Sunday, May 11, 2014

I am happy to not just blather into empty cyberspace

This blog’s readership has been growing along with the improving stock markets.  Yet, the number of reader comments is very low and receiving one is like spring starting in Calgary after 8 months of snow. J 

Thus, to celebrate this comment, which helps me feel like I am not just blathering into empty cyberspace, deserves a more elaborate answer. The comment was on the ‘Sleepy Season’ Post: “Great Blog, Thanks for providing a forum to help investors. Do you currently think there is any opportunities out there or are you waiting for a correction, also do you invest in any international stocks? Thanks”. 

As stated in the ‘Sleepy Season’ blog, my overall strategy is ‘starting to build cash for the next crash’ and that is in particular true for North American markets. But that doesn’t mean that there are no good deals out there – you just have to be selective and be even more diligent than usual before buying.
I still like small apartment units in Calgary’s condo market – in particular older complexes that have been well maintained. Buyers of new condos are often blinded by shiny kitchen counters and other lipstick that can just as easily be applied to older units.  Prices of new units may not seem that much higher than older units, but that is until you look at the square footage!  For example, University City is a brand new complex where you can buy a one bedroom for around $260,000 dollars or so. That includes a prime location one hundred meters from the LRT and surrounded by a shopping center and, especially in the summer, there is a pleasant urban life style with little need for a car. Of course, everything is brand new. 

10 minutes down the road, an apartment complex build in the 1980s has also one bedroom units that are in pretty good shape. These units are going for around $215,000.  Some also can have a nice kitchen and bathroom. Hey, if you spend an extra $20,000 on renovations it would be just as spiffy as the new unit. This older complex is within a 10 minute walk from another LRT station and it is also adjacent to a shopping mall (in fact there are several malls in walking distance). The big difference?  The University City one bedroom units (which were sold out in days) are typically 460 square feet while the older unit is 650 square feet.  Oops on a square footage basis the older unit is a steal!   

The same is true for the stock market. You can buy flashy Facebook or even Google at very high prices (even after the recent correction).  Or you can buy Apple or Microsoft are very modest prices. Look at what you pay for a dollar of earnings?  Not to speak of share buy backs and dividends.  Guess what, Apple and Microsoft have barely budged in the recent tech correction! So, I would still consider buying the latter but the risk of buying those stocks is a lot higher now than it was in the fall of 2009 when you could have bought Microsoft for $18 per share. I kid you not!  

Right now, aim for 20% of cash in your paper security portfolio if you are a bit more aggressive.  Conservative investors may want to be up to 30% in cash. If you have even more cash than 20 to 30%, I would consider buying stocks such as Microsoft, Apple, Qualcomm, GE, ExxonMobil, etc. Also, buying a European or German stock market index ETF is not a bad idea either – we are so far from Europe that rather than buying individual stocks and dealing with all kinds of administrative headaches like withholding taxes and extra administration fees, not even talking about research time, an ETF is much more practical.  Although the bull market is in an advanced stage, to predict when the next correction or crash will come is near impossible.  It may be 2 years out and the stock market may run up a lot higher than I currently expect before it crashes.  

Recently, an investment advisory that I have been following, also pointed out how cheap emerging markets are.  China maybe risky, but markets such as India have been beaten down so much, it deserves a closer look.  In the posting: Outlook 2014, I suggested a stock portfolio allocation of 40% Canada; 40% in U.S. large caps, 20% Europe and no emerging markets.  Now, with stocks so cheap in some emerging markets such as India, I suggest to reduce the U.S. weighting to 35% and increase emerging markets to 5%. This would add up to 100% of your stock holdings. You still need 20 to 30% cash in your total paper securities portfolio (including short term GICs) and 10% or so in inflation protected fixed income such as reset preferred shares or floating rate debt obligations.  Also, make sure that your total net worth is 50% paper securities and 50% real estate.  Most of us who own a personal residence are probably already overweight in real estate and can focus on their paper security portfolio.  Others may have to branch out into rental real estate to diversify their total portfolio.

If you want a method of allocating your total net worth; i.e. your total investment portfolio, then have a look at the COI (Cash flow On Investment) and ROI (Return on investment) postings (click here). Never forgot that in the end it is your money that you are investing; that you can find all kinds of investment advice and opinions but each and every investor has his/her own special situation and requirements and that the buck stops with you!

1 comment:

  1. Hi Godfried,

    Great blog, personally it is one of the best Canadian investing blogs that I have found. I find it very informative and entertaining. What is your opinion if any on Penn West, it was looking at it for the dividend and the fact that it is more a contrarian play. I recently read a book called The Single Best Investment by Lowell Miller, I thought it was a great book for the average investing to invest in high quality dividend growth stocks for the long term income, after holding for a certain time period you make your investment back on yield alone. As I am a person who is trying to learn as much as I can now I appreciate your efforts to educate the students.

    Keep up the great work,