The Transparent RRSP: Vacay

The week of November 27
  • I deposited $150 into the RRSP ahead of December. There is $351.89 cash in the RRSP account.

JP and I are going away for a week to Costa Rica (we’re going to the Pacific side). We decided to only bring our tablet and phones. Neither of us has plans to trade while we’re away. Our main focus is to relax, enjoy the warm weather, check out the real estate situation there, and read and swim at the beach. I might squeeze in some study time whenever I can. Derivatives and options have my brain turned in on itself – to take a week off could mean excruciating reviewing when I return.

The airfare was too hard to turn down: $770 CAD for both our tickets! Yes, we’re travelling at a time when the weather isn’t totally unbearable in Ontario yet. We do, however, plan to go to Florida in late February. That’s usually when the cabin fever is at its most intense and could use a warm disruption. Before I take off, I must, of course, look at the markets.


 

November markets

SPY, QQQ, DIA, XIU ETF charts on freestockcharts.com

 

I don’t know how the market will trade after the US Thanksgiving holiday. December could be positive because of a stronger retail sector around this time. The bearish correction in the fall that I was bracing/hoping for never came. (And that is why we trade the trend, even if we don’t believe it’s still there.)

The trade volume in the US markets seems to be coming down while the prices are going up. The confluence of those two factors often means that: 1) savvy investors start to take profits, and 2) the public starts asking those investors if it’s a good time to buy Apple. The best thing to do is wait for 3) to happen, which is an actual correction.

I was in the Caribbean on my first and last cruise in early 2015 when this happened:

Caribbean

XIC ETF on freestockcharts.com

When JP and I checked our email for the most expensive 10 minutes of our lives, we also checked the markets. At the time, we were only day trading, which meant we were holding no positions in our accounts. Although we weren’t losing money, we figured good opportunities would be short-lived. We were concerned about entering a more hostile trading environment in which small fish like us would get eaten by the bigger, well-funded fish.

After we returned and got our sea legs back, we looked at Canadian companies that traded on both Canadian and US stock exchanges. We discovered they were CHEAP. We bought just a few to hold long term and had a gangbuster year. I doubt the market will do that in the week that we’re gone. Perhaps next January?


I have some stock charts worth checking out:

  • FIRE.V (New and risky, but cheap. Take fewer shares.)
  • IMH.V (Same as above.)
  • TCW.TO
  • SSL.TO (I already have this in my RRSP.)
  • SMF.TO

Please check the company, the sector, the earnings, the market, and the fundamentals that you think are important. Always do your due diligence to trade with confidence while respecting your risk tolerance. I do think that the market could pull back early in the new year. You could wait until then before buying or take fewer shares now and more later.

Money Talks

 

Recently, I did a presentation at the Toronto Public Library on investment basics. I had no idea how it would turn out, but I ran through my head a number of best and worst-case scenarios. It was better than I could’ve ever imagined.

I’d never seen a more diverse audience in age, background, and investment interests. Each person was comfortable enough to engage or ask questions – great questions, I might add. To all those who attended, I’d like to offer my deepest gratitude for your participation. This was the conversation I’ve been dying to have with people. This is the type of conversation more Canadians need to have with each other.

Today I’m going to share with you the questions that I can remember. I’ll add parts of my original answers, but I want to answer the questions more fully. These are in no particular order.


How long does it take for you to do your investment research each week?

Now, it’s a few hours a week, anywhere from two to six hours. But I also apply up to 20,000 hours of previous learning and experience. I hope that I can help others enough so that you don’t have to take as long as I did to learn how to invest.

I’d like to also add that many of my decisions result from bouncing ideas off my man, JP. He has put in the time and discipline to learn as well. We have the advantage of combined knowledge and experience. I share a lot of these very ideas in my weekly blog.

As much as I’d like to spend more time doing research and trading more actively, I would become more prone to micro-managing my trades. I’ve done a lot better with a more passive and hands-off approach.

How did you get a 70% return last year?

2015 was a terrible year for the Canadian market. The loonie and the Canadian economy were weak. We patiently waited for the market to stop going down. This happened around late February 2016. We looked for stocks that we knew traded actively and had suffered huge drops in share price. It was a very good time to get into the market. These opportunities don’t come very often.

