Investing Victim or Contrarian - Which One are You?

When I first started investing I eventually got lured into the sleazy world of buying and selling penny stocks. Particularly gold and silver juniors.

One of the premier guys at the time of the mid to late nineties was Rick Rule. Really smart guy and now is an Executive Director big wig at Sprott Investments Global. He now takes positions in resource companies for old pal Eric Sprott and he's very successful at what he does.

His favourite question to ask people was "Are you a contrarian or a victim?" because if you're not a contrarian as it pertains to investing then you will become road kill, you'll get killed out there in the big bad world of stocks and commodities. So, you have to be a contrarian. What the eff does that mean?

Traits of a Contrarian Investor

• you go against the flow
• whatever the herd does, do the opposite
• you can be called both crazy and amazing
• you buy investments when others sell
• you sell investments when others are frothing at the mouth to buy
• you may possess the ability to see the future and act on it for financial gain

The problem here, when Rule asks the question he's actually referring to junior mining stocks and nothing else so you have to be careful.

It's a statement used to get you suckered into buying gold and gold stocks. Most investors don't think this way that's why he considers them victims.

He wants you to buy gold and silver junior stocks or physical gold that they also sell as a contrarian play against the doom and gloom end of times. I call BS on that whole premise. Like I said earlier, I lost a lot of money investing in this space when I was horny to make money in the stock market and I thought this was it. I am not blaming Rick Rule or anyone else for my losses. I'm only trying to point out the sales pitches and to be aware from my example what went wrong for me.

Maybe you will be more successful than I was. I hope so if you choose to go this route.

The richest investor in the world has never bought or invested in gold. Here is one quote Warren Buffett has said in the past on gold;

"I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today's market prices about $7 trillion – that's probably about a third of the value of all the stocks in the United States…For $7 trillion…you could have all the farmland in the United States, you could have about seven Exxon Mobils and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I'll take the farmland and the Exxon Mobils."

I consider Buffett a contrarian because he buys things that Rick Rule doesn't. They both make money in a different way. Rick Rule uses the contrarian/victim angle as his tagline to attract money from the unsuspecting. You would think this is the only way to make money in the stock market. I did but now I don't consider myself an investing victim.

I am more inclined to buy mispriced stocks like Buffett and Graham than junior gold stocks like Rule.

That myopic mindset of mine at the time turned me into a victim. Don't be fooled by and swayed by these high profile portfolio managers that this is a great way to make money. Gold and junior penny stocks never pay dividends and are highly speculative. You're risking everything and have no idea what you are doing.

Needless to say you are NOT a penny stock speculator, you are not a victim but you ARE a contrarian if you buy good quality dividend paying stocks that grow over time.

It makes you a speculator and a contrarian because most of the herd believes different.

Which one are you?

Related Post: Good News is Bad News for Dividend Investors

Recommended Reading: Warren Buffett - Investing and Life Lessons

The 60/40 Balanced Portfolio - Is It Best For You?

The longer you are invested in the stock market you will question your strategy. You will question your decisions and talk to yourself whether what you are doing with your money is the right thing to do.

I have learned a lot of tough lessons along the way and some have been quite painful and expensive.

Back in the nineties I had most of my wife's retirement savings exposed to junior mining stocks. She told me not to put anything at risk and that she wanted just conservative investments. I ignored her requests because I thought I could do better and for awhile her investments skyrocketed.

My arrogance didn't see the writing on the wall and it wasn't long before everything plunged in value. The year was 2008. Yes the financial crisis hit and I was 100% in high risk stocks.

I proceeded to do the wrong thing and started to sell off the losers not allowing them time to recover.

With what money of her's I had left I reinvested in a safer more diviersified portfolio. Enter the 60/40 balanced portfolio.

Her Balanced Portfolio

It consists of just 4 ETFs:

1. 60% is split between 2 ETFs that cover Canada, U.S. and International Markets. This covers the equity portion.
2. 40% is split between a bond ETF and a preferred share ETF. This covers off the fixed income portion.

