With Halloween just behind us, once more, it’s time
for another DIY Portfolio update after that scary season. As now customary, you
can expect our next update in about 12 weeks, in February 2019.
You can also access our earlier portfolio updates
here:
Speaking of scary, what
happened especially in the last month can be preoccupying. We had several days
where we had a taste of what a major market correction may involve. With
markets that fell more than 10% from their high, we are now by definition, in
correction territory. Can this be the long announced big market downfall? We
can certainly feel that panic could easily settle in.
The increasingly polarized
positions and resulting frictions between our powerful and sometimes
ill-tempered neighbours are also concerning. Particularly when their colorful
leader continually fuels them.
Even though we don’t
approve, he would still probably appreciate it because we are talking about him
again. His eventual departure or exit also bring a lot of uncertainty to the
table. You can bet it won’t be a smooth process but rather will involve a loud bang
like his presidency. At times, we think of selling everything to secure our
holdings before suffering those potentially disastrous consequences. Then
again, we would miss out on all our profits meanwhile. Turbulent periods like
recent ones will always occur and we are far from being advocate of doomsday or
black swan scenarios.
So today, after looking
at why Canadian stocks have been noticeably lingering as of late, we will talk
about how we try to keep a long-term investing focus. We will conclude by
sharing some of our latest investment reflections.
Once more, I’ll remind you that I
am not an investment or tax professional of any kind. The intent of this blog
is not to give specific investing advice. Before investing yourself, we suggest
you do all necessary research and consult a licensed financial professional if
need be.
Canadian Stocks Ailing
A lot of combined factors
have negatively affected Canadian stocks lately. Successive interest rate hikes
by the Bank of Canada, NAFTA negotiations, US driven commercial tensions, etc. Even
though our economy is doing quite well and has somewhat shifted away from its
oil dependency, we still rely a lot on resources and their volatile nature on
the markets.
What the US does also
has great influence on Canadians. Unfortunately, to some extent, we are at the
mercy of its vocal leader. NAFTA talks finally concluded after the US made
little concessions and even managed to rename the agreement that will now be
known as the United States, Mexico, Canada agreement (USMCA). All this while
the noisy Washington chief remained quite disrespectful, negotiated in public and
nearly laughed right in our face. We are not convinced, but let’s hope we have
seen the worst of US-Canadian relations.
Earlier this year, we
had Utilities Stocks on Our Radar and acted on it. A few months
after the fact, piling up on utilities may not appear like a wise decision as
those stocks are really sluggish as of late. But we are not than worried as we
are still convinced it will turn out to be a smart long-term choice. In
practice, many stocks often struggle short-term after you acquire them. This
will be especially true if you try to buy stocks when they dip like we do. Many
times, they will continue to go down a little before getting back up.
The important matter is
to choose solid corporations that will do well in the long run. After that, you
have to remain patient and sell only if you realize your initial investment
assumptions are not true or are reversed somehow. That kind of selling should
be quite rare. Particularly if you take a little time to do some basic research
and analyze robustness of your stock candidates in the first place. So, don’t
worry that much about those utilities, they will eventually come around and slowly
climb up again.
Many specific examples
of dipping Canadian stocks appear in our existing positions with appealing Dip Factor. We particularly like Royal Bank (RY
Down 11.67% Dip Factor 3.17) but would probably still wait a bit to pull
the trigger on it. With all utilities stocks dipping, our favourite is
undoubtedly Emera (EMA Down 19.02%
Dip Factor 3.46)
as we talked a couple of times before.
Keep Long-Term Focus
We have been in an
almost continuous bull market for about the last 10 years. And, after that current
amazing market run, you have to expect a severe decline at some point, but you never
know exactly when it will happen.
Moreover, despite
several hard-decline days lately, we probably have not seen the worst. So, all
investors should be prepared for some kind of shock.
A few weeks back, a
friend reminded us how we used to view short-term market noise. In fact, we
still believe sharp short-term declines are only a minor glitch in the long
term.
Especially in recent
time, viewing stocks or markets using daily, weekly, monthly or even yearly
charts can be really frightening. Taking a step back and looking at things from
a broader perspective is the trick. With a chart or horizon of at less 10
years, any major short-term setbacks will only appear as minor abnormalities in
the long run.
In a previous post, we
talked about how we like Handling Bad Decline Days. To resume our motto in those
circumstances, we simply stay calm and look for buying opportunities.
These days, we like to
remind ourselves our long-term performance is and still will be, quite good. Even
though it will still be a little painful, we also try to psychologically
prepare for the eventual yet inevitable stock-market-crash trauma. This process
is all part of having success and making decent money with stocks in the long
run.
Recent Reflections
Several sectors have
been very trendy as of late. Just think about all the hype surrounding bitcoins
in the last few years, the recent legalisation of cannabis in Canada or to a less
extent, the resurgence of tech stocks.
Many novice investors
or even more experienced ones seem to be easily attracted to these in vogue
sectors and their corresponding stocks. A lot of people are seduced by the
possibilities of getting rich quick and in the end, it may be a large part of
the explanation of why many lose money with stocks. They get interested by the
latest cool thing but it’s often too late to even have a chance to make money
or even not to lose money with it. Unfortunately, it’s almost guaranteed you
will lose money with these so-called exciting stocks.
Lucky for us, we like
boring stocks better. With our conservative investing style, we won’t even
consider extremely volatile bitcoins or pot stocks.
We still will be
inclined to risk a little with tech stocks from time to time like our current
position in Apple (AAPL). But overall, our tech exposure will always remain
limited.
Like it’s often the
case with popular stocks, everyone seems to be getting into them after they’ve
already surged. Tech stocks are a good example right now. In those
circumstances, our reaction, quite opposite, will always be to remain careful
and consider it’s probably time to get out of them.
This time around, we
remain confident and won’t get out of Apple as of yet but certainly won’t
acquire additional shares for some time.
Colgate-Palmolive (CL) Down 22.89% Dip Factor 4.29
Getting back to the boring
stuff, last time, we talked about how we may have missed an opportunity earlier
this year with Colgate-Palmolive (CL).
But often in life, things or events happen for a reason. For a while, we had
been instinctively quite high on CL but got worried when we took a deeper look.
CL may be too boring as
its growth stagnated in the last few years. CL is certainly not falling but it
may not be growing anymore. Its questionable Dip Factor
over 4 also merits some additional research and digging. Like many corporations
in its sector, CL seems to have problems with online competition from fierce
new smaller players.
We initially thought CL
strong brands and its sales supported by major retailers like Walmart would be sufficient
to fuel its continuing success. It may not be the case anymore as competitors
like Procter & Gamble (PG) now look much better and seemed to have
surpassed the same hurdles. Again, compared to PG, CL brands may also not be
numerous and diversified enough. Colgate and Palmolive are two major household
names, but it kind of stops there after that.
We are still debating
what should we do with CL. There’s no hurry as we can afford to remain patient.
When you have doubts on a candidate before buying, most of the time, waiting is
a smart prudent alternative. Waiting is also usually the best option when you
get in a panic selling mode. On the other hand, don’t hesitate too much to sell
if one of your stock doesn’t meet your initial investing thesis anyone. We will
probably decide to buy only a smaller portion of CL or pass on it altogether.
We will let you know…
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