The Transparent RRSP: Share Prices & Flash Crashes

Action taken the week of June 5
  • Bought 20 shares of TransAlta (TA.TO) for 7.74. This cost me $154.80 + 0.20 cents of commission. I now have 45 shares of TA. There is $16.90 in cash left in the RRSP account.

If you buy a stock at different times and at different prices, then it makes sense to figure out the average cost of the shares. The previous 25 shares of TA were purchased at $7.63 per share. I’ve worked it out below:

  • 25 shares * $7.63 = $190.75 + $0.25 commission = $191
  • 20 shares * $7.74 = $154.80 + $0.20 commission = $155
  • $191 + $155 = $346
  • $346 / 45 total shares = $7.69

This is also known as the adjusted cost base, or ACB. I use the share price of $7.69 to determine how much I make in profits (or losses) when I sell the shares at a different price later on.

If I want to determine just the average price of the shares, I can do the same thing, only I leave out the commission fees. It works out to be $7.68. It doesn’t seem like much of a difference, but that’s only because my commissions are extremely low.


Flash Crashes

Yesterday the Canadian market closed positive. We traded sideways all week. Not much action, which I prefer. The US market, mainly the NASDAQ, however, experienced a flash crash. I saw the charts and so I had to see what the news had to say about it. They explained that the mega-cap tech stocks (Facebook, Apple, Amazon, Netflix, Google – aka FAANG) were starting to sell off. They weren’t the only ones selling off hard before the crash. The semiconductor stocks (SMH is a semi-conductor ETF in case you’re interested in viewing its chart) were selling off heavily after noon. It had been a long while since the tech sector had shown any major weakness.

After hitting new highs this week, investors were starting to collect profits and play defence by unloading some shares to be less exposed to a sell-off. Well, if enough investors with large holdings (particularly institutional investors) get the same idea, this triggers a mass sell-off. These sales which began around noon triggered the automated trading programs to sell later on in the day, which led to an overall big sell-off in the market. This domino effect happens when giant stocks fall; sometimes even one giant stock can affect the general market. The NASDAQ market lost its last three weeks of gains in minutes. It recovered partially at the end.

I have shares in a few of these tech stocks and I was thinking this week, “Wow, I can’t believe it just keeps going up! When will it come to an end?” I had sold some shares to collect profits a few weeks ago; I was left with the disappointing feeling that I had acted a little too soon. However, I did so because I was anticipating this. (If you’ve been reading my blogs, then you know this isn’t hindsight commentary.) I’ve lived through enough flash crashes to know that I’d rather make my decisions away from such events, not in reaction to them. I still have some shares left in these stocks, but I’ll see how they do over the next couple of weeks.

The Canadian market came down a bit in reaction, but it came back and closed positively. These flashes tend to be more pronounced in the US markets. Because the US market is so big, a crash can affect the global markets if sustained recovery doesn’t follow.

It’s events like this that could deter people from wanting to ever invest in the market in the first place. These things can happen in any market, though, because people are prone to panic. Rather than cave into your feelings and react out of fear of the worst to come, it’s best to try to be objective: Observe the sentiment of other investors and see how your holdings are doing on the bigger time frames like the monthly charts. There is a good chance that your charts are still looking healthy. A correction here and there is to be expected as nothing ever goes straight up. All I can say to all that is to keep calm and let your stock carry on!

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The Transparent RRSP: Post #5

Actions Taken the Week of January 30th

  • Deposited $150 into the RRSP, which now has $1316.50

The RRSP’s only security so far is ZPR, my ETF darling. It has been steadily going up since I bought it at $10.86. It’s up 0.34 cents as of yesterday, making me $16.50 so far (after paying 0.50 cents in commissions). I have yet to receive my first dividend payment from this stock, but it’ll come soon.


zpr

The charts for ZPR still look healthy. I can’t help but think I should have bought 75 shares instead! The idea was that I wanted to find another stock to invest in late January, but I just didn’t find anything suitable.

The best charts for the right prices were in the gold sector. For me, gold is more of a swing trade to actively watch – I didn’t feel that would be a suitable choice for new investors. I recognize that gold is considered a hedge if you anticipate a drop in the market. After trading gold and silver for years, I can tell you that the market going down isn’t a guarantee that gold stock prices will go up. Commodities aren’t always the easiest trade. So much depends on the supply and demand in their own markets where people actually buy the raw or processed materials.

I’m not saying to not invest in gold or silver stocks. I just think it’s better to start diversifying when you have more money and own enough of the standard securities to give your portfolio a solid foundation.


Another thing I’d like to mention is to never lose sight of your goals. It’s a big mantra of mine. I tell that to myself all the time, particularly when times are challenging.

I’m in the Florida Keys right now on a short vacation. It’s hard to beat lying in the sun, reading, napping, drinking, and just totally recharging. I want my retirement to have plenty of days such as this. As sad as I am to leave this  wonderful place, I’m more motivated than ever to make this goal a reality.

Book Giveaway!

giveaway

I’m giving away FIVE FREE PAPERBACK COPIES of my book, Loonie to Toonie ! I will hold a draw at the end of the month and the lucky winners will receive their very own signed copy!

