Update September – Treading Water

It’s been an increasingly choppy market.  It was bad enough when oil was noticeably crumbling near the end of last year, but now we seem be hitting increase volatility with days where we go down hard followed by a jump back up.  Buy the Dip and someone reminded me the saying: “Sell the Rip”.

My portfolio is geared for income, and to provide a cushion in declining markets, has been tested quite a bit by my continued fear of a major breakdown in the markets.  As a result of the volatility I planned to: A) raise some cash, B) streamline and concentrate existing positions in my portfolio to increase responsiveness, C) diversify by industries, and D) improve the quality of income away from REITs and smaller companies.

For a while I was doing well; closing out some old and small positions and taking the hits as I reduced some losing positions.  It hurt a bit, but I had a plan in place.  Then… I got pulled in some interesting stories and let some small holdings creep into my portfolios (Non-Registered and Registered).  Net out, pretty much all the cash I raised have returned into the market.

Along the way to executing my plan I also realized my increased uncertainty, as several times I picked up a position and sold them quickly for either a loss or insignificant gain.  Although I’ve added to positions, I am still very much uncertain of the market, but with the move to higher quality names I feel more comfortable with my portfolio through potential declines.  On one hand I want to protect my principle as much as possible and do my best to avoid losses, but on the other I want to average down or take opportunities to increase holdings of quality names.

Closed Out:

REI.UN*

HR.UN*

BIN*

KMP*

AQN**

* REI.UN, HR.UN, BIN, KMP were very old and small positions and I felt sad to let them go.

** RRSP holding I wanted to trade in and out as it swung back and forth.  Still waiting to see.

Added to existing:

MFC*

IPL**

BNS***

* Added to existing position.

** Averaged down, but I will likely close out the added position

*** Averaged down and closed out the majority of the added position.

New:

DIV*

GRC*

CWB**

X**

* DIV and GRC are the sexy stories of Royalty companies mixed with high yields, which isn’t always the best thing to go by… I deployed a bit of TFIA money to see where they go.

** CWB and X were missteps from writing Puts to gain incremental income and potentially acquire stocks that I want at lower prices. CWB I’ve been interested in and previously traded in and out.

Mulling moving this blog to a new site where I will put up more specific details of what I’ve done and gone wrong: The Distracted Investor

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Updates, I’ve been busy. Let it Ride, Work, Options, Games, News, Portfolio Clean Up – Sunday June 28, 2015

I haven’t really been posting much on here.  This has partly been due to the below items.  I’ll add on some additional details.

1) Autopilot nature of my existing income/dividend portfolio.
2) Busy with work.
3) Maintaining my Option Book.
4) Wasting time playing games on my smart phone (the next generation of idiot box).
5) I have been using a written log.
6) Observing news.
7) Tidying up portfolio/shoring up cash reserves.


1) Autopilot nature of my existing income/dividend portfolio.

– As per my original portfolio plan, for the most part, I’ve been collecting the dividends and letting it ride.

2) Busy with work.

– Perhaps it is the busy season, but I’ve barely had time to keep an eye on things intra-day and relatively tired after work.

3) Summer time fun

– Just going out enjoying the summer and trying to stay active.

4) Maintaining my Option Book.

– This takes up a bit more time and focus.

– Managing exposure of options to safe levels.

5) Wasting time playing games on my smart phone (the next generation of idiot box).

– Self-Explanatory.

6) I have been using a written log.

– Writing more thoughts and daily ongoings on my market actions.

– I’ve had less to write onto here.

7) Observing news.

– There’s always something going on and what I’ve been trying to keep tuned into are systemic issues; something on the scale of 2008/2009’s or worse.

– Some of focus: FOMC/interest rate meetings and global issues such as China slowing down and the Greek Debt Crisis.

– Today Greek debt problems have escalated and they say there will be bank holidays.  EUR will and has been impacted. Soon, we will see how this translates globally; if reaction is muted because “it’s over there”; or people see there could be knock on effects; or even “it’s already priced in”.

8) Tidying up portfolio/shoring up cash reserves.

– When I first seriously started investing back in 2008/2009 my resources were limited, but as time has passed my portfolio has grown with increased savings.  However, growth tended towards broadening my holdings in an attempt to “diversify”.  In reality, I was trying to own a piece of everything in the market and I amassed over 25 different positions.

– Having +25 positions sounds great, but problem with having that number is the cost of time needed to maintain these positions and how effective would these small positions be in maintaining income/dividends.  Closing or adding to positions becomes expensive as resources will be diffused.

– If there is severe market turmoil, monitoring potential positions to exit (or add to) becomes difficult and again problems of diffusion of resources.

– You get emotional with your stocks sometimes and having so many positions leaves you frozen. Whittling down is difficult.  I created a very simple plan: start closing out small non-core positions. In particular smaller market caps and with a bias towards REITs that depend more on tax structures and low interest rates.

– To this effect, I haven’t closed very much.  Sold two old positions HR.UN and REI.UN.  I have two others in my sights.

– Build cash as it appears we are up for more turbulence and markets have continued to hit new highs (at least some US indices have been hitting highs; TSX has been plateauing and down a bit from highs.)


Exploring Option Writing: Expiration Cost basis and 1405.79% Gain $EMP.A

I haven’t been updating regularly and I had been planning on putting up pieces on my adventures with Option Writing. Anyway, here’s one update (Just don’t ask about my losing trades. har har. ouch. I’ll detail that ridiculousness in another post if I get around to it.)

