http://intthree.com/ Discussions on life en-us Nucleus CMS v3.22 Weblog http://backend.userland.com/rss http://intthree.com//nucleus/nucleus2.gif http://intthree.com/ http://intthree.com/index.php?itemid=302 this article (thanks to Canadian Capitalist for the link) the market is doing a fairly good job of mis-pricing Canadian financial stocks but things have managed to get slightly better by the end of the week. Gold broke through the $1000 mark since the fiscal sky was falling and it must be the only safe haven (ok, whatever). On Tuesday the Federal Reserve cut the overnight rate by 0.75% which was a disappointment to the markets (imagine that!) since they were hoping for a full 1% cut. That sent the US dollar up and commodities down. By the end of the week financials recovered slightly and commodities (including oil and gold) were down from their Monday levels.

What a wild ride. I just wish I had more cash available and actually had the guts to pull the trigger on some financial stocks on Monday.]]> Personal Finance http://intthree.com/index.php?itemid=302 Fri, 21 Mar 2008 09:28:39 -0400 http://intthree.com/index.php?itemid=301


I'm thinking that it isn't going to work...

Wow it does! Ok, that makes my next series of posts much easier...]]> General http://intthree.com/index.php?itemid=301 Mon, 25 Feb 2008 09:18:28 -0500 http://intthree.com/index.php?itemid=300
Let's take a look at the TSX. On December 31, 2007 it closed at 13833.05. By the close on January 3 it had climbed to 13978.20, a little bit more than a 1% gain. The real trouble didn't start until January 15. On January 14 the TSX closed at 13698.23 or just under 1% lower than the December 31 close. Over the week from the close on January 14 to the close on January 21 the TSX lost a total of 1566.11 (the January 21 close was 12132.12) a whopping 11.4% decline over 5 trading days.

That's the bad news. On January 22 the US Federal Reserve made a surprise 0.75% cut to the overnight rate before the US markets opened (the US markets were closed on January 21) and the Bank of Canada cut rates 0.25% in a scheduled policy announcement. The markets responded. On January 22 the TSX closed at 12640.87 a 4.19% climb in one day (the increase was over 5% if you looked at the low of the day on January 22). The TSX continued to climb over the few days after January 21 closing the week out at 12894.83, a 5.86% decline from the January 14 close but a nice 6.28% gain from the January 21 close.

There were numerous opportunities in the market if you could see past the irrational market. A lot of the Canadian banks were trading at extremely low levels. If you had the stomach to buy almost any Canadian bank on January 21 by now you could easily be sitting on a 5-7% gain. It is true that there is a good chance the the US economy is headed at the very least for a slowdown, if not an all-out recession. The Canadian economy could follow suit but we don't have quite the same issues that the US economy does. The sub-prime mess is a US problem for the most part (at least from a Canadian consumer standpoint, some Canadian companies decided it was a good idea to take on some of that sub-prime risk and reap the short-term rewards that came from that).

I'm not saying that we have seen the bottom of this market, in fact I think we have a pretty good chance of seeing close to 12,000 on the TSX in the next couple of years but if we do I think that will provide more opportunities for investors with a long-term time horizon. ]]> Personal Finance http://intthree.com/index.php?itemid=300 Sat, 2 Feb 2008 16:29:51 -0500 http://intthree.com/index.php?itemid=299
Today the US markets are closed and that may turn out to be a good thing. The TSX has started the morning off in a foul mood, dropping more than 500 points or 4% in the first 10-15 minutes of trading.

To me it looks like there are a lot of bargains out there right now but I have a feeling that there will be better bargains in the coming weeks. I don't see this downward pressure letting up any time soon.

The really nice thing about the state of the market is that it is going to allow me to test my income strategy. I am hoping to see about a 30% increase in the income from our portfolio in 2008. I think that we are going to have an opportunity to see what adverse market and economic conditions do to an income-oriented portfolio.

All in all this looks like it is going to be a wild ride.]]> Personal Finance http://intthree.com/index.php?itemid=299 Mon, 21 Jan 2008 10:12:54 -0500 http://intthree.com/index.php?itemid=298
"Personal rate of inflation" is another post for another day but the basic idea is that it really doesn't matter what the posted rate of inflation is. The posted rate might be accurate, it might not be accurate but it almost certainly isn't the right number for every single person in the country. So if you track your expenses from year to year over the long term you should be able to figure out how much more it costs you every year to maintain your lifestyle. This is your personal rate of inflation.