Some would call the preferred share portion equity also but I have it in there to generate some extra monthly yield. 

Combined, the fixed income portion of her portfolio generates 3.5%. I learned this percentage weighting from reading the 'Greater Fool' blog.

It is less volatile massively diversified across the whole world of stocks and bonds. I don't look at it or touch it except to add more money to it and to bring it into balance once a year at RRSP time.

I learned my lesson and now just leave her money alone in a balanced portfolio. I think the majority of investors whether you do it yourself or pay someone, this is the approach that works best. It does for her and that's all that counts.

What the Experts Say

I'm a DIY investor so I don't pay someone to manage our money nor really do I take investment advice from paid advisors or brokers. If I did I would choose Turner Investments (look them up).

Most not all operate to make money from you, not for you. The more you can save on fees the more you will have in retirement.

You can find a ton of investment advice on the internet on different kinds of portfolios. You might hear names like;

• The Sleep-Easy Portfolio
• The All-Weather Portfolio
• The Perfect Portfolio
• The Couch Potato Portfolio
• The Easy Chair Portfolio

There are more but you get the idea of just how much has been written on the subject. Larry Swedroe has written extensively on this subject and I think Canadians who want to take a balanced approach to investing can benefit greatly from his advice even though he writes for Americans.

Summary

I believe most people who don't have the time to pick stocks would be better off with a 60/40 balanced portfolio.

It's not my opinion but one I've learned from Garth Turner over at greaterfool.ca. 

Some of the advantages to being balanced include;

• simple and easy to implement
• only requires 3-4 investments
• rebalance once a year
• less risky than individual stocks
• will decline less during a market pullback
• perfectly suited for those who don't like investing

In the last month the Vanguard Company has introduced 3 new ETFs that are all in one. This now offers you a balanced fund with just one investment. Google their website for more info.

This is a great way to keep your wife happy and that's more important than taking unnecessary risk. Stay balanced!

Do you like a balanced approach or picking individual stocks?

Related Post: Using ETFs for Investing - Should You?

Recommended Reading: Balanced Asset Allocation - How to Profit in any Economic Climate

Stock Market Crash? - 6 Things You Can Do to Prepare

Fight Off Your Nerves

There is always something out there to be worried about. Every decade has a crisis, but you can't let it give you the cold sweats. Today's market players are concerned with China, EU, North Korea, the crashing price of oil and the Trump Presidency.

Should this affect whether or not you should stay invested and stay the course? You should start by having a good handle on who you are as a person and as an investor.

Do you easily get panicked when hearing the news out of the talking heads on BNN or CNBC? Find a way to block it out and remind yourself that you're an investor and in this game for the long run.

You have taken positions in solid businesses that grow annually and pay dividends. There is no need to sell out on bad news but instead look for a way to profit and not become rattled.

Diversify

Have your investments spread out among a variety of businesses and industries. I don't have any idea what companies to buy in Europe or the U.S. so I buy an ETF that gives me exposure to that whole market. 

I buy strong cheaply priced companies, my downside is always going to be temporary and based on what the market gives me or takes away. 

Once you have the whole world covered off including, Europe, North America and Emerging Markets, when one is tanking the other is hopefully on the rise (not always). 

Oh sure, it has been my experience that all can come down together. If you own a little bit of everything you won't be easily panicked into selling. In fact just go for a walk and have confidence that all the bases are covered.

When everyone is selling in a panic, these are the exact points in time that the best sales in stocks present themselves. I'm convinced right now that February 2018 will in fact become known as one of those times.

Stick to The Plan

You should know why you're invested in the market. If the slightest bit of bad news bothers you, you should get out and revisit what you want to do to make a decent return on your capital without the stock market.

"If you can't handle 3-4% drops in the market 3-4 times a year then get out and go to cash" - Barry Schwartz

It might be a good idea for you to write down what you'd like to accomplish and try and stick to it. This is how I've learned to succeed in the market.

