as my returns have usually exceeded those of comparable ETFs and my dividends exceed those of ETFs.  However I still think ETFs are a good idea (as does Warren Buffet), especially for those who don’t want to take the time to look at individual companies.  For Canada I recommend an ETF with a ticker symbol of XIU which very closely mirrors the TSX.  For the US U suggest either DIA or SPY which closely track the DJIA and S&P 500 respectively.  In each case, the management fees (paid for out of the fund, not by you) is negligible and does not seem to affect the funds’ performance relative to the respective index.

I have found NO ONE with a portfolio of mutual funds that have come close to matching the general markets.  Avoid mutual funds.

 

***

Suggested Stocks

US

Company Ticker Financial Strength Dividend Yield Dividend Growth 10-Year Current PE Ratio
3M Company MMM A++ 2.83 7.5 19.57
Abbott Labs. ABT A++ 2.72 1.5 18.07
AT&T Inc. T A++ 5.19 4 13.4
Automatic Data Proc. ADP A++ 2.71 13 25.12
Boeing BA A++ 3.71 11.5 14.32
Bristol-Myers Squibb BMY A++ 2.4 2.5 33.33
Cardinal Health CAH A++ 2.16 26 17.8
Chevron Corp. CVX A++ 4.94 10.5 13.68
Coca-Cola KO A++ 3.21 9.5 22.6
Colgate-Palmolive CL A++ 2.4 12 42.01
Deere & Co. DE A++ 2.99 15.5 18.9
Dover Corp. DOV A++ 2.73 9.5 16.62
Du Pont DD A++ 2.64 2.5 19.53
Emerson Electric EMR A++ 3.93 8 15.59
Exxon Mobil Corp. XOM A++ 3.54 9.5 30.65
Franklin Resources BEN A++ 2.16 15.5 10.05
Gen’l Dynamics GD A++ 2.04 13.5 14.44
Grainger (W.W.) GWW A++ 2.17 17 18.39
Home Depot HD A++ 2.1 19 19.96
Honeywell Int’l HON A++ 2.24 8.5 16.56
Illinois Tool Works ITW A++ 2.3 12 17.93
Int’l Business Mach. IBM A++ 3.93 19.5 10.6
Intel Corp. INTC A++ 3.54 23.5 12.11
Johnson & Johnson JNJ A++ 3.07 10.5 18.13
Kimberly-Clark KMB A++ 2.84 8.5 29.42
Lilly (Eli) LLY A++ 2.78 4 21.67
Lockheed Martin LMT A++ 3.15 22.5 17.54
McDonald’s Corp. MCD A++ 3.07 23 21.98
Medtronic plc MDT A++ 2.11 15 14.2
Merck & Co. MRK A++ 3.66 1.5 13.6
Microsoft Corp. MSFT A++ 2.76 19 18.57
Novartis AG ADR NVS A++ 3.61 14.5 18.71
PepsiCo, Inc. PEP A++ 2.88 12.5 20.71
Pfizer, Inc. PFE A++ 4.06 5 19.57
Procter & Gamble PG A++ 3.23 10 19.66
Public Serv. Enterprise PEG A++ 3.83 3 14.93
Qualcomm Inc. QCOM A++ 4.28 22.5 12.27
Raytheon Co. RTN A++ 2.2 11.5 17.49
Schlumberger Ltd. SLB A++ 2.75 13.5
Smucker (J.M.) SJM A++ 2.15 9.5 21.47
Texas Instruments TXN A++ 2.87 28 17.69
Total ADR TOT A++ 6.13 8 12.95
Travelers Cos. TRV A++ 2.24 6 10.7
Unilever PLC ADR UL A++ 3.18 8 21.96
Union Pacific UNP A++ 2.8 21 15.1
United Technologies UTX A++ 2.9 14 13.92
Verizon Communic. VZ A++ 4.44 3 12.61
Wal-Mart Stores WMT A++ 3.12 16.5 15.41

 

Canada

Company Ticker Domicile Code Financial Strength Dividend Yield Dividend Growth 10-Year Current PE Ratio
Agrium, Inc. AGU CA A 4.26 35 10.76
Bank of Montreal BMO.TO CA B++ 4.61 7 10.76
Bank of Nova Scotia BNS.TO CA A 5.18 9 9.55
BCE Inc. BCE CA B++ 4.69 9.5 15.81
CAE Inc. CAE.TO CA B+ 2.08 6.5 15.7
Cameco Corp. CCO.TO CA B+ 2.41 15.5 11.86
Can. Imperial Bank CM.TO CA A+ 5.18 6.5 9.59
Can. Natural Res. CNQ.TO CA B++ 3.23 23.5
Enbridge Inc. ENB.TO CA B++ 4.81 11.5 18.05
Fortis Inc. FTS.TO CA B+ 3.94 9 18.14
Jean Coutu Group PJC/A.TO CA B++ 2.19 10.5 15.94
Magna Int’l ‘A’ MGA CA A 2.53 6.5 7.04
Manitoba Telecom Svcs. MBT.TO CA B+ 4.04 3.5 25.35
Manulife Fin’l MFC CA B++ 4.05 5.5 9.91
Methanex Corp. MEOH CA B+ 3.75 23 12.71
Nat’l Bank of Canada NA.TO CA B++ 5.77 10.5 8.44
Pembina Pipeline Corp. PPL.TO CA B++ 5.42 4.5 27.66
Potash Corp. POT CA B++ 5.83 34.5 16.03
Power Financial PWF.TO CA B+ 4.78 8.5 9.75
Royal Bank of Canada RY.TO CA A 4.7 10.5 10.35
Russel Metals RUS.TO CA B++ 8.39 16 16.17
Shaw Commun. ‘B’ SJRB.TO CA B+ 5.05 28.5 13.21
SNC-Lavalin Group SNC.TO CA B++ 2.52 20 17.53
Suncor Energy SU.TO CA A 3.52 22.5
TELUS Corporation T.TO CA B++ 4.69 15.5 15.09
Thomson Reuters TRI.TO CA B++ 2.71 6 21.83
Toronto-Dominion TD.TO CA B++ 4.18 10.5 11.72
TransCanada Corp. TRP CA A 6.18 8 17.25

 

Europe

Company Ticker Domicile Code Financial Strength Dividend Yield Dividend Growth 10-Year Current PE Ratio
Novartis AG ADR NVS CH A++ 3.61 14.5 18.71
Daimler AG DDAIF DE B++ 6.29 6 8.15
Siemens AG (ADS) SIEGY DE A 4.17 13.5 10.2
Total ADR TOT FR A++ 6.13 8 12.95
AstraZeneca PLC (ADS) AZN GB B++ 4.71 13.5 21.37
Brit. Amer Tobac. ADR BTI GB B++ 4.12 14.5 16.14
BT Group ADR BT GB B++ 3.14 2.5 13.33
GlaxoSmithKline ADR GSK GB A+ 5.89 7 20.83
Rio Tinto plc RIO GB A 4.05 10.5 8.88
Vodafone Group ADR VOD GB B++ 4.72 14 35.59
WPP PLC ADR WPPGY GB A 3.37 17.5 14.7
Tenaris S.A. ADS TS LU B+ 4.24 16.5 35.98
Philips Electronics NV PHG NL B+ 3.86 10 22.6
Unilever PLC ADR UL NL A++ 3.18 8 21.96

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Happy Investing!!

 

 

 

 

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About borgford

Feel free to contact me with questions: brianborgford@hotmail.com
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