To enter, CONTACT me and tell me about your biggest financial goal(s) and what you’d like to learn most about investing!

Honour of the Month

Thank you to Tellwell Publishing for naming me Author of the Month! 

 

It has been quite a journey. I just love that beyond writing a book that I can continue to share, motivate, and help educate others on achieving their financial goals through savvy money management, wise spending, and smart investing.

I’m looking forward to sharing more in the new year!

Some More on Sectors

Rack

My closet, the retail sector.

How I Stumbled Upon Sectors

With investing, I try to think in terms of the big picture. I find it useful to be aware of the moving parts within this picture. When I started to learn about stocks, I was clueless. I couldn’t read a financial column. JP was reading the Wall Street Journal and he had to translate everything for me. At that point, I only understood how a stock worked and what a brokerage account was, but that was it. I had taken courses in business, accounting, and investing, but so much of it went over my head. I just had a lot of different information floating about and not enough experience to apply this information as a novice trader.

I decided to take the Canadian Securities Course to get a better idea about the financial industry, investments, how they work, what professionals do, and what investors need to know. It was great because I could go at my own pace and get more into the stuff on equities. I honestly can’t say studying for the exam was loads of fun, but I was happy enough to pass. I loved that I ended up with a better idea about the workings of the financial world and Canada’s economy.

The more I learned about investments, markets, and the economy, the more fascinating money was to me. I became more aware of the psychological component with money, spending, saving, and investing. There is nothing static about the markets, the spending trends that drive the economy, the saving spells that slow it down, and particularly the movement of money between the different sectors and industries.The market is constantly in flux because it’s made of many different components that drive these fluctuations. Money is always being made somewhere.

One of the most important things I learned is that getting a good read on the economy will help you make better investment decisions. Having even just a basic understanding of the economy can make the difference between a novice investor and a savvy one. I found that watching sectors has helped me make money in the short term and longer term. Sector watching can also give you some idea where the overall markets might be headed towards. Sector movement can help determine why a market is up or down. Understanding sectors is important enough to me that I discuss them along with the economy in my book, Loonie to Toonie.

One of my readers seems to share my interest in sectors and has been asking me about where to find more information on them. I’m happy that she’s recognized the importance of understanding sectors and wants to do her own sector research.


Some Places to Look Up Sector Performance

Click here for a great list of sector indexes that track TSX stocks. If you click under “Symbol,” you will be taken to the index’s chart. You can select the time frame at the bottom of the chart. I suggest looking at the 1-year chart, or even longer. I find that longer time frames provide better insight on overall sector performance. For U.S. indexes, you can find a handy sector list here.

I’m often stalking stocks and looking for new ones that might possibly make a move in the near future. As I mentioned in a previous blog, “Stock Picking – Part 3: Factoring in Sectors and the Market,” I look at stocks, their respective sectors, and the market. It’s easier for me to just type in a sector index’s ETF symbol when I’m on my charting screens.

One thing to note: ETFs don’t always move in sync with their corresponding indexes because ETFs are actively traded on the exchanges. Sometimes ETFs will move more or less than their index as it depends on the trading volume and demand, or lack thereof. Having said this, looking at the sector or market indexes will provide a more accurate picture than the ETF. I’m super lazy, so it’s easier for me to just type in a sector ETF that I’m familiar with if I’m just looking on my phone and I’m not on my trading platform at my desk.

Reports on Sectors and the Economy

Economic reports happen every day. Some get more attention than others. The more important the report, the more effect it’ll have on the markets. Some of these reports are sector-focussed. Some sectors give big clues as to where the market could be headed. For example, a strong economic report on new home sales could indicate an optimistic economy and stronger retail sales. I always look at the US economic calendar to see where there might be a lot of action or potential change in the markets. To know what these reports mean and their significance, click on “Event Definitions.” Here is the Canadian economic calendar and here is the international economic calendar. Many different financial websites have economic calendars, so find ones with formats and reports more suitable to you and your interests.

Media

I sometimes watch CNBC and BNN because I like to listen to industry folks. I could watch that stuff all day (especially CNBC’s Fast Money as they’re traders who sometimes have highly entertaining arguments!). There are always so many different points of view on stocks, sectors, and the economy. There are a lot of opinions out there, many of which are conflicting, but these provide additional context to the charts.

If you read any financial paper, newsreel, website, or blog, you’ll also find a lot of up-to-date reporting on micro and macroeconomic stuff. The news often discusses the employment situation in certain industries or businesses. Consider your own job and the industry you’re working in. You might be able to see where you can be headed career-wise if it’s a growing or steady industry. Look at your bills and see where you’re paying the most. Maybe it’s in a sector that you should invest in. Sectors are out there and also are very much a part of our everyday lives. We know more about them than we might be aware of.


I’m sure my rudimentary research methods would make any financial professional shake his or her head!

As important as it is to know about sectors, there is no exact science in applying this information. It’s just one aspect of financial understanding. Some of your best investments will be so long-term that they will endure decades of economic fluctuations and sector cycles.

In the spirit of being financially literate, understanding sectors and their relationship with the economy will make you more financially fluent. That is how more of us can engage in the important conversation on financial matters.