You must have a long term plan for investing success. Try as hell not to be blinded by what is happening in the short term because 80% of the time the equity markets are where the long term gains are made. You will miss out if you decide to sit out the ride.

Investors who panicked in 2008 never gained trust back or re-entered the market. They sold at precisely the WRONG time and most never returned.

Expect Consistent Returns

Markets go up and markets go down. What can you expect in the meantime? How much will my money make me over time?

Be realistic.

"Investors can expect returns in the 5-6% range going forward" -  Jack Bogle.

We should expect to earn at least that and maybe more if we stick to our knitting and not panic. 

If you keep looking at your portfolio every day you won't see that return because you'll be selling out most days and totally lose confidence in your plan.

Rebalance Your Portfolio

I only rebalance once a year at the beginning of the year. That's just what I like to do. When you have new money to add, you can rebalance which is perfectly alright and a good time to take advantage of buying while the market may be down.

Sell laggards when the markets are up, buy and rebalance when the market drops or goes on sale like the first quarter of 2018.

Check out quality companies like BCE, ENB, and EMA. In my opinion they are still on sale but you won't hear any analyst/portfolio manager recommend them at present. That's good for us!

Investments are the only asset I can think of that we buy when they're on the way up. We never take advantage of when they drop or go on sale. Think of going to the store and shopping for coffee, don't you like to buy it when it's on sale? Try and think of your stock purchases in the same way.

Do a Thorough Yearly Review

If you are a DIY investor like myself you need to take stock of where you stand at least once a year. Nobody will care about your money more than you do, so take care of it and take it seriously.

I don't spout personal financial advice but you need to have a realistic savings/investing plan in place and stick to it.

Stop listening to all the static about the markets coming from your TV. This is for entertainment purposes only. You can become a student of the markets just as easily by reading what the giants and masters have written over the course of time.

Save your money, write down what you're going to do with it and never sell out on a bit of bad news. Stick to these small points and you'll know how to profit when the market goes down.

How often do you rebalance your portfolio? Have you ever panicked and got out of the market completely? Do you have a plan written down somewhere that you review? I would love to hear from you. Please feel free to leave a comment or ask me a question in the box below.

Related Post: Buy for The Dividends

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Canadian Apartment Properties REIT is Awesome, Is it Still a Buy?

Real estate is one of those sectors that help retirees generate income. There is not that much growth of capital but the monthly income they provide is pretty steady. 

When you are looking for monthly income to rely on, this is a sector you shouldn't overlook. But what to buy?

One REIT I own is Canadian Apartment Properties REIT (CAR-UN.TO).

Also known as CAPREIT.

CAPREIT owns interests in multi-unit residential rental properties, including apartments, townhouses and manufactured home communities primarily located in and near major urban centres across Canada. 

Price: $34.98 (as of close 2 March 2018)
Dividend Yield: 3.64%
Payout Ratio: 70%

The Latest Results

CAPREIT just published their latest results on 27 Feb. If you are a long term investor like me these mean nothing, however in the short term prices can rock back and forth. This is not something I really care about because as I always state, it's the business I like to own and own it long term.

In the latest quarter ending 31 December, CAPREIT's operating revenues and net operating income (NOI) were up just less than 10%, and normalized funds from operations (FFO) rose almost 8%.

Rental income per month is up due to another 1,924 suites added and occupancy rates still remain high at over 98%. On a per rental basis FFO rose by over 4% which is not much of a change from quarter to quarter. Same property NOI rose 7.2% which is a nice increase.

A Powerful Financial Profile

CAPREIT still manages to maintain and improve a strong financial profile by reducing debt and adding more income through accretive acquisitions in 2017.