So getting back to my investment goals. I want to have a portfolio that generates enough income to support my lifestyle and increases that income at a rate at least equal to my personal rate of inflation. The problem is that I don't have a good idea of whether a specific mix of stocks is going to meet this goal. I also don't want to wait until I have collected that specific mix of stocks to figure out if there is a good chance that it will meet that goal or if it needs to be tweaked a little bit. I also want to know what happens to income generated from a model portfolio over at least one economic cycle, hopefully more than one.

So this gives rise to the model portfolio as another piece in the puzzle of financial independence. The model portfolio provides a way to track whether a specific asset mix will provide an income stream that increases at a minimum of our personal rate of inflation. I believe that it is very possible to have a portfolio of income generating stocks that increases the income it generates from year to year at a rate that significantly beats inflation. The hard part is getting to the level of income that will actually support your lifestyle.

Here is a recap of the posts I have already made about the model portfolio. I need to cover a couple more sectors (Health Care, Telecom and Consumer Discretionary) and the stocks in those sectors and hopefully I can have that done around the start of the year as well as provide an update on the income generated by this portfolio (and I need to come up with a better name because I don't want to give the impression that this is my actual target asset allocation because it isn't).

Model Portfolio Introduction
Model Portfolio Rationale
Finance Sector review
REIT Sector review
Pipelines and Utilities Sector review
Energy Sector review
Industrials Sector review

I think my goal in 2008 will be to provide at least quarterly reviews of/updates on the portfolio and maybe even do a little bit of an analysis of the earnings of a few of the companies in the portfolio.]]> Model Portfolio http://intthree.com/index.php?itemid=298 Thu, 22 Nov 2007 08:18:29 -0500 http://intthree.com/index.php?itemid=297 before tax income.

When I first started full-time post graduation work I was making a fairly decent salary but I wasn't able to even come close to saving 10% of my before tax income. I was lucky if I could save 5% of my after-tax income. I'm sure there are many people in the same situation.

So how is it possible to get to the point where you are actually saving 10% or more of your before tax income? You need to view the 10% level as a goal. It isn't something that you have to do all at once. You can work towards that goal over as long a time as is necessary to reach it (within reason of course). One very simple way of reaching the goal is to save your raises and your bonus. Say you are currently making $40,000 a year and you get a 2% raise. That means that you will be making $40,800 now. Let's also say that you were only saving $50 a month ($600 a year or 1.5% of your before tax income) before you got the raise. After the raise you should be taking home a little more than 60% of that $800 or around $480 a year, $40 a month. Since you were managing to survive on the $40,000 you were making before you got the raise, there shouldn't be any reason that you couldn't survive on that much after the raise. So that extra $40/month could go right into savings and you have increased your savings rate by 80% to a whopping $1080 a year or 2.65% of your before tax income. If you get a bonus during the year you could funnel as much of that as possible (say 50% to your savings account and 50% to do with what you please, it is a bonus after all you may want to enjoy it a little bit).

By being consistent with putting your raises and a portion of your bonus into savings over time you can reach the goal of paying yourself first and saving at least 10% of your before tax income. It may take six, seven, eight years but it is possible to get there and it should be quite painless as you shouldn't notice the extra money going into savings since you never got used to spending that cash in the first place.]]> Personal Finance http://intthree.com/index.php?itemid=297 Tue, 16 Oct 2007 07:23:10 -0400 http://intthree.com/index.php?itemid=295
TD Waterhouse is now offering $9.99 flat rate commissions to households with $100,000 in assets with TD Waterhouse. Active traders can get commissions as low as $7 per trade. These rates appear to be effective as of September 4, 2007.

This should put some pretty big pressure not only on the smaller low cost brokers like E*Trade and QuestTrade but it should put some pretty heavy pressure on the other big brokerages (BMO Investorline, RBC Direct, ScotiaMcLeod Direct and CIBC's Investor's Edge). Now Canadians are finally starting to enjoy the same cheap trades that investors in the US have been enjoying for pretty close to a decade.

