Monday, February 23, 2015

Finances for dummies and selling shares in POW and ABX

Hey Financial Freaks,

Sorry for the little absence. A man has to work in order to invest once in a while!

So I was caught up with work, which is a good news I guess. Keep the money coming in. But it leaves me a little bit less time to document my financial journey towards financial independence.

And you all know I want to succeed.

Here's a few thoughts I gathered lately about my journey :

Finances for dummies

Every time I discuss finances with people I know (or don't know), I feel much more equipped than before. Stocks, mutual funds, bonds, ratios, etc. were all foreign concepts for me.

(Heck, I always thought owning stocks was something reserved exclusively for the wealthy.)

Not anymore. I don't pretend I'm a big specialist or anything like that. I guess I am only able to speak the language of finances. That makes a big difference. We habla mano a mano.

Now that I know more about that subject, it stupefies me when I hear stuff that doesn't make any sense, especially coming from people that work in the financial industry.

For instance, I suggested to my dad to open up a TSFA (Tax Free Saving Account). He didn't have one. If you are Canadian, this particular financial tool is perhaps the greatest invention since the birth of Hockey Legend Mario Lemieux.

You are allowed to put roughly 5 K$ in that account. Whatever happens with this money is tax free. You can invest in just about anything : bonds, stocks, funds, you name it. You can withdraw your money anytime. And, like I said, it's Tax Free. That's pretty much the gist of it. So, since TFSA'a have been put in place in 2009, you can put as much as 36 500$. That's a pretty decent number.

Anyway, my dad, who's pretty much clueless regarding finances, was trying to set up a automatic purchase program in its TFSA. It was a minor contribution of 100$ per two weeks. Basically, he wanted to split it's contribution to 50$ in a (boring yet secure) term deposit and 50$ in a US Index Funds. The latter fund "invests primarily in the same securities and in the same proportions as the benchmark index. The benchmark is Standard & Poor's 500 (S&P 500) Total Return Index (CDN$)". Apple, Microsoft, Exxon Mobile and Johnson and Johnson are some of the 500 and more holdings.

But guess what? The guy was adamant that my dad's investment was not diversified enough. Not enough!

I understand that these guys follow policies, investors profile and all that. But geez whiz, come on. He was setting up a 100 $ per 2 weeks program. He wasn't buying a chunk of a speculative company with his lifetime's earnings. I also get the fact that these guys are told by banks to sell more of their funds. Hence the idea of this particular guy to add a few funds for diversification sake.

At this point, I had to intervene. (I was next to my dad).

(me) - Hello Sir. I'm the son. What seems to be the problem?
- Well, I think this approach is a little risky for your dad. This fund can fluctuate a lot, you know.
(me) - Yeah, we know. He knows and he is willing to take the risk. That's why half of his contributions will be secure in a term deposit. 
- Why do you want to be solely invested in the US?
(me) - It's only for a starter. Eventually, when he's managed to have a sizeable account, say 5 K$, we will consider other options. But for now, he would like to invest in the US.
- Well, I worry about the diversification of concentrating in one region.
(me) - Sir, there's like 500 and more companies in this fund that operate around the globe. Do you think Johnson and Johnson, for instance, isn't doing business overseas?
- No, you're right. 
(me) - Can you set him up with this low-cost Index fund? And eventually will think about purchasing some more of your high fees mutual funds. Ok?
- Yes sir, right away. 

The point is : someone with no knowledge whatsoever would probably have bailed out by then and decided to buy those 2-3 expensive mutual funds in ordre to obtain this "diworsification" for a 50$ per 2 weeks contribution. Silly.

There's a fine line sometimes between a financial sellers and a financial advisers. I'm not sure a lot of people see the difference. My dad didn't. But hopefully I did.

Sold a few shares

Speaking of selling, I know it's totally opposite of what a dividend investor should normally do but I sold some of my shares in two companies I own.

Barrick Gold (ABX.to) : the Canadian mining giant is like a stone in my shoe. This is where I have invested the more money (hello!). It would be too long to list the bad things this company has done in the past couple of years. I almost lost confidence in them. Anyway, the shares picked up a little bit last week and I decided to sell 50 of them. It's not a lot. But, of course, I lost money. It's part of the learning process, right? If the shares kick up again, I might sell more.

Power Corporation (POW) : some of you will be surprised to learn that I have sold some of my shares in POW. This a gem of a company and one of my oldest and biggest holding. I only sold 25 shares. POW was trading at an all-time high for that past 3-4 years. I seized the occasion. Why ? Well it's because I recently had initiated a position in its little brother Power Financial (PWF). So, all in all, I had 425 shares in these two companies, which represented more than 9 % of my portfolio. I wanted to take that % down a little bit. The only company I can deal with a higher % is Johnson and Johnson.  Eventually, I would like to limit the investment I have in one company to 5% of my portfolio.

So that's pretty much it for me on the financial front. Again, I have cash available for shares purchasing. Still need a little correction to move though.

What do you think about selling some shares of yours?





 

2 comments:

  1. Hahaha....loved this line "And eventually will think about purchasing some more of your high fees mutual funds. Ok?". Good for you for and your dad to stand up to the banks trying to sell their own expensive funds. This is the kind of stuff that annoys me as a customer, but love as a shareholder :)

    I was a bit surprised when I saw your tweet about selling POW. I have been looking thru their financials and thinking of investing, so I was curious to see why you sold. And phew...looks like it was just a high proportion in your portfolio. I was wondering I had missed something. Good call on passing on ABX as well - my investment in IMG has been a thorn in my side and a complete dog in my portfolio, but I am holding onto it - considering it to be dead money for a couple of years until teh prices recover.

    Best wishes
    R2R

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  2. I am a bank shareholders mainly to twart their fees with their dividend. I also became a DIY investor because I couldn’t bear to deal with their selling crap. I guess it’s true good things often come out of bad ones.

    No problem whatsoever with POW. Actually, I wouldn’t be surprised if they announce a dividend increase. They have been extremely prudent since the 2008 crisis. I guess you could even say since always. People have no idea how this company is run tight. The thing is, I had a very good deal of money in both PWF and POW. It dawned on me recently with their stock prices going up. So I had to adjust my portfolio a little bit.

    I see what you mean with IMG. Argh. It’s very upsetting, but eh, we need to swallow this one. I, too, will sit on the rest of my shares with ABX. We will see if they could turn this thing around.

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Thanks a lot for your comment.