We bought shares in TECK.B.TO, ECA.TO, BBD.B.TO when they were really cheap, and then in April, bought some APH.V (now APH.TO). We bought a few other stocks, but these few alone did very well after just a few months. We kept selling shares incrementally each time the stocks surged in order to secure profits (called ‘selling into the strength’), but they kept going up. We could’ve done much better had we just kept the shares in and moved up our stops (selling prices). It became a decision between banking on certain profits and waiting to see what will happen. We did a bit of both and we still have shares in all those stocks.

I don’t anticipate as big a return this year, unless the market has a major correction, soon after which there’ll be many more big buying opportunities (a bad and selfish thing to wish and wait for, I know, but…). My US portfolio, though, has been my big winner this year because I had the same idea with US tech stocks last summer.

One of the things I always say is that investors are always looking for new opportunities.

What ETF should I buy?

Many financial institutions create ETFs. Some are:

  • BMO
  • Horizons
  • Vanguard
  • iShares
  • Claymore

When doing your research, consider your investment objective – dividend income, market index performance, sector selection (like banking), fixed income, etc. Also consider the MER, share price, distributions, and frequency of distribution payments, to name a few things. You can look up this information on the ETF info sheet. For me, I only select among ETFs with higher trade volume.

Market ETFs can swing a lot in price because of the demand of traders in the market. So the ETF might be worth more (or less) than its actual value (NAV). Would it make sense to put some money in a market index ETF and some in an index mutual fund (which will be less prone to price swings)?

If you want to invest in the market, consider an ETF or an index fund – or both. The major distinction between these is the MER as it’s a lot higher for mutual funds than it is for ETFs; however, it can be more affordable to buy units in an index fund than it would be to buy shares in an ETF.

An actively traded market ETF can experience more volatility than the actual index it’s based on. Its price will vary based on the demands of buyers in the market. If buyers drive the price up, it’s possible for the ETF to be worth more than the net asset value (NAV) of its assets, so you’re paying a premium in share price. If investors are fearful, heavy selling can drive its price down below its NAV, so it’ll be trading at a discount. For index funds, the NAV is what it is after the market closes. At the end of the day, you shouldn’t notice a big difference between similar index funds, be it an ETF or a mutual fund. (If you do, the mutual fund will likely be underperforming because of the MER.)

What’s most important is that you’re 1) comfortable in what you’re investing in, and 2) you’re not paying too much in fees.

What do you think of mortgage-backed securities?

These have had a bad reputation as these were hugely responsible for the 2008 recession, but mainly because they were deregulated. They’re just bundles of mortgage loans that pay investors interest.

If you’re after real estate income, the REIT (real estate income trust) is great because it can pay investors their share of the distributions which will come from a mix of rent, mortgage interest, capital gains, as well as return of capital. You can also get real estate ETFs. Because of the mixed forms of investment income that come from these, they’re best held in registered accounts. Also, keep in mind the MER. I own a couple of these to add diversification to my portfolio. Other than the value of real estate happening in my own backyard, I don’t really follow the real estate market as much as I should.

What brokerages do you use?

I have opened accounts in the past with Disnat Direct and Questrade. I now have accounts with Virtual Brokers and Interactive Brokers. I’ve been with the last two for years.

What do you pay in commissions per trade?

With Virtual Brokers, I pay 1 penny per share. It’s less if the stock price is under $1. With Interactive Brokers, it’s 1 penny per share, but a minimum of $1 per trade. So if I buy 125 shares, I pay $1.25 plus any market data fees.

Both of these accounts were opened as margin accounts – trading on margin means you need to open with and maintain a minimum amount of cash in the account which allows you  3 times the buying power. So if you open with $25,000, your buying power is $75,000. To attract active traders, the commission fees are very low.

I also have TFSA and RRSP accounts with Virtual Brokers (VB). Thanks to JP’s slick skills in negotiation, we managed to have the same awesome rates extend from the margin account to our registered accounts. Often with registered accounts, you get charged a quarterly administrative fee. With VB, they do charge $25 plus HST unless your account has a minimum of $5000 in it.

I am an active FOREX trader. How should I be doing my taxes every year?

With an accountant. I did our taxes the first couple of years we started day trading. I had the advice of a friend who’s an accountant. She gave me samples on how to calculate the adjusted cost base of securities and their exchange rates, etc. It was actually a really good exercise in learning about taxation for the self-employed and how to factor in fees and expenses; on the other hand, it was a total headache. After that, we started using an accountant who magically does it all in a few days.

What is your take on robo-advisors?

