Silver as Portfolio Insurance

Just a real short post today on what I've been doing during this whipsaw week on the market.

I did buy a couple stocks for trade. First Majestic and Sandstorm Gold. I have always wanted to own them. These again are short term trades and stocks to not fall in love with. Watch them carefully.

I have not sold a single stock from my retirement accounts. Yes I'm down significantly but what are the choices. Should I cash in now and buy back later?

Contrary to popular belief I'm not that smart to be able to time the buy and sell with any accuracy.

This too will pass and all these losses will soon turn around. In the meantime the cash flow is still rising. I only wish I wouldn't have deployed my RRSP contribution so early. Oh well that's done.

I have been accumulating some poor person's gold in the form of physical silver.

I have decided I want at least $5K in physical as portfolio insurance against further downturns of 20-30% like we have been experiencing. I did this in early 2000 and paid my townhouse off 5 years later when silver rose to $40 an ounce.

With the world gone mad I just wanted to do something different for a change.

Would you sell your house and buy stocks? Tempting isn't it.

This is going to become known as the buying opportunity of a lifetime, I'm sure. Everything asset wise is cheap.

Silver Buys

Besides buying a couple stocks this week I purchased the following;

75 Silver Maples
6 X 10 oz. Bars
5 X Silver Rounds

$100 Assorted Junk Silver (Dollars, Halves, Quarters and Dimes)

This is not for everyone and I get that. Instead of checking on my portfolio or sweating in front of the TV watching BNN I just decided to jump back into silver.

Good move? Time will tell but by historical ratios silver is cheap. It got up as high as 123-1.

You could buy 123 ounces of silver for the price of 1 ounce of gold.

You want to sell or convert your silver to gold when that ratio comes down.

Just what I've done and by no means what I think anyone else should do.

This is not coin collecting.

What do you think. Thumbs up or down on this strategy of spending a portion of your portfolio on physical silver? In my case $5K.

Previous Posts

Should We Panic?

How to Build A Portfolio

The Slow Boat to Safety with Stocks NOT Bonds

My All Canadian Maple Retirement Income Portfolio

The sap will soon be running in the beautiful maple forests here in the Great White North. That unmistakable smell of boiling syrup will soon flood our senses. It's a beautiful time to celebrate and share what we love about spring in this beautiful country as the maple cooking revs up.

Hmmm those pancakes lathered in butter and fresh maple syrup. It doesn't get any better than sitting outside scarfing down on this Canadian tradition.

I thought I would give an example of a portfolio I've constructed using big blue chip Canadian dividend growth stocks. I just do me and this works even though it's an all Canadian, all stock portfolio. 

I let it run and the dividends just drip into the account like maple sap on a warm spring day. I'm an income investor so everything in this portfolio pays me to own it so I can live and thrive in retirement.

You can model this even if you are not retired. Matter of fact it was set up while still working.

Banks

I have chosen first the bank I bank with, BNS. You can use whatever financial stocks you want in your portfolio. I use the big five of BNS, BMO, CM, RY and TD

Dividend Yield of my financial stocks = 4.8%

But what about National Bank or Goeasy Financial? Sure, you do you nothing wrong with that. I look at a 10 year dividend growth rate and a record of steady and predictable dividend raises so I can stay ahead of inflation in retirement which is currently running at 2.4% as of January 2020. These bank stocks are double that rate so I'm happy.

Utilities

I use FTS, EMA and CU. The big 3 in the utility space. What about AQN, ALA or any of the renewable power companies like BPY or RNW?

I like big, old and stable for my retirement. Companies that have thousands/millions of customers and been around for decades. In the case of Canadian Utilities since 1927. It's never missed a dividend payment in almost a hundred years. Income you can count on that's a fact if history is any guide. Not sexy stocks in fact boring stocks. Boring works when you need income.

Dividend Yield of utility stocks = 5.1%

Pipelines

Just the big old ones I use. TRP and ENB. Nothing wrong with IPL, PPL or KEY. I chose the oldest and the biggest. As long as we keep getting winter these 2 stocks will continue to deliver steady predictable dividend income and growth. If we cancel winter in Canada these stocks will disappear with the snow.

Dividend Yield of pipelines = 6.8%

Railroads

Just so I have the east/west and north/south corridors covered I bought both rail stocks in Canada. They are low yielders but I like them because the Canadian economy simply can not run or function without them.

