Wednesday, July 25, 2012

Global Uncertainty

With Europe in a recession, China slowing down, and US sputtering, the global economy outlook is tepid at best. In environments like this, I recommend sticking to high quality stocks that have strong balance sheets, yield support, and are best of breed in their sector. What do these mean?

Strong Balance Sheet

When the economy hits the gutters, corporate revenues, and thus profits, typically decline for the majority of businesses. In this scenario, it is important that the company is not carrying too much debt, as debt servicing costs remain relatively constant. A company with minimal debt can attack its operating costs and survive the downturn, but a company loaded with debt will be forced to divert a bigger and bigger slice of the shrinking revenue pie towards servicing that debt.

In the worst of scenarios, the company could even declare bankruptcy, which would wipe out shareholders. 

There remain 4 companies in the entire United States with top tier credit ratings, AAA, which makes them more credit worthy than the US government. They are:
- Exxon Mobil
- Microsoft
- Automatic Data Processing (ADP)
- Johnson & Johnson

There are many other companies with strong balance sheets. It is easy to look for them by filtering with debt/equity ratio.

Friday, July 20, 2012

Low Cost Method to do Foreign Exchange

As Canadians, we really get dinged by our banks. As a bank shareholder, I'm happy about profits, but as a consumer, I really hate paying more than I have to, for no good reason at all.

For example, take a look:
  • 1.008 - this is the current spot rate, it would cost $1008 CAD to buy $1000 USD
  • 1.0332 - this is the TD bank FX rate
  • 1.024 - this is the BMO Investorline FX rate, for up to $10k, it would cost $1024 per 1k USD
  • 1.023 - this is the BMO Investorline FX rate, for 10k to 25k
  • 1.017 - this is the 25k rate for Investorline
similar situation for the reverse
  • 0.992 - it would cost $992 USD to buy $1000 CAD
  • 1.0179 - this is the TD bank FX rate
  • 1.008 - at Investorline, it would cost me $1008 USD to buy $1000 CAD
  • 1.007 - for ~10k to 25k
  • 1.001 - for ~25k+
*Note 1: I've only listed the values up to 25k, as most people do not exchange more than that at a time, unless you're laundering drug money. 
*Note 2: There seems to be some rounding error in the Investorline calculator, so the cut off points for USD to CAD are not quite exactly 10k and 25k

Keep reading to see how much the rate differences above can really cost us!

Saturday, July 14, 2012

The Big Picture

This chart made me realize how little market sell-offs actually impact my portfolio. It is a chart of the progression of my net worth (assets minus liabilities) since I graduated from university and began working.

The reason there are no liabilities, is because I've expressed my condo mortgage as the net owner equity (estimated market value minus mortgage debt). It helps preserve the scaling frame of reference. If I included the entire property value and mortgage debt, some of the earlier bars would become invisible (due to their small values vs. property value) For privacy reasons, I've removed the numerical indicators on the left, but the chart scale remains a linear one.

Tuesday, July 10, 2012

Q2 Earnings Season, Weeks 1 and 2

I can't believe its that time of the year again! Time seems to really fly when you start investing.

Alcoa already led off with a decent report this afternoon. Besides the headline numbers (beat on both EPS and revenues), I was encouraged by the comments made by CEO Klaus Kleinfeld about both outlook, and where the demand is coming from. He reiterated both the 7% global aluminum demand growth projections for 2012, as well as the continuance of demand from the aerospace boom. Mr Kleinfeld also noted that inventories were coming down, and price increases are expected to follow.

I believe his comments signal good times ahead for aerospace firms like Boeing, Honeywell, General Electric, United Technologies, etc. I'm expecting them to all beat, especially after the sell off and guidance reductions recently.

Here's a look at the major earnings reports for the next 2 weeks.

Saturday, July 7, 2012

2012 First Half Performance Review

Half way thru 2012 now! What better time to reflect on the first half, and do a performance review :)

Luckily for me, I don't have to answer (at least not in the short term) to some boss about my performance. That doesn't mean I shouldn't review my own work so far anyways. I think regular reflection is a way we can improve ourselves. It allows us to look at our successes with a smile, and mistakes thoughtfully.

Without further ado, here's a summary of my 1H2012 results

Wednesday, July 4, 2012

My First Vehicle Purchase

After 5 years of taking public transit, I finally caved and got a car. 2008 Acura TL-S from Acura dealership. I like to think of it as no more toughin it out on public transit. Let's face it, YRT transit sucks if you want to go anywhere besides the Viva routes.

(not actually my vehicle, but same color/make/year)

I think I could have lasted a couple more years if the Viva drivers didn't go on strike this year for 3 months, but that was the last straw.

While I complain about gas prices as much as the next person (will probably cost ~$100 for a tank of 91 octane), deep down I really don't mind the gas prices. My motto has always been, if you can afford the car, you can afford the gas. While probably not true for very old vehicles (10+ years), Edmunds True Cost to Own estimator agrees and indicates that for most cars under 10 years old, the average annual cost of depreciation is similar to the average annual cost of fuel.

Sunday, July 1, 2012

Dividend Growth Portfolio, End of 1st Half Update

As we roll into July, it signifies the end of the 1st half of the year! I typically do a more in depth analysis of my progress this year at this time, so here goes.

1. Activity Review
First, there was no activity in June, so my annualized dividend remains the same, about $20 short of the full year goal.

New Purchases
There were no new purchases this month

There were no equities divestitures this month.

Intrinsic Dividend Changes