Friday, October 28, 2016

Update on My Passive Investing Experiment

In early May of 2016, I made my initial foray into passive investing by purchasing two ETFs in my son’s Registered Education Savings Program (“RESP”).  My primary objective of undertaking this experiment was to determine if the often-cited benefits of passive investing (i.e. low time commitment, low cost, low maintenance, etc.) were realizable. Six months into the experiment, the benefits of passive investing are becoming evident and are causing me to question if I should expand the experiment.

Low Time Commitment

After initially suffering from analysis paralysis when trying to figure out which ETFs to buy for my son’s RESP, I finally decided on two: Vanguard FTSE Canada All Cap Index (VCN) and Vanguard FTSE All-World Ex Canada Index (VXC).  The initial selection of ETFs was the only significant amount of time I spent on this experiment, and I feel it was time well invested.

Low Cost

One of the sole benefits offered by my brokerage is an offering of about 50 ETFs which can be bought and sold commission free. That said, VCN and VXC are not part of that list, and thus my two purchases cost me $20 in commissions, or 0.27% of the amount invested. The management expense ratios of VCN and VXC are 0.06% and 0.27% respectively.  

Low Maintenance

Very proud to say that I have not spent any material amount of time maintaining my son’s RESP. Re-balancing the positions next year will likely only take a couple minutes. It helps for me to know that the largest positions of VCN (Royal Bank, TD Bank, and Bank of Nova Scotia) and VXC (Apple, Alphabet and Microsoft) are all companies with great management who are focused on the long-term.

Market Returns

Since purchasing VCN, the ETF has risen about 7% and paid dividends totaling an additional 1.2%. VXC has risen approximately 8.6% and paid dividends (less with-holding taxes) totaling an additional 0.9%. My son’s RESP is up a little over 9%, a very respectable short-term gain reflecting the continued bull market in North America, and decent performance in Europe (VXC holds a number of large European companies).


The main downside that I see so far in my passive investing experiment is that I am knowingly invested in some companies that I feel are expensive at this point in time. For example, Suncor represents 3.3% of the total holdings of VCN. There is no way I would choose to allocate 3.3% of my portfolio to a company with declining revenues, net losses for the past two years, worrying cash-burn and CEO who seems to be more concerned with empire building than focusing on his core assets.

Final Thoughts

Six months into my passive investing experiment, it seems to be a great success. That said, it has only been half a year, and I prefer to judge the success of my investing by assessing long-term returns. I will admit that I’m considering expanding the experiment to a portion of my non-registered account in 2017.  The long-in-the tooth bull markets in North America and relative high weights of comparatively expensive companies are holding me back at the moment.

In your opinion, what are the disadvantages of passive investing? 

Thursday, October 20, 2016

Financial Lessons from the Trailer Park Boys

The television show Trailer Park Boys ("TPB") is one of my guilty pleasures. For those of you who have never seen an episode, check it out on Netflix or hunt down some DVDs. Although the vulgar language, constant drug references and semi-offensive plot lines might not be your cup of tea, following the ridiculous misadventures of Julian, Ricky and Bubbles as they scheme to get rich while trying to stay out of jail is always good for a laugh. Having watched all ten seasons of TPB, here are some of the financial lessons I have learned from the three main characters: Julian, Ricky and Bubbles.

(Source: )

Julian: Dream big, develop a plan and lead others to accomplish your goals

Without a doubt, Julian is the brains of the TPB gang. In season 2, Julian outlines his "Freedom 35" dream which he hopes to accomplish by selling drugs to prison guards. Ricky and Bubbles are quickly recruited to help Julian achieve his plan when he convinces them to buy into his "Freedom 35" vision. Even though season 2 ends up with the gang in jail, this doesn't stop Julian from continuing to shoot for the stars. He becomes part owner of the Sunnyvale trailer park where the TPB gang lives, he opens his own (illegal) bar, he renovates a hotel, and even successfully markets Sunnyvale as an all-inclusive (drug) vacation destination. Regardless of  the multiple trips to jail and failed plans, Julian never stops dreaming big, and is shooting for "Freedom 45" at the start of season 10. 