They’re great if you don’t know what stocks or ETFs to buy, or when to sell them. They take away from you the inconvenience of guessing and researching and they make those decisions for you. I’d just be cautious about the frequency that the portfolio is rebalanced and focus on the ones that meet your criteria and charge the lowest fees. As you get more comfortable and savvy with reading the market, you should compare how your portfolio is performing against it and decide then if you might be better off investing in an ETF.

What is your advice for women and their investment choices, especially as they age?

Women have developed a reputation for being great long-term investors because we typically make conservative, less risky decisions. I feel that the financial markets have shifted so that being conservative could work against us in the long-term. Those traditionally conservative decisions, like owning a lot of GICs and low-risk mutual funds, could leave us with less money than what we actually need to have, especially as we live longer and longer. We should be thinking about how our portfolios need to keep generating income as we age. In my opinion, we should consider dedicating more of our portfolio to more medium-risk choices, like blue chip funds or stocks that pay us a dividend.

I know I have a pretty aggressive approach when it comes to making money, but I’m careful with most of my money and more risky with a smaller amount of it (or maybe that’s just what I tell myself and it’s more like half and half). A big part of my own early retirement plan is to live off of dividends, although I still want to make money on capital gains if I have to sell my shares to rebalance my portfolio.

What are good websites that could tell me more about Canadian securities?

I drew a blank – thank you to the audience members for their helpful input. Motley Fool Canada and Retire Happy were mentioned. I also think that Canadian Couch Potato and My Own Advisor are excellent.

You must have a really diverse portfolio?

Yes. It not only keeps things interesting, it spreads and reduces the risk factors within my portfolio. A lot of my trade decisions come from looking at the sector or industry first. That’s why the economy is a big part of my book. I have stocks and ETFs across many different sectors.

I risk very little for each stock, so I’m not worried if it turns out to be a dud (a rare occurrence). After a while, if I like a stock enough, I’ll buy more shares if there’s a new entry (called scaling in).

How do you research fundamentals?

I said I cared about two things: the price I got in at and dividends. I’ll admit, it was a shortcut answer. I don’t pay as much attention as I should to the fundamentals mainly because I learned about stocks from traders who studied price charts and used only technical analysis. When it comes down to it, even if a company’s fundamentals look good, if the stock price has gone too far up or isn’t trading well, I just won’t enter.

I use technical analysis for all my decisions and I apply very general guidelines when considering a company’s fundamentals. One day, I’d like to take the time to figure out how to use both forms of analysis to become an even better trader. For now, I rely on good charts that indicate signs that a trend is about to start; I look at the sector the stock is in; and I compare the stock to other stocks in its sector. Then I cross my fingers hoping that the rest of the market catches on and buys the stock up.


We all have different ideas on what we want to do with our money. There are so many different ways to apply strategies, even between people who have similar takes on risk and opportunity. What I think we all need to have is a general basis of knowledge and from there, we each can branch out and find our own approach to investing.

Thank you, TPL! I had a wonderful evening.

 

 

The Transparent RRSP: Stock Picks

Action taken the week of May 29
  • I deposited $150.00 into the RRSP account. There is now $169.90 of available cash in the account.

I’m still waiting to see if the Canadian market will have a more definitive correction than what it gave in May. It could set up over the next few weeks/months for a new run, but I doubt it. The monthly chart looks like the market is inching downward. I still would like to see the market come down to the same level it was at in mid-November.

With the lower trading volume during the summer months, I put less emphasis on the market (as long as it’s not making any extreme moves that invite concern or attention) and I pay more attention to individual stocks that are getting a lot of action. I might casually pad my trading accounts now and then with extra cash so that should opportunities present themselves, I’m ready to take action.


Some Stock Picks

I found some stocks with nice charts, some of which are seeing a lot of recent action in price moves and trade volume. These have been trading better than the market – which doesn’t say much.

  • BBD.B.TO – I don’t like that Bombardier has gone straight up the last two weeks, but it’s been stronger than the market. I would prefer a correction on the daily time frame. It’s worth watching as the weekly chart is promising with a breakaway candle that held strong with increasing volume. I’ve owned this stock since early February 2016 and I can tell you that it’s not much of a mover. This can be a good thing when this stock experiences volatility because it’s less of a shock to your portfolio (unless you have a lot of shares and took on too much risk). While the monthly chart is very nice, the yearly chart is not inspiring.
  • BTO.TO
  • HGU.TO (This is a gold ETF.)
  • TD.TO
  • MG.TO
  • RY.TO
  • NA.TO
  • TA.TO – This is already in the RRSP. I was beyond busy this week and I wish I had a chance to look at the chart earlier this week. Depending on what it does next week, I might buy more shares.