Even though the cheaper commissions may be out of reach for a lot of people ($100,000 is pretty steep especially if you are contributing to a pension through work) I suspect that the way the brokerages are going to compete now is by lowering that "total asset" number. I suspect that the smaller brokerages (i.e. not the ones connected to the big five banks) will drop their limits almost right away (I know E*Trade has a $50,000 per person limit to get the $9.99 trades which is now equal with TD Waterhouse so they are probably going to have to do something in the next month or so) and I also suspect that the big brokerages will almost exactly match TD Waterhouse before the RRSP season.

All in all very positive news for the smaller investor in Canada and even if the cheap trades don't apply to you yet this is still good news because I think it signals the beginning of the end of $29 discount brokerage trades in Canada.

]]> Personal Finance http://intthree.com/index.php?itemid=295 Thu, 30 Aug 2007 09:08:22 -0400 http://intthree.com/index.php?itemid=294
Of course, once again there was one particular aspect of the Royal Bank's earnings release that caught my eye. They increased their dividend. They actually increased their dividend more on a percentage basis than TD did yesterday. The dividend is going from 46 cents to 50 cents, an increase of 8.69% (even though the press release says it is 9%). Just like TD this is the second dividend increase for Royal Bank in the last year. If you had held Royal Bank stock one year ago (or more precisely if you were a shareholder of record on October 26, 2006) you would have been paid a dividend of 40 cents on November 24, 2006. Now in 2007 if you are a shareholder of record on October 25 you will receive a dividend of 50 cents on November 23 (RBC makes this really easy to figure out by providing this table on their website). That is a 25% increase in one year. That most definitely beats inflation and also soundly beats the increase in salary in my day job over the last year.

Royal Bank is the single largest holding in our portfolio. Before making any investment decisions you should do your own homework and consult with your financial adviser to make sure the choices you make are appropriate for your unique situation.]]> Finance http://intthree.com/index.php?itemid=294 Fri, 24 Aug 2007 17:45:00 -0400 http://intthree.com/index.php?itemid=293
Of course, the thing that really caught my attention is the fact that they raised their dividend. The dividend went from 53 cents to 57 cents, a 7.54% increase. The last time they increased their dividend was only two quarters ago when it increased from 48 cents to 53 cents or 10.41%. So if you had held this stock at the beginning of September in 2006 you would have been given a dividend of 48 cents on October 31, 2006. Now a year later if you are a shareholder of record on October 3, 2007 then on October 31, 2007 you will get a dividend of 57 cents. The increase in dividends over the last year (and if I were to go back one more quarter this number would be even more impressive because the dividend was 44 cents in July 2006) has been 9 cents or 18.75%. I think this is not quite in line with the average dividend increase (which I suspect is closer to 10% yearly) but it does show how being a dividend oriented investor that looks for companies that not only pay dividends but have a strong history of raising their dividends can really pay off in the long term.

We own TD bank (as of April of this year) in our portfolio. Before making any investment decisions you should do your own homework and consult with your financial adviser to make sure the choices you make are appropriate for your unique situation. ]]> Finance http://intthree.com/index.php?itemid=293 Thu, 23 Aug 2007 18:00:00 -0400 http://intthree.com/index.php?itemid=292
What am I concerned about? The income or portfolio generates. The nice thing about focusing about the income our portfolio generates is that in general the dividends and distributions that companies pay out isn't impacted by the gyrations of the market. So while the market has been having its little temper tantrum in the last month or so the companies that pay out dividends and distributions have been continuing running their business and generating cash and paying out part of that cash to investors.

So far this year our portfolio has produced just over 80% of the total income that our portfolio generated last year. We are only 231 days into the year or 63% into the year. In terms of net income (income - margin interest paid) we have already exceeded last year's income (as a side note, in general we only use margin on a temporary basis to buy stocks that are trading at a bargain when we don't have cash in our accounts. Last week provided a couple opportunities that we jumped on and used margin for but basically up until the beginning of August or so we weren't using any margin).]]> Finance http://intthree.com/index.php?itemid=292 Mon, 20 Aug 2007 06:00:00 -0400