Recently, Puts I wrote on EMP.A expired, and if my maths is correct, showing a gain of +1405.7915% ($182.05) within a total of 18 trading days (April 3 was the Good Friday holiday).  Breaking it down another way: I made $10.1138 per day.  It was actually quite stressful as the stock fluctuated during that period until expiry and I was in danger of being assigned (option being automatically exercised at expiry) and the exposure of $26,400 would have locked in my money.

Of course most of my Option Writing trades have not raked in such gigantic gains. I tend to close out the trades some time before expiration date for risk control purposes, thereby reducing my overall exposure to any sudden declines of the underlying equity.  However, if I’m feeling patient (and confident that the stock price has moved enough to create a buffer) then I will allow the Option to expire and reap the gains. Further to this – if I feel it might be worth buying the stock, then I would not mind being assigned. That is the key part of my more conservative approach to Option Writing – targeting stocks that I am interested in owning.

For tracking purposes, I made a spreadsheet “Option Writing Book” showing details of both my pending and closed trades.  The below excerpt shows quick details of my EMP.A trade.

Note:
Date = When I wrote the Put (March 24, 2015)
Expiry = When the Put expires (April 17, 2015)
Exposure = How much cash I would need IF my Put was assigned (exercised by someone).
Type = Secured, meaning if assigned I had the cash to cover.
Expired
Date Symbol Type Expiry Strike Quantity Price Gross Commission Net Price Net Amount Exposure Status Type Net Revenue % Gain/Loss
2015-03-24 EMP.A Put 04/17/15 88 3 $0.6500 $195.0000 $12.95 $0.6068 $182.05 $0.00 Expired Secured $182.05 1405.7915%
Steps used to calculate percentage gain:
1) Net Revenue/Cost Basis = % Gain/Loss.
2) Net Revenue = Option Premium – Commissions
3) Cost Basis = Commission (in this case, writing the Option = $12.95, and expiry has no commission)
4) Calculation: 182.05/12.95=14.05791505791506*100=1405.7915%

An ’emerging market’ at home: Canada’s banks making a big push into aboriginal communities

Financial Post

A few years ago, Chief Darcy Bear and the Whitecap Dakota First Nation in Saskatchewan made a practical decision to cut ties with the handful of financial institutions that were backing their infrastructure loans in favour of a single player: Bank of Montreal.

It was a simple choice, Chief Bear explained during an interview in Toronto this week. Along with its domestic peers, BMO has made a concerted push into aboriginal banking. But the bank went further. While the band had in the past been forced to depend on relatively short-term debt, making it harder to make the case for bigger infrastructure projects with extended lifespans — roads, schools, bridges — BMO was offering longer, more favourable terms. The kind of 20- or 25-year deals common in off-reserve municipal projects, instead of forcing the band into five or 10-year arrangements.

They’re going to become very attractive to the banks

“The relationship has been a…

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Fast food chain Shake Shack files for an IPO

My first time Shake Shackin’ was also my final Western meal before going to India back in October.

SHAK

Fortune

Shake Shack, the burger chain started in New York City by restaurateur Danny Meyer, filed for an initial public offering Monday.

The chain calls itself the modern day “roadside” burger stand and operates 63 Shake Shacks around the world, including locations in London and Dubai. About half of those locations are company-owned and the remaining are franchised operations.

Last year the company brought in $82.5 million, and is on track to grow total revenues even further in 2014. Its same store sales growth was 5.9% last year, down from 7.1% in 2012.
[fortune-brightcove videoid=3958852017001]

The burger joint is aiming for an offering that could value it as high as $1 billion, according to previous reports. It has applied to list its common stock on the New York Stock Exchange under the symbol “SHAK.”

Meyer, who opened the first Shake Shack from a hotdog cart in 2001, is the chairman…

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Subprime lending market in Canada skyrockets to record as banks tighten reins

Financial Post

Subprime lenders’ share of the Canadian mortgage market has reached record levels, according to data obtained by the Financial Post, putting increased risk on the housing market.

Alternative lenders, who are major beneficiaries of that subprime market, now underwrite 2.2% of all mortgage loans — probably not enough to cause any major structural damage to the housing market in the event of defaults, but their market share has exploded.

The data, compiled by CIBC World Markets based on Statistics Canada figures, shows that the value of loans from alternative lenders grew by 25% during the past year while the overall market for mortgages increased by 4% during the same period. The Statistics Canada data was derived from information obtained from Revenue Canada.

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Benjamin Tal, deputy chief economist with CIBC, said alternative lender statistics do not include credit unions and would be made up in large part by…

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CMHC to hike issuer fees and mortgage rates could follow

Financial Post

Canada Mortgage and Housing Corp. is tripling the fee it charges some financial institutions to guarantee loans in the mortgage-backed securities market, a move that could end up costing consumers more, the Financial Post has learned.

The move appears to be aimed at the government’s stated goal of reducing its role in the mortgage insurance market but it just might have the added benefit of applying a bit more in the way of brakes to the housing market, which the Bank of Canada said this week might be as much 30% overvalued.

Rob McLister, the founder of www.ratespy.com, said there’s little doubt in his mind that the changes will end up costing new home buyers and estimates it will mean about $600 on a typical first-time buyers’ mortgage of $250,000.

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“There is no question this is going to increase mortgage rates for consumers, all other things being equal. This…

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