This despite rail blockades and First Nation upheaval throughout the country. The rails must keep running at all costs.

Dividend Yield of rail stocks = 1.6%

Total Portfolio Yield = 4.5%

You won't find any bonds, pref shares, ETFs, mutual funds or any complicated structured products like seg funds in this retirement portfolio. I don't buy or invest in them. No U.S. or international exposure in this account. Zero commodity stocks (too risky). Taxes will be more efficient when it is converted to a RRIF.

I also don't adhere to or care about about financial twaddle and jargon such as diversification, asset allocation or worry about balance.

The safety here comes from holding quality stocks for decades and not being a student of modern portfolio theory.

I invest dividends or new money into these existing positions based on what is cheaper and has come off price wise.

In Sum

Only 12 stocks that's it. That's all I believe is needed to be low risk and consistently and slowly build income.

Does it lose money?

Since the start of the year and after the big sell-offs of yesterday and previous weeks. This PF is down 10%.

When compared it XIU.TO which invests in the largest Canadian companies in the TSX 60. it was down 10.6%

Probably why I don't index. It's full of material/commodity stocks that will drag down returns as seen perfectly yesterday.

I own 7 of the top ten holdings in XIU anyway. That's why I love DIY investing. No fees paid to an ETF provider and my yield is higher along with total return. Buying the index does not save you from market corrections or recessions. That is a myth.

This portfolio gained  28% last year.

After all that has happened I am good with it's components. Looks like a nice bounce back day today. I won't include any gains if any realized after Tuesday's trading.

Of course short term market fluctuations do not make for a profitable year or really mean anything in the long run.

This is simply what I do and how I think while trying to grow money and income in retirement.

12 stocks, that's it. We're all different and that's a very good way to learn what does and doesn't work. What 12 would you choose or eliminate and why? 

Stocks Mentioned

As of writing;

Pembina Pipeline PPL - down 4% today
Interpipeline IPL - down 10%
Keyera Corp. KEY down -5%
Altagas ALA - down 4%
Algonquin Power AQN - down 2.8%

While a lot of stocks are bouncing back today. These faves are not. Choose wisely, it's your retirement.

BCE is up almost 5%. That's what I'd rather add to this portfolio with it's 5% yield. 

"Longer term bonds have become almost as risky as stocks now that bond yields are so low" - Fred Vettesse

Aim for cash flow in retirement just as the owners of Hwy 407 aim to increase the tolls on their highway in the future. Be like them!

Need ideas on how to pick stocks for income? Recommended Reading NOW!

Update

Gotta go wash my hands!

Stocks Prices Bomb Yields Up

Monday March 9

I am sitting here Monday morning watching reports of humans fighting over toilet paper in Australia.

What is up with the hoarding of Charmin and Cottonelle? Panic is setting in over the virus outbreaks all over the world.

Add to that the new oil war instituted compliments of Saudi Arabia taking gas prices in my area down to 94.9

The cheapest it's been in decades. The problem is the stock market is selling off and investors are getting spooked.

Should we sell everything now before it gets worse? I'm sure all the post 2008 investors who've never experienced drops like this are second guessing all the stocks they hold.

Every asset class is getting bombed out. EVERYTHING! There is no shelter big enough to hide.

Big U.S. stocks are getting hammered the hardest. No dividend to support the price. In the case of a company like Tesla they don't make money.

How about crypto currencies? Safe right? What was supposed to be an alternative to fiat currency is also selling off big time. Bitcoin is down 20% this month and 10% in the last 24 hours as of Monday. I don't own any but my ears perk up when things sell off because I see the 'for sale' sign flashing.

When stocks go on sale we all run out of the store. Too cheap I'll come back when things cost more. Said no one ever but investors are fleeing.

Oil Collapses, Stocks Tank Big Time

I sold all my oil stocks slowly over the course of the last few weeks. Names like AOI, TCW, BDI, YGR, BTE, WCP, TOG,and ARX. Some for smallish gains and some at a loss.

The losses would have been even bigger had I hung on until today. I got lucky. Nobody knew the Saudis would get pissed off and bomb the oil market with a price cut and a production increase. NOBODY saw this coming. Matter of fact oil stocks were looking attractive after becoming a beaten down sector for so long.

An energy fund manager even recommended CPG as a top pick on Friday. It's now down 40%. I wonder how he's feeling today. CVE another market darling, down 51%. Is it a buy? Nobody really knows how low, low is. Do they?

Not to be.

OK so all of our portfolios are down 10% so what? We were up 30% last year. Or close to it.

Soon central banks around the world will cut rates further until we all go negative and flood the investment banks with liquidity. They have no choice. More money printing on the way count on it. Wait until they start buying up corporations to save them. Remember the government motors program? Wait for it.

Savers continue to get crushed. Trump has been calling for negative rates all year.

The good news is mortgages, loans and gas is getting cheaper. Maybe a middle class tax cut is coming. Who's paying for that? Government here in Canada is hooped and mired in debt. It's going to get worse.

Why I Invest for Yield

The yield on quality dividend growth stocks is now 400% higher than a 10 year bond. if you hold them in an open account you also have the tax advantage. Woot woot!

Lots of my dividend stocks have seen raises this year and more to come down the line. The yields on all my stocks up are up from last year. The prices are all down of course as a consequence. Bond yields are plunging that's why the cash difference between the two is up big time.

Where do you want to be as an income investor?

I am an income focused and obsessed investor.

Nothing has changed for me. I have steady and predictable income. Cash flow is king in my world.

Sure the price of my stocks have went down but the value they provide hasn't.

Their ability to pay me my dividends is unchanged.

It was a rough day for oil and gas investors especially. How long it will last who knows but quality companies are now going for fire sale prices. Will you be buying? If so when is your best guess to do that?

Related Posts

Monthly Dividend Update February 2020

Monthly Dividend Update January 2020

When is it a Good Time to Invest?

How to Build A Portfolio

If you go on Facebook and join various groups on investing, one of the most common questions you see is "what stocks should I buy?"

"I'm a new investor with money to invest where do I start?"

Really hard to give advice without knowing any individual's personal financial situation. Nevertheless you see and get asked the question a lot.

I try never to tell people what to eat, how to exercise and what and where to invest their money. It always causes some sort of battle of the wits with twits. I only entertain the question on a one on one basis. When someone asks these questions in a group setting or publicly they are usually not serious.

There has always been a great divide among individual and wannabee investors. Should you buy individual stocks or broad market ETFs because they're cheap to own and diversified?

When you pick individual stocks you think you will outperform the broader market. Can you? Is that the only investing goal one should have?

I feel a greater personal connection to my money than just owning an ETF. This is just how I feel after losing money to cheap mutual fund salesmen of the 1990's. Anyone remember Brian Costello and his 'taking care of your money' tagline and radio show? He was actually trying to take as much of your money by way of trailer and management fees by setting you up with mutual fund salesmen. I just dated myself.

We've come a long way from those heady days of heavy hitting funds and when funds were the shit. Heavy on the fees that is. Hey, whatever became of Ranga Chand? I don't really care. I do know Gordon Pape is still selling. I subscribed to all of them back in the day so I have a bit of history.

What I've Done

I'm just documenting my how to 'journey' and getting started. If you don't like this approach or don't agree with it that's fine. When someone asks this is what I tell them. It's just that simple. If not go buy a fund or some ETFs.

Right now I would recommend NOT buying anything for long term investing. Stocks are just expensive and I suspect will get cheaper in the coming days. We had a stellar 2019 here in Canada so a pullback of a few percentage points is expected and happening now. Your long term return will depend on changes in valuation and it's dividend growth.

"the return on equities depends on the dividend yield and the rate at which the dividend grows” - The Road to Recovery

Be careful

When selecting your stocks 'be careful'. You are your worst enemy. Don't get sucked into high yield stocks or what's hot and exciting. Try and resist all temptation to chase these stocks. 

They are expensive because everyone is buying and driving up the price.

Instead look for stocks that grow their dividend year after year for at least a decade. It's a sign of health. Canadian banks are cheap right now and could get cheaper. Why not own the bank you deal with? This is where I started. I held my mortgage (since paid for) with Bank of Nova Scotia. So I bought the stock. I bank there, own the stock and collect the dividends. Is this risky?.

The longer you hold the stock the safer it becomes.

You want increasing cash flow from a company that makes their stock more valuable; that drives price growth. As your retirement years go by, you want more of your income coming from the income the stock provides rather than from eating through or having to sell your capital. Now there's a nice strategy for retirement, right? 

Generate the income you need from your investments. A growing income for your retirement years.

For more on how to select these stocks read 'Your Ever Growing Income' by Henry Mah.

I would start with a bank, your bank. Then a telco, again the one you pay your data bill to and also a utility company. Lots of great ones in Canada. Right now yes they're expensive.

In my case I start with BNS, BCE and FTS.

You might start with TD, T and CU.

Either way all great places to start. I don't know what you might prefer or what's down and cheaper at the moment but this is the exercise I go through in stock selection. When someone asks, where do I start? This is my advice.

Just keep a few stocks. It's just a big myth you need more. Start small and take your time.

Make a list of all the banks, telcos, utilities and pipelines. List them in order of the yield they pay. You can select the ones that pay the most or second place to be safer. This is another stock selection strategy. Make a choice and now just HOLD.

If you go look at the oldest and biggest ETFs in Canada (XIC, VCE) you will find a lot of banks, utilities and telecomms in their top ten holdings.Why not just buy a few stocks on your own? Ignore the noise and your brother in laws hot tips.

You should always have a watch list of stocks you would like to own should they become cheaper during the current sell-off. 

You will hear a lot of prognosticators and braggards who possess wads of market knowledge, beating their chests on how they plan to load up on “quality stocks” at good prices when the market really tanks. 

As if life is that simple. What does that even mean?

Quality stocks (companies with a business model that is hard for rivals to emulate, wide moats if you will) started off expensive and are only a little cheaper at the moment.

I like to look for the unloved value stocks, now selling for a low multiple of their profits. they have become even cheaper. 

Such firms are in industries whose long-term prospects look bleak—banks, auto makers, oil and energy firms etc. etc.

Owning them has been an unrewarding experience. Their profits are getting crushed by travel bans, supply-chain snafus and low interest rates. 

It is because they're cheap they deserve a look from astute stock pickers. Are you one?

Re-balancing

I don't bother or even think about whether to re-balance or not. It seems to me a lot of unnecessary work. 

What is the end goal of all that activity anyway?

Who says that the original allocation, whatever you choose, is correct anyway. 

In my opinion common stocks of the highest blue chip quality are the best asset class one could own.

Based on this thesis, I'm 100% invested in stocks. 

Once you have held them for a while (years and years), good stocks are safer. This is how I invest my money and what I tell newbies on how I fund my retirement.

You will hear of investors that hold a portfolio split 50-50 or 60-40 between stocks and bonds.

They might sell the bonds that have gone up in price, as interest rates fall, to buy shares that have fallen in price, and are now cheaper. 

Doing this once a month, once a quarter or even once a year in January to keep the weightings constant. 

A more aggressive investor might just keep cash in reserve so they can take advantage of bargain prices when the markets have turned away from risky assets. Right now FEAR is guiding investor decisions.

When would you consider buying more stocks? Is it after a 20% drop?

How about 40%? Yes sure, if you are really waiting for a massive plunge and are hunting for value.

1. Don't get spooked by a short term temporary paper decline.
2. Concentrate on creating value.
3. Hold sound investments. Hold to receive the compounding benefits of dividends gained.
4. It's NOT what you buy but the price you pay that will determine your long term return.

"I am an advocate of investing in individual stocks" - Stephen Jarislowsky, founder of wealth management firm Jarslowsky/Fraser (since sold).

"Buy when others are despondently selling" - John Templeton

I Don`t Buy or Own Bonds

Do you? 

Why? Please tell.

The financial industry and advocates of modern portfolio theory want you to have a 60/40 split of stocks and bonds. The classic balanced portfolio.

Warren Buffett doesn't invest this way. Should we?

In Berkshire's 2017 Letter on page 13, Buffett states;

 “It is a terrible mistake for investors with long-term horizons - among them pension funds, college endowments and savings-minded individuals - to measure their investment 'risk' by their portfolios ratio of bonds to stocks. Often high-grade bonds in an investment portfolio increase its risk.”

Good enough for a savings minded individual like me and any newbie that asks me. You don't need to buy bonds.