• debt to gross book value declined from 44.3% to 43.5% moving lower than previous years
• weighted average mortgage interest rate was 3.08% down from 3.20% last year
• weighted average term to maturity also moving down from 6.1 to 5.7 years
• debt service coverage ratio was stable at 1.63 times, which was consistent in years prior
• interest coverage ratio was 3 times, steadily and slowly moving lower than previous years

Distribution

They are collecting more in monthly rent while paying out less in earnings at a ratio of 70%. This is an outstanding combination for a REIT.

CAPREIT trades at a p/e of 8.25 times. Very cheap on a historical basis. They pay shareholders a distribution of almost .11 cents a month.

They have room to improve that but they will probably save money for more debt reduction and or more acquisitions to feed growth.

They recently sold 4,270,000 units at a price of $35.15 to fund their recent acquisition credit facility. This is dilutive but a good use of proceeds.

Summary

If you are looking for a high quality residential REIT then you owe it to yourself to look at CAPREIT. It is cheap here at 8 times forward earnings and the price has moved lower with the recent threat of interest rates moving higher on both sides of the border. I would like to see the price get cheaper and the yield move up over 4%.

However, I would have no problem buying it here as a long term forever hold.

Do you invest in REITs?

Related Post: High Yield Stocks-Buyer Beware!

Recommended Reading: The Intelligent REIT Investor

Is Now A Good Time to Buy BCE?

Closed at $56.09 on 02 Feb 2018

52 week high/low $54.44-$63.00

Currently trading at a 12% discount to it's 52 week high

Dividend Yield - 5.4%

The Company

"BCE Inc., a telecommunications and media company, provides wireless, wireline, Internet, and television (TV) services to residential, business, and wholesale customers in Canada. The company operates through three segments: Bell Wireless, Bell Wireline, and Bell Media. The Bell Wireless segment offers integrated digital wireless voice and data communications products and services. The Bell Wireline segment provides data, including Internet access and Internet protocol TV, local telephone, and long distance, as well as other communications services and products. This segment also offers competitive local exchange carrier services; business service solutions, such as hosting and cloud, managed, professional, and infrastructure services; and Web and audio conferencing, and e-mail solutions. The Bell Media segment owns and operates approximately 30 conventional TV stations; 34 specialty and pay TV channels; 105 radio stations; 30,000 advertising faces; and 200 Websites. This segment also offers out of home advertising services and digital media services. BCE Inc. offers its services through a network of corporate and dealer-owned retail stores, national retailers, and call center representatives, as well as Websites and door-to-door sales representatives. The company was formerly known as Bell Canada Enterprises Inc. BCE Inc. was founded in 1880 and is headquartered in Verdun, Canada."


What's not to like here as a dividend growth investor? Price is historically cheap and yield is an astonishing 5.4%.

HISAs are yielding 1% and bonds are woefully a poor investment for your retirement portfolio.

BCE has been around since 1880 as a company, you can't get anymore stable a franchise than that. When you look around for income investments to fund your retirement this stock has to be seriously considered as a core holding. It is in all my portfolios.

I look at price and yield and what I can buy that stock for today and what will the yield + growth give me in the future. BCE has a historical 10 year dividend growth record of 7% + 5.4% dividend yield = 12.4% annual yield.

That is an outstanding record of compounding and when you consider being able to now buy BCE at over a 10% discount to it's 52 week price, it really is being thrown into the discount bin at the dollar store.

BCE is a core holding and I would not hesitate to buy more at these prices. The combination of this kind of yield and long term growth record to me is irresistible.

Do you own BCE and would you buy it here? 

Related Post: Dividend Growth and Your Retirement

Recommended Reading: Dividends Still Don't Lie

Becoming Warren Buffett

If you have been investing for any length of time, you have probably heard the name Warren Buffett. He is also known as 'The Oracle of Omaha' and the world's greatest investor. Can you become a great investor along the lines of 
Warren Buffett?

Let's just take a few glimpses into his annual letter to shareholders 2017. I was 8 years old when Buffett's Berkshire Hathaway debuted at $19 a share. It's now trading at an eye-popping $304,500.

I do not own any shares in Berkshire Hathaway 'A' or 'B'.