If you’re not inspired to take on any risk, you can just watch these over the next few weeks and months and see how they do with or without the market. If you do feel inspired to trade, I’d recommend taking on less risk and buying fewer shares. I only say this because I still think the market will correct further and this could take down your stock and it could be a while before it starts to improve.

As always, please keep in mind the industry, sector, the company and its fundamentals, any recent news, upcoming earnings announcements, the amount of risk you’re taking, how it fits within your portfolio, your anticipated time horizon, etc. It’s always important that you look into what you need to in order to feel confident in your investments.

Stock Picking 5: Selling

Before I discuss selling stocks, let’s do a recap of the Stock Picking posts up until now.

Part 1: Looking for Stocks

Here, I introduce my stock searching process for Canadian and US stocks. I feel more confident in stocks that have higher trading volume. I look for major Canadian stocks under $20 that trade over 10,000 shares a day. For US stocks, they must be over $5 and average at least 500,000 shares a day.

Part 2: Determine Your Investment Goals

I talk about the different reasons you might want to buy stocks. There are different stocks for different investment objectives better suited by shorter or longer-term time horizons. Whether the time horizon is short, medium, or long, I like to get in early before a stock’s price really starts to take off. To determine this, I look at a stock’s price history chart. For shorter-term trades, I seek additional information by looking at the charts of a stock’s corresponding sector and the market.

Part 3: Factoring in the Sectors and the Stock Market

I generally look for stocks in a sector that has been quiet for a while and is just starting to warm up. I’m not as concerned if a sector has been lagging the market, as long as it’s not going down the tubes, especially if the market isn’t. If I’m interested in several stocks in a sector that is starting to heat up, then I’ll pick the stocks that meet my criteria in volume, price, and charts.

No Stock Picking Here. Just Buy the Market Through ETFs

Stock picking is not for everyone as it’s hard to outperform the market. It’s a matter of strategy, research, and some luck. You can simplify the whole process if you ‘buy the market’ by buying the market index ETF. What’s great is that you can also get extra money from an ETF’s distributions or dividends. You can buy ETFs for the Canadian, US, or international markets, or even sector ETFs. You can have a whole portfolio of just ETFs to meet a variety of investment objectives!

Part 4: Investment Income

Here, I discuss my interest in stocks that pay dividends and how I invest in the blue chippy stocks for my retirement fund. What a great source of income as you can also enjoy a profit if you sell your shares later on at a higher price! For these income-generating stocks, I’m less concerned about their sectors.


Part 5: Selling Your Shares

Objective: To determine when to sell some or all of your stock.

Why Sell Your Shares?

Here are a few reasons to:

  • Bank profits
  • Rebalance your portfolio because you’re aging and you need to reduce your riskier assets
  • You need the money to spend or to invest in other things
  • Tax-loss selling (a capital loss can be subtracted from other capital gains, thus further reducing taxation on profits)
  • Play defense because there’s been an interest rate hike or a recession, so you want to lower your exposure and risk
  • Your stock stops paying a dividend
  • Your stock’s company or sector is in trouble and this is affecting the share price
  • Your stock is an underperforming dud
Banking Profits for Retirement

My retirement fund will consist mostly of investment income-producing assets. I’m optimistic to a fault. This means I sit back thinking that most of the dividend-paying stocks for my retirement fund will be worth a lot more in share price too. When I’m a spry elderly lady, livin’ large, and planning my next world adventure, I’ll sell some of those shares and use the massive profits to pay for my trip. If the markets reach exaggerated highs, I might sell some shares to buy a decent annuity.

Banking Profits for My Swing Trades

For my swing trades, I try to give a stock time as it moves within the profit zone, which is anywhere significantly higher than what I paid in share price. I look at the price charts to try to determine how far they’ll go before they experience a major selloff.

It’s a lot more realistic to expect a cheaper stock to double, triple, or increase multiple times in value. Once my investment has more than doubled in value, I usually sell half to 2/3rds of the shares and keep the rest of my shares in for the longer term. This way, I get back my principal investment and I can reinvest it along with the profits in another stock. If the remaining shares don’t keep going up in share price, I’ll sell them for a smaller profit — or break even at worst.

I’ve mentioned before that I like my Canadian stocks cheaper because my Canadian trading account is less funded. I also like them cheaper because I can buy more shares. I find that in general, Canadian stocks don’t move as quickly in price. I can still make money, even with smaller price moves, since I have a lot of shares. For my US swing trades, I use fewer shares than I do for Canadian stocks because they’re more expensive.