Ricky: Take action, focus on your strengths and don't care what others think of you

Although Ricky is NOT the brains of the TPB gang, he is a man of action who is not afraid to get his hands dirty. From being a janitor at a high school, to sleeping in a barn, to pulling safes out of walls with his bare hands, Ricky never hesitates to take action when it is needed. Often, when he is desperate for money, Ricky reverts back to focusing on his strength, which happens to be growing and producing high quality drugs. Ricky takes pleasure in his mastery of pharmaceuticals, even going so far as to pay expenses with hash coins in season 8. Another of Ricky's admirable qualities is his complete lack of regard for caring what others think of him. Forget keeping up with the Jonses, Ricky drives a beat down car with no doors, wears track pants everywhere, and often butchers common sayings by turning them into Rickyisms (i.e. "Can you give me a bit of credjudice?", "Crop of shit", "Don't judge a cover of a book by its look", etc.). 

Bubbles: Hustle, be your own boss, and support your friends

Although his appearance might indicate otherwise, Bubbles is a full blown hustler! His side hustles have included re-selling shopping carts, the Kittyland cat daycare, a short-lived restaurant, and even manufacturing honey oil. The constant presence of Bubbles' side hustles indicates that he prefers to be his own boss instead of letting Julian and Ricky dictate his actions. Given Julian & Ricky's money making ideas usually involve illegal activities, Bubbles' entrepreneurism cuts down the risk of his landing back behind bars.  Despite venturing out on his own, it's fair to say to Bubbles always supports his friends. Be it serving as a lender of last resort, providing entertainment with his guitar at Julian's bar, or publicizing the all-inclusive (drug) vacation destination that is Sunnyvale trailer park via the Internet, Bubbles is always there for his buddies.

Although none of the TPB gang have achieved financial independence, they have been extremely close multiple times due to the traits outlined above. More important than being independently wealthy is enjoying the journey, which Julian, Ricky, and Bubbles have mastered.

What is your guilty pleasure and what makes it great???

Thursday, October 13, 2016

Bunched Buying & Sporadic Selling

My previous post outlining three recent buys triggered a sense of deja vu as I recalled writing a similarly titled post describing three buys in August. To investigate further, I examined a year of trade confirmation emails to determine the frequency with which I conduct transactions in my portfolio. In particular, I wondered if I bought and sold in condensed periods of time or if my transactions were spread evenly throughout the year. In order to eliminate the noise from my data, I removed all "short-term trades" (positions closed within a month). Here are the results:

The above results seem to indicate that I buy in bunches and sell sporadically. The four sales that were spread pretty evenly over the course of the year came as no surprise to me. Three sales related to re-balancing my portfolio to be more tax efficient, while the fourth was getting rid of half of my Corus position when I lost faith in the controlling owners (the Shaw family) after they conducted a transaction that was in their best interest, instead of that of the shareholders. The discovery of buying in bunches was eye-opening and caused me to contemplate why I might make series of buys together. Here are a couple of my theories:

1. Trying to Time the Market

Although it gets a horrible wrap from indexers and even dividend growth investors, I freely admit that I try to buy when prices are relatively low. For example, when the markets were weak in January 2016, I thought it was a great time to buy, but only had enough cash to make two purchases. More recently, as the US REIT market has pulled back, I took the opportunity to add shares in three US REITs.  If the US federal reserve bank finally raises interest rates in December, I'll likely take advantage of the opportunity to pick up a couple of great US companies that will be on sale. Taking advantage of market uncertainty to buy shares in companies I intend to hold is part of my plan to becoming a successful investor.

2. The Adrenaline Rush of Buying

Have you ever noticed how amazing you feel when you invest your cash into a great company that you have thoroughly researched. For me, purchasing a stock provides an adrenaline rush, and I find myself looking to replicate that feeling. Although I'm fully aware that part of being a successful investor is controlling your emotions and acting in a rational manner, putting that knowledge into practice is a continuous struggle for me. When I have more data points to review, it will be interesting to look at the returns generated from a series of 2-4 stocks bought in close proximity. My bet is that the first security purchased will likely be the best performer.

3. Trying to Meet Performance Objectives

When reviewing my transactions, I was somewhat relieved see the lack of transactions in December 2015 and March 2016 as I measure my investment performance against a series of metrics each quarter. However, I think the absence of transactions in December 2015 were likely due to a lack of cash after the six buys in November 2015. Even now, as we enter the last quarter of 2016, I seem to be making a concerted effort to purchase shares in companies with higher dividend growth rates in order to move closer to my 5% dollar-weighted dividend growth target at year end 2016. Clearly, striving to achieve self-determined performance objectives should play a lesser role in my investment decisions.

Next year, one of my goals will be to make purchases at more regular intervals throughout the year in order to avoid bunched buying. Clearly, I have my work cut out for me in better managing my emotions when making purchases and avoiding letting my performance objectives impact my buying decisions.

What insights would you expect to learn from reviewing your investment transactions?

Friday, October 7, 2016

Three Recent Buys - AW.UN, LSI and EMA

After reading about some of my fellow dividend bloggers taking money off the table, rethinking their choice of a dividend growth strategy, and waiting for better valuations...I went on a bit of a shopping spree over the past week. Don't get me wrong, I respect everyone's decisions to take a breather or try something different, but I'm sticking with what works for me: buying dividend growth stocks at fair valuations.

Buy 1 - A&W Revenue Royalties Income Fund (TSE: AW.UN)

After high-lighting A&W as one of the three Canadian restaurants with growing dividends that interested me the most and including it in my last couple monthly watch lists, I re-deployed the proceeds of my Royal Bank stock sale from inside my RRSP to this tasty royalty vehicle. With a 4.6% yield, 10% distribution growth over the last year, and some of the strongest same-store-sales growth of any Canadian restaurant, I was very attracted to this security. The fact I am also a big fan of their marketing, use of higher quality ingredients, and products (especially their onion rings) further pushed me toward this purchase. I'm not sure that this will be my last Canadian restaurant investment (see the final paragraph), but I'm happy to make it my first.

Buy 2 - Life Storage Inc. (NYSE: LSI)

My plan for my RRSP is to add US-traded REITs in sectors that are unavailable in Canada in order to provide further diversification within my investment holdings. Since there's this great sale on REITs lately, probably due to an expected US interest rate hike before the end of 2016, and valuations are becoming very attractive. I decided to initiate a position in self-storage company LSI as the company's revenue, FFO, and distribution growth over the past five years have all been impressive. The fact I was able to pick up my shares at a P/FFO valuation of about 16X enticed me to pull the trigger. I'm unsure if this will be the last US REIT I add to my RRSP before the end of the year, as WP Carey is becoming increasingly interesting due to their elevated international real estate exposure, relatively high yield (over 6%), and cheaper valuation relative to their peers.

Buy 3 - Emera Inc. (TSE: EMA)

Despite including it on my list of five Canadian utilities with growing dividends, Emera never jumped out at me until I looked at them recently and noticed their P/E had fallen below 15X. That relatively cheap historical valuation, combined with their 4.5% yield, 10% recent dividend hike, and management guidance of dividend growth of 8% through 2020 quickly bumped this company to the top of my mind. I used some spare funds in my non-registered account to initiate a position in this company on a recent dip, and I will likely add more before the end of the year.

Given my commitment to be honest with my readers, there was actually a fourth buy that I would have liked to include in the above list...but I sold it after 3 hours. Although I have cut back on short-term trading in recent quarters, on September the 30th, I picked up some shares in the Keg Restaurant (TSE: KEG.UN) at a great price, but then decided to sell after they rose to the point where I was able to collect a profit equal to six months worth of distributions. My thinking was that I would likely have a chance to repurchase the Keg units at some point over the next six months at a better price. At least that's my hope.

What companies are on your watch list this October?