October 2016 Investing Update

Two Months Left in 2016

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Regina and Winnipeg

October Travels – Regina and Winnipeg. Taking in some AHL hockey games in Winnipeg and family time in Regina.

 

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NOTEFeel free to share this blog with anyone you might think is interested.  It is open to all and is free – as is any advice I bestow – beware of free advice.

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October Results

The Canadian market rose this month, while the US markets dropped and the US dollar strengthened against the Canadian dollar.  My Canadian portfolio was up considerably more than the TSX; 2.3% gain on my Canadian portfolio vs 0.42% for the TSX.  My US portfolio was down 1.76% vs a drop on the S&P of 1.94%.  The stronger US dollar contributed to my overall gain of 1.54%.  Many of the big US stocks had large declines – eg T down 9%, VZ down 7%, MRK down 6%, PFE down 6%, EMR down7%, INTC down 7%.

On a YTD basis, my overall portfolio is up 12.57%.

 

October YTD
TSX 0.42% 13.66%
DJIA -0.91% 4.12%
S&P -1.94% 4.02%
BB CDN 2.30% 16.73%
BB US -1.76% 10.81%
BB Total (no FX) 1.06% 14.89%
BB Total (incl FX) 1.54% 12.57%

 

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Articles

Some people are saying lower your expectations on returns.  Click HERE for article.  I posted a comment to this article stating my 12 year returns averaging 10%.  Will that hold for the future?  Who knows – but the past speaks for itself.

 

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October Purchases

I purchased the following stocks during the month of October:

US:

BA, QCOM – These are new stocks – note that each has gained considerably since I purchased, confirming my genius in timing – or more likely just dumb luck.  However I did use my model noted in last month’s blog to make this decision.  The gains on these new stocks helped offset the big drops on other stocks.

TOT, IBM, PFE (add to existing holdings – these displayed good buying opportunities)

Canadian:

TRP, ENB, FTS, BCE, T, RY (add to existing holdings)

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US Election and the Markets

My next report will be after the US election so we will have an idea of how the market reacted to the election of a new US president.  The market has signalled its preference for Clinton over Trump.  Last Friday, when the Clinton email issue resurfaced and Trump seemed to gain some traction, the market dropped by 1% instantly.

HERE is an article that examines the market reaction to the two candidates.

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Reader Question:

TK from Doha asks the following questions (my responses in italics)

Q 1) How do I invest in: ETFs BRKB, Gold
Answer:
You can buy these on the markets just like stocks.  You just need to know their symbol.  BRKB is available on the New York markets with US currency.  For other index funds, Vanguard has a good name, but any name brand will produce the same results as they are tied to the market index.  For example in Canada I have used XIU (IShare company) and in the US I have used SPY and DIA (SPDR company).  Any of these will match the markets quite well in spite of the small expense ratio in the fund itself.  For gold you can use XGD (also IShare), but Gold is pure speculation and has no place in my portfolio given my strategy.  Its value as a hedge against declines is quite questionable and it can be quite volatile.  Keep in mind with BRKB, which is a good solid pick, it pays no dividends – all of your gains are in capital appreciation.  Again, it does not fit in my portfolio.
 
I cannot ague against ETFs – Warren Buffet recommends them, even over his own BRKB company.  I still prefer direct stock investing as per my strategy, and I have a dozen year history of doing better than an ETF alternative.

Q 2) Impact of Taxes
Answer:
As a non-resident you do not have to pay taxes.  This is important for your capital gains as everything you gain on your stock prices will be tax free.  When you return to Canada you will value your stocks on the day of return and pay capital gains from that day forward – not on any gains up to that point.  Dividends you receive while a non-resident will be subject to a 25 to 30 % withholding at source.  Nothing you can do about that.  I still think its worth it though.  When you become a Canadian resident you will be subject to Canadian income tax from the day you arrive – any income you earn after landing in Canada.    However, dividends on Canadian companies and all capital gains receive very favourable tax treatment and your effective tax rate ends up being quite low.  Dividends on US companies will be taxed as normal income.  Don’t worry about the taxes – they mean nothing while you are a non-resident and as a Canadian resident you will get someone to prepare your taxes.  Canadian taxes are quite reasonable and worth it for what you get in Canada.

Q 3) Should I change Currency
Answer:

Whatever you have in Canadian dollars, keep in Canadian dollars.  Whatever you have in US dollars, keep in US dollars.  There is nothing to be gained by switching back and forth.  The common investor always loses and the professionals usually lose as well.  Currency speculation is gambling, not investing.

Q 4) With Deutche Bank taking a big hit recently, is this a good time to buy?

Answer:

Forget it.  I wouldn’t touch a bank anywhere in the world other than Canadian banks.  They are poorly regulated in other countries (especially the US) and many people have lost on them (I lost almost all of the value in Citi Bank – see my book).  Investing in DB is pure speculation and gambling, not investing.  No different than playing bingo.  Stick with the slow and steady strategy rather than hoping for a home run.

I liked this quote after the questions:

Quite honestly Brian you make investing much less intimidating – and logical – and I am very appreciative.

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Suggested Stocks

US

Company Ticker Financial Strength Dividend Yield Dividend Growth 10-Year Current PE Ratio
3M Company MMM A++ 2.61 8.5 20.34
AT&T Inc. T A++ 5.05 3.5 13.42
Automatic Data Proc. ADP A++ 2.61 13 24.67
Boeing BA A++ 3.45 12.5 14.27
Bristol-Myers Squibb BMY A++ 3.02 2.5 19.44
Cardinal Health CAH A++ 2.46 26 17.22
Chevron Corp. CVX A++ 4.2 10 73.29
Coca-Cola KO A++ 3.48 9.5 21.95
Colgate-Palmolive CL A++ 2.28 11 25.42
Deere & Co. DE A++ 2.79 15.5 23.34
Dover Corp. DOV A++ 2.58 9.5 20
Du Pont DD A++ 2.33 2.5 21.44
Emerson Electric EMR A++ 3.79 8 16.28
Exxon Mobil Corp. XOM A++ 3.46 9.5 31.48
Franklin Resources BEN A++ 2.34 15.5 11.92
Gen’l Dynamics GD A++ 2.02 13.5 15.6
Grainger (W.W.) GWW A++ 2.38 17.5 17.68
Home Depot HD A++ 2.42 19.5 19.51
Honeywell Int’l HON A++ 2.2 9.5 16.05
Illinois Tool Works ITW A++ 2.3 12 19.67
Infosys Ltd. ADR INFY A++ 2.67 17.5 14.99
Int’l Business Mach. IBM A++ 3.76 20 12.31
Intel Corp. INTC A++ 2.94 17.5 13.89
Johnson & Johnson JNJ A++ 2.87 9.5 18.96
Kimberly-Clark KMB A++ 3.09 8 21.67
Lilly (Eli) LLY A++ 2.59 3.5 21.46
Lockheed Martin LMT A++ 3.14 20.5 19.05
McDonald’s Corp. MCD A++ 3.4 20 19.4
Medtronic plc MDT A++ 2.05 15 15.28
Merck & Co. MRK A++ 2.97 1.5 16.38
Microsoft Corp. MSFT A++ 2.73 16.5 19.88
Novartis AG ADR NVS A++ 3.58 13 23.36
Novo Nordisk ADR NVO A++ 2.68 26.5 17.1
PepsiCo, Inc. PEP A++ 2.87 11.5 21.78
Pfizer, Inc. PFE A++ 3.69 4.5 19.6
Procter & Gamble PG A++ 3.16 9.5 19.8
Public Serv. Enterprise PEG A++ 4.07 3 15.76
Qualcomm Inc. QCOM A++ 3.3 22.5 14.42
Raytheon Co. RTN A++ 2.13 11.5 17.79
Schlumberger Ltd. SLB A++ 2.41 15.5 75.45
Smucker (J.M.) SJM A++ 2.31 9.5 19.81
Texas Instruments TXN A++ 2.18 29.5 22.28
Total ADR TOT A++ 5.69 5.5 12.51
Travelers Cos. TRV A++ 2.45 8 11.23
Unilever PLC ADR UL A++ 3.32 6.5 21.39
Union Pacific UNP A++ 2.43 21 17.46
United Technologies UTX A++ 2.66 12.5 14.98
Verizon Communic. VZ A++ 4.7 3 12.44
Wal-Mart Stores WMT A++ 2.95 14.5 15.69