US stocks are good for swing trades mainly because they usually can move a lot more in price in a shorter amount of time than Canadian stocks. In other words, they get a lot of price action. I look for stocks that move on average at least $1 in share price in a day. The downside is, when stocks move faster, you have to act faster. If you’re not paying attention, it might get right into the profit zone and then sell off more quickly than it took to get there.

For more expensive stocks, it will take much longer for your total investment to double in its full value. This can take years. Sometimes you’ll have a jackpot situation where there’s a buyout; however, you can’t just wait and hope for these rare events to happen. So what swing traders do is decide how much of their investment they’re willing to risk losing (not all) and see if they stand to gain at least twice, three times or more that amount.

What…?

A lot of traders talk about ‘stops’ to minimize losses. A stop is basically your uncle point where you decide it’s better to take a calculated loss at a certain price than to lose more than that. Once a stop is determined, a trader will calculate how much he or she expects to gain and whether it’s realistic given the stock’s chart, its sector, the market, etc.


I’ll break down here how stops and setting targets work

lulu

  • Let’s say you bought 100 shares of a stock trading at $59.00 per share. Your investment is $5900. But there’s no way you want to lose an entire $5900 if things go south. And how long will it take for the stock to double in price to $118 a share? 
  • You might determine through analysis of its price history and other data that you will not accept a loss lower than $54 per share. You don’t want to lose more than $5 per share, which is $500. So of your $5900 investment, you’re only risking $500 of it. 
  • For this trade to be worth it, you want to at least get double the money you’re risking. Some traders want more, some are okay with less, it’s a personal thing for each person.
  • Take the $5 risk and to get double the reward would mean a $10 price increase at $69.00 ($1000 profit). Triple reward is a $15 increase at $74.00 ($1500 profit). All because you were willing to risk $500 of your investment.

This is a trade I actually took this week. It had a good earnings report (are see-through yoga pants back in style?) and it jumped close to the triple reward zone. It was good enough for me, so I sold 80% of my shares at $71.90.

For my remaining 20%, I’ll hang on to see if it’ll keep going up. Each time it surpasses another risk-reward multiple ($74, $79, $84, $89), I’ll move the stop up on that. If it breaches any of those multiples, I’ll sell the rest.


I use a very loose form of the stop method as I found it to be a pain to bother with stops. I found that with most of these trades if I’d waited a bit longer, I wouldn’t have taken a loss–instead, I would’ve ended up with a huge gain. I found that once I started to set more loosey goosey expectations as to what I’m willing to lose and what I expect to gain, my trading account started to flourish. Yes, I am a loosey goosey swing trader.

I find that if the stock is of a good company in a strong sector, even if you had to endure the discomfort of underperformance, the only thing you really lose is time. Because once the stock really starts to rock, it was totally worth the wait.

This is why sectors are important. If the sector is strong and your stock is strong or stronger than the sector, then you reduce the chance of sitting painfully through negative numbers. If, however, your stock is much weaker than its sector and is going down while the sector is going up, then there could be something else going on with the company that you might have to look into.

Having said all this, I’m not saying to ignore your threshold for losses. You must figure out what works best for you and trade responsibly out of respect for your money. For me, a good swing trade is more than just price action. It’s a combination of factors such as the company, its sector, and the market. Since I consider multiple reasons, I’m okay with waiting out the unforeseen downturns and I don’t totally wig out if the price gets a little out of whack.

Thanks to a diverse portfolio, I only ever have a small fraction of underperformers while the others do well. Sometimes these turn a corner and become the top performers in my portfolio.


Swing Trading is NOT for Everybody

Why do I swing trade? I don’t live much of a structured life (although I sometimes crave one) nor do I have dependents. I have a higher risk tolerance so I can endure the dry spells and downturns and patiently wait for the profits. I’m quite happy to aggressively grow my account in the mid-term while my more solid stocks grow for the long-term. It’s exciting, interesting, engaging, and I can go on about the fun I get out of being tapped into the markets.

Making money like this isn’t for everybody. I’m only sharing my strategies so that curious readers will have a better idea of what I do with my own money. All of what I write is only for information sharing purposes.

While there is a risk component to any kind of investing, there are many ways to reduce that risk with good diversification. To do this effectively, it’s good to be knowledgeable, even of the investment basics. Most working people, in my opinion, are better off saving regularