Posted by Robert on June 20, 2011
My wife might take issue with the title of this post, specifically the use of the word “sometimes.” Joking aside, while she has taken responsibility for spending and especially saving, I have taken responsibility for choosing investments. I bought some individual stocks which pay good income, and for a while I felt like a genius because I’ve been receiving healthy dividends at the same time as experiencing capital growth.
The last couple weeks have been pretty difficult, however. I bought these companies’ stock because they were cheap and, even though earnings may have been disappointing compared to the past, they were likely to recover with the rest of the economy. And for about a year, it seemed to be working. But recently, most companies have reported their first quarter results and at least four of them came in very disappointing. In a couple cases, the stock price returned to where I had purchased it, erasing my gains. In a couple other cases, the share price fell below what I paid for them. That sure feels like I made some mistakes. How can I minimize the fallout?
Investing for Income. This makes especially good sense because of my goal to live off investment income. When I buy a stock that is yielding 10%, expecting the share price to go up and dividends to remain constant, I may double my money and have a new yield of 5%. This happened with Bank of Montreal (not that I bought it) during the market crash of 2008. Should it fall back to it’s prior price, I would still be getting the same dividend. And where else could I find a yield of 10%? This keeps me from compounding my mistakes when the price falls, and it provides income to sustain me through the market troughs.
Diversification. I used to privately wonder if “diversification” were an excuse to sell a greater number of stocks and earn more commissions. But now I am starting to see the emotional benefit.Even though four of my holdings have been disappointing, I have one that won’t stop going up. That makes me feel better about my whole portfolio, especially since it’s my largest (highest-conviction) holding. And, financially speaking, if a couple companies go through a difficult economic period and are forced to reduce or postpone their dividends, I have income coming from other companies that are affected by different economic variables.
Remember Why I Bought Them. In one case, I bought a newspaper publisher. Newspaper is not the “wave of the future”, I recognize that. But with their expanding online presence and their distribution of flyers and coupons, I think they should do well enough in the future to provide a profit from the gloomy days of 2009. And when I read through their financial statements, I am reminded that their business is cyclical, producing more revenue (and profit) in the second and fourth quarters of the year. I bought their shares after a disappointing first quarter originally, and now they’ve had a first quarter with lower revenues from their recent fourth quarter. But that’s normal, and I don’t mind profiting from other people’s fear or pessimism.
Rebalance. What do I do, now that my largest holding is going up and some of my smaller holdings are going down in price? Take some profit from my winner (which is now yielding less) and buy more of my losers (which are now yielding more). This balances my portfolio more equally and it increases my total income. Unfortunately, it also increases the uncertainty of future results. But I own these companies because I believe in them and I’m getting paid to wait.
What do you do when things go wrong? Do you revise your strategy or do you wait it out?
Posted by Canadian Dream on June 17, 2011
With respect to the Canada Post strike I mentioned on twitter that if the 3 day a week delivery became permanent I won’t care. Which while true, I would like to point out one huge problem that would have occurred should the strike continue for too long…it would have likely killed off a lot of book sales. I did a check on shipping my books via other methods and the prices were all worth more than the book itself. So from a small publisher point of view Canada Post is still a damn useful company to have around.
Now onto the links:
Speaking of the books, Krystal over at Give Me Back My Five Bucks did a nice review on my book, Free at 45. You can also win a copy if you are interested.
So what is a father worth? Depending on the measure…a LOT! (Globe and Mail)
Another Father’s Day one…Should you celebrate Father’s Day at all? We plan to just hang out together and grab a breakfast out. (Walletpop.ca)
Should you decide to skip doing anything for Father’s Day feel free to play around with this retirement calculator and dream of early retirement instead.
Great minds think alike…JD Roth answers a question on paying back your mortgage or investing and comes up with nearly the same answer as I did. (Get Rich Slowly)
A good article on the state of Defined Benefit pensions in Canada and why that is the heart of the Air Canada strike. (Moneyville.ca)
Posted by Canadian Dream on June 15, 2011
Ok, I admit: I hate filing. I mean I will go to great lengths to avoid doing it (like not file a thing for six months) as such I will run into problems once in a while. Like this weekend where I realized I hadn’t archived my files since 2005. Yikes!
That doesn’t mean I haven’t filed anything from 2005 onwards, but rather I hadn’t pulled anything out of my files since 2005 and thus I had very thick files that made filing an even less than enjoyable task than it already was. You can see where this spiral is going right? I don’t file because it is harder to do with thick files which means more mess in the house making me even less happy with myself. So I avoid filing and the piles get bigger and then repeat.
So this weekend in one day I archived every piece of paper from my files from 2005 to 2010. Basically unless it had a 2011 date on it I pull the paper from my files. Achieving is a simple process as I do is pull out all the paper from that year and put it in a huge pile. Then once the huge piles are formed I place the paper into a series of large envelops or files with all the same year label and shove them into a box in the closet. Then after seven years I shred the contents since even the government isn’t going to audit me the income from my first job.
The result is a much thinner and easier to use files. I almost don’t even mind filing my pay stubs now which is obvious since I also filed every bill I’ve got for 2011 in ten minutes or so. So beyond archiving your files, what else have I learned from my battle with the file beast?
- Keep paper out. Avoid the paper in the first place by signing up for electronic statement and bills where possible or go for broke and get a high speed scanner and do it all digitally.
- File it at once. The second you are done with a piece of paper file it. Don’t wait as trying to batch the task will fail if you really hate filing (like me, I have failed to do the weekly filing thing for years).
- Make the system easy. Don’t create more files than you need and feel free to colour code. For example, I keep my utility bills separate (power, water, natural gas, phone) since I need the separate totals for taxes but colour code them all orange so I can see them easily.
- Make it personal. If you never remember something by a company name feel free to use another description. For example, my water and property tax bills both come from the city. So it is fine to label one file ‘water’ and the other ‘property taxes’ or mix in ‘The City of Regina’ for one of the files. Do what works for you.
So now my files are finally under control for the first time in years and I feel a lot better about filing new things…just in time for a postal strike where my bills and other papers will now be delayed in coming to my house. I can really appreciate the irony of now I’m not waiting to file on me, but rather my mail carrier.
So how do you make your file system work? Have you had problems creating a system that actually works?