Canada

Company Ticker Financial Strength Dividend Yield Dividend Growth 10-Year Current PE Ratio
Agrium, Inc. AGU A 4.05 39 17.08
Bank of Montreal BMO.TO B++ 4.12 7 12.57
Bank of Nova Scotia BNS.TO A 4.23 9 11.89
BCE Inc. BCE B++ 4.58 8.5 20.19
Cameco Corp. CCO.TO B+ 3.72 14 12.07
Can. Imperial Bank CM.TO A+ 4.81 6.5 10.58
Can. Natural Res. CNQ.TO B++ 2.15 23.5
Emera Inc. EMA.TO B+ 4.42 5.5 15.76
Empire Company Ltd. EMP/A.TO B++ 2.12 10 10.7
Enbridge Inc. ENB.TO B++ 3.65 12.5 24.1
Finning Int’l FTT.TO B+ 2.89 13 27.8
Fortis Inc. FTS.TO B+ 3.76 9 19.08
Jean Coutu Group PJC/A.TO B++ 2.47 13 16.18
Magna Int’l ‘A’ MGA A 2.47 7.5 7.61
Manulife Fin’l MFC B++ 3.89 3.5 10.79
Methanex Corp. MEOH B+ 2.87 12
Nat’l Bank of Canada NA.TO B++ 4.88 10.5 10.15
Pembina Pipeline Corp. PPL.TO B++ 4.58 5 35.82
Potash Corp. POT B++ 2.47 37 27.02
Power Financial PWF.TO B+ 5.02 7 11.01
Rogers Communications RCIB.TO B+ 3.58 51.5 17.96
Royal Bank of Canada RY.TO A 4.08 10.5 12.38
Russel Metals RUS.TO B++ 7.3 10 18.6
Shaw Commun. ‘B’ SJRB.TO B+ 4.54 28.5 21.66
Suncor Energy SU.TO A 2.99 24
TELUS Corporation T.TO B++ 4.61 15.5 15.92
Thomson Reuters TRI.TO B++ 2.6 5.5 24.69
Toronto-Dominion TD.TO B++ 3.84 10.5 12.66
TransCanada Corp. TRP B++ 4.8 5.5 27.56

Europe

Company Ticker Domicile Code Financial Strength Dividend Yield Dividend Growth 10-Year Current PE Ratio
Garmin Ltd. GRMN CH A+ 4.26 22.5 18.98
Novartis AG ADR NVS CH A++ 3.58 13 23.36
Daimler AG DDAIF DE B++ 5.07 5 7.42
Siemens AG (ADS) SIEGY DE A 3.29 11 13.48
Novo Nordisk ADR NVO DK A++ 2.68 26.5 17.1
Total ADR TOT FR A++ 5.69 5.5 12.51
AstraZeneca PLC (ADS) AZN GB B++ 4.52 12 27.19
Brit. Amer Tobac. ADR BTI GB B++ 3.6 14 19.05
BT Group ADR BT GB B++ 4.27 0.5 10.4
GlaxoSmithKline ADR GSK GB A+ 4.83 6 27.99
Pentair plc PNR GB B+ 2.33 9.5 17.09
Rio Tinto plc RIO GB A 4.94 11 16.21
Vodafone Group ADR VOD GB B++ 4.67 8 32.73
WPP PLC ADR WPPGY GB A+ 2.93 17 17.1
Medtronic plc MDT IE A++ 2.05 15 15.28
Luxottica Group ADR LUX IT B+ 2.11 12 23.2
Tenaris S.A. ADS TS LU B+ 3.08 10
Philips Electronics NV PHG NL B+ 3.28 8.5 40.94
Unilever PLC ADR UL NL A++ 3.32 6.5 21.39
Autoliv, Inc. ALV SE A 2.38 10 15.04

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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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3 Responses to October 2016 Investing Update

  1. Shane McEachern says:

    Hi Brian,
    I kept my shares with AGU and POT. I voted for the merger and l’m wondering now if I will gain from the merger or the shares will remain the same. I received the booklets on the two companies,
    but got a little lost in the legal stuff. Can you help clarify what it all means for someone who owns shares.

    Thanks, Shane McEachern

    • borgford says:

      Hi Shane. I sold POT as it cut its dividend twice and no longer fit my criteria. I sold AGU as the merger talks forced the shares up to provide a large unexpected gain and I decided to pocket the gains, rather than speculate on getting more. The shareholders of both companies overwhelmingly approved the merger. That said, the new company could be a winner in the long run. Once the merger is complete and up and running for a while, I will reevaluate and may buy back in then if it fits my criteria. I haven’t seen the detailed documentation on the merger agreements and there is not much on the internet rather than generalities. What will happen is a new company will be formed. Those investors who own POT shares will get shares in the new company that is intended to approximate their market value and POT shareholders will own 48% of the new company. AGU shareholders will receive shares in the new company which approximate their market value and will amount to 52% of the new company. So if you own shares in both POT and AGU, you will receive shares in the new company in exchange for your shares in POT and AGU. In theory, the market value of your new shares should equal the market value of your previous two holdings. In actual fact the market value could go up or down depending on how the marketplace views the new company’s prospects. The merger was to take two good companies and make one big strong company with a lower cost base in a commodity market and thus improving the combined profits. Potash prices are depressed right now, so if and when prices rise, this could be a very lucrative investment. Because there is a bit of speculation involved, I prefer not to play in that market, but don’t be surprised if your long term value improves considerably. Let me know if that helps.

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