In Sum

• buy individual companies
• greater reward and more profitable
• NO annual fees
• eventually become safer than bonds
• growing income and rising capital are driven by an increase in yield
• put your money in the best companies
• ETFs are active, putting money in high yield and they re-balance

This is just what I've learned and how I now invest after experimenting with and following other gurus of the 80's/90's. I do my own thing and I like to buy and research individual companies for possible investment. You may not, for me it's a hobby I love.

Other Ideas to Consider

The Six Pack Portfolio

The Greater Fool Balanced Portfolio

How I Built My Own Dividend Stock Portfolio

How would you advise someone who asks "Where do I start?" when it comes to investing.

The Slow Boat to Safety with Stocks NOT Bonds

It doesn't seem to matter what news we get the markets continue to swell, swoon and in general have a hard time hanging onto any slim gains they make.

But isn't this what we've been hearing from the MSM on a daily basis about how overvalued markets are and how we need a correction. Well, isn't this one now?

Oh for sure it is.

Stocks ripped higher on Monday, sank on Tuesday, rocketed up on Wednesday, died on Thursday and again rolled over and tanked more on Friday.

How low is low and how high is high?

Nobody knows anything so it's hard to know when to bail on the market or buy more of your favourite stocks.

Selling Energy

I prefer to go with and buy what's working.

I bailed on all my energy stocks today. Sold all my ARX, TOG and WCP right at the open. Crude closed down 10% and most of the sector just plopped hard.

It saved me at least $1K once the market closed and I wanted to minimize my losses and lock in my small gain on Arc Resources.

If I was looking for an energy play I like Freehold Royalties at this point. It has a high yield of 10% but they actually make money on their royalty stream of wells. I wouldn't buy it for the dividend but for it's upside potential.  

How much lower can oil fall? Who thought it would fall 9.5% or $4 today?

The Canadian economy will start to feel it if these ridiculous prices continue. In the meantime I'm sitting this one out as I see no need to hurry back in. 

What will you miss? Even if you miss the first 10% rise there will still be time to jump back in.

Buying for Yield

I added to some existing stock positions in our RRSPs this week. If I only knew they would get cheaper on Friday eh?

Good for you if you did.

44 shares of CM
70 shares of BNS

40 shares of TD

I bought these stocks to increase the income in our retirement accounts. I had no concern about what I was paying, I'm only interested in increasing the income these accounts generate.

I keep coming back to the banks because on a p/e basis they're cheap and in the case of CIBC it is the highest yielding bank at 5.9%.

That to me is amazing when it's 10 year average is 4.9%

In 2009 it paid out $3.48 in annual dividends per share

It now pays out $5.64

Individual investors seem to shy away from it's nominal price which is mostly above $100. They would rather buy something cheaper. I'm buying for the yield and the growth of that yield over time. Of course I want to pay the cheapest price possible but sometimes you never know when it's going to go lower. I wish I would have bought today but c'est la vie!

Buying Bonds for Yield

Not likely!

Bond prices are rising and yields are in free fall. Not for an income investor. Those managers and advisors who prescribe to Modern Portfolio Theory want you in bonds.

It's your soft landing in tough times like now. Yabbut income sucks man!

A 10 year Canadian Bond now yields 0.71%

A 5 year GIC where I bank pays you 1.5%

This kind of rush to safety ensures you will be poor and die poor after taxes. This to me is the dumb money. Savers are getting crushed here.

I'm not saying go buy stocks, but I'm not buying bonds or savings accounts. You choose. I just showed you what I chose this week.

Check out the yield chart on a 5 year Canada bond;

Now yields 0.68%

From 2% 5 years ago to less than 1%. It's lost over 60% in the last 2 weeks alone. Imagine investing in bonds for income. No don't do that.

Never the less the herd is rushing into bonds and pushing down these yields to generational low levels.

Beyond weird. Always do the opposite of the herd or you'll get stampeded to death. I'd be selling any bonds I owned here. Just me.

Why is this Happening?

Corona Virus
Blockades

Climate Change

Protests

Lack of Pipelines

Political Food Fights

Money is fleeing Canada
Buffett cancels Canadian LNG Investment

Who knows but Canada is not really the poster child for where investors go to spend money.

Money is cheap and about to get cheaper. Be careful where you find shelter.

Where will you go? Stocks or Bonds?