Every year investors from around the world wait for his annual letter to shareholders just for a glimpse into one of the great investing minds history will ever know. It really is a good read.
  
Here is a linkhttp://www.berkshirehathaway.com/letters/2017ltr.pdf

Noteworthy Advice for Investors

• read about his big bet with hedge funds. He creamed them. Learn to be a DIY - funds charge too much
• p.13 "stick with big, easy decisions and eschew activity" (don't trade stocks, own them for life)
• p.13 "high grade bonds increase risk"
• p.13 don't use borrowed money to own stocks
• p.10 "Charlie and I view the marketable common stocks that Berkshire owns as interests in businesses, not as ticker symbols to be bought or sold based on their “chart” patterns, the “target” prices of analysts or the opinions of media pundits" (Great advice).
• p.7 " we have constructed Berkshire in a manner to withstand economic discontinuities"
• p.5 "it is insane to risk what you have and need in order to obtain what you don’t need"

Berkshire collected 3.7 Billion in dividends last year. Realize most of us buy stocks but we don't sit on the board or have the ability to buy over 10% of a company.

I do however try and buy a business I know or use/frequent so I feel attached to it, so I'm not swayed into selling during a downturn. Knowing this allows me to hold for the long-term or forever.

I used to try but I soon realized I'm no Warren Buffett and it's virtually impossible to even try doing and investing the way he does. Matter of fact just lately I heard he was sitting on about 150 billion in cash looking for a place to invest. Yes, safe to say, I will never become Warren Buffett.


There are a plethora of taped interviews, TV appearances, books and articles on how he has become the world's greatest investor. Study them all you want, it makes for great entertainment.

Buffett takes a lot of RISK!

We don't or shouldn't, that's why we will never become Warren Buffett.

He doesn't just buy dividend paying stocks, he buys the whole company or enough shares that he has a controlling interest to make decisions on whether to continue operating the business or close it completely.

He loves to buy for dividends but his holding company Berkshire Hathaway does not pay any. For this reason I would never buy shares in his company.Talk about a dichotomy in investing styles.

How Buffett Invests

• he has a lot of insider info you don't have
• he knows people in the know you will never know
• he never pays the taxes you and I would on trading and buying stocks
• he has access to other people's money on a scale you and I will never ever attain
• he buys the company
• he loans money to banks 

When you are a newbie investor it's very easy to say to yourself, 'll just invest like Warren Buffett does. Fuggetaboutit!

Somebody in every walk of life is #1 and in the investing world it's Warren Buffett.

We should just try to use average to low risk with our investments and use the compound value of time + yield + dividend growth to grow our portfolio. It would take way too much risk to become Warren Buffett right now.

Warren Buffett also won the birth lottery. U.S. stock markets just don't deliver the returns they did in the golden era of investing like he was privileged to have. Credit was also being handed to him on a daily basis. Borrowed money is a lot harder to get these days and the U.S.economy is just on a slow grind and not in the boom times. We have just had a major market pullback so caution is warranted.

Buffett is having a hard time finding value for his money because he has so much of it. He said this on Monday 10 Feb 2018. You and I will NEVER have that problem.

We just buy small positions in blue chip stable dividend paying companies. These are also known as low beta companies. They have a great track record of paying those dividends for at least the last 10 years.

Can this investing style go sideways on us? You betcha!

You have to just hang in there and NOT sell when the worm turns and a full blown recession hits. It will eventually, just like it did in 2009 and even the greats like Buffett lost money. On paper at least. Don't panic if you want to be in the stock market. 

If that scares you, you can always buy an ETF or stay in cash and feel protected but that too will be sold off and you still may panic. 

In investing nothing is guaranteed. 

If you stick to what you know and like me, you buy the phone company that provides the data you use, the bank you have your investments with, the utility company that provides your nat gas and or power, the insurance company that provides your life insurance and a real estate trust that collects monthly rent seems like a great place to start.

Heck even Buffett owns these types of companies. Just don't borrow to invest to become Warren Buffett.

What You Can Do

• read everything by John Maynard Keynes
• invest with the next 10 years in mind
• look for safe cash flow
• invest in stable companies, no fluff
• look for a good yield and sustainable dividend growth
• buy at a good price not just whatever
• AVOID all companies that pay a high yield combined with a high payout ratio - unsustainable and you will lose money.
• read The Intelligent Investor by Benjamin Graham. It's the bible on investing and a definitive guide to value investing. Buffett models his style on 80% Graham.

Try not to let your emotions get out of whack. Convince yourself that constructing a dividend growth portfolio is the BEST strategy and it will work for you.

Be patient. This you will have in common with Warren Buffett.

Recommended Post : Rising Rates and Dividends

 

High Yield Stocks - Buyer Beware!

This is NOT a personal finance blog but rather it's a blog about me spouting my opinion on stock picking. I like to pick and shop for dividend stocks that pay a dividend anywhere between at least 3-5%.

This historically has been the sweet spot to buy a very stable company with the potential to grow anywhere between 8-10% a year.

So, 5% + 8%+ =13% return per year on that particular investment.

A high yield is usually a sign that the stock has severely declined in price and it is paying out a lot of it's earnings just to keep the business growing.

Don't be fooled into thinking that the stock is cheap and therefore a good buy.

What to Look For

I search for stocks with a decent yield and a payout ratio of less than 100%.

'Payout ratio is the proportion of earnings paid out as dividends to shareholders, typically expressed as a percentage. The payout ratio can also be expressed as dividends paid out as a proportion of cash flow."

If a stocks payout ratio is too high, then the dividend is in danger of being cut. A low payout ratio allows the company room to increase it's dividend.

As a retiree I always hunt for quality stocks with the ability to raise it's dividend. That's like getting a raise from your boss when you have a job.

Here's an Example

Alaris Royalty AD.TO

Dividend Yield - 8.5%

Payout Ratio = 2.7X

That works out to paying out over 200% of their earnings back to investors. Does that sound like a sustainable business model to you?

"There are no simple rules of thumb with payout ratios. But if you stick with strong companies that have manageable payout ratios – and which also have growing revenues and earnings – you're more likely to be rewarded with dividend increases and less likely to suffer a dividend cut." - John Heinzl

Alaris Royalty can't go on forever like this. They will have to borrow money to keep paying shareholders or make some more acquisitions to grow it's asset base. I don't own AD.TO but have in the past but see no reason to waste my retirement money here.

You will find this throughout the high yield world so do your homework and be careful what you buy. It makes no sense to just buy a stock for a high dividend only to watch the share price crater on you. In that case you really are better off just holding cash. The dividend payments you collect will never keep up with the price plop.

It's a real piss off to see that happen in your portfolio. Happened to me many times before I became an income investor.

More High Yielders

Diversified Royalty DIV.TO

Dividend Yield: 6.2%
Payout Ratio: 2.3X

DIV has a payout ratio over 200% 

Corus Entertainment CJR-B.TO

Dividend Yield: 14.3%

Payout Ratio: 1.18X

Corus pays out 110% of it's earnings. I would run from this stock and the dividend cut is coming within months. There is no way it can keep this up.

Would you risk your retirement money in an entertainment industry stock? No thanks! 

Altagas ALA.TO

Dividend Yield: 7.5%

Payout Ratio: 4.4X

Altagas is paying out over 440% of it's earnings. The dividend is in danger and this is a risky stock. The price keeps moving lower. Troubling times ahead for you if your money is invested here.

If you stick to bank, utility, telecomm and low yielding stocks (3%) you will eventually get a raise and not a paycut.

Most of the blue chip companies payout less than 75% and have yields in the 4-5% range.

Try not to get seduced by the siren song of high dividend yields. As they say in Lost in Space when that happens, "Danger Will Robinson"

Related Post: How I Built My Own Dividend Stock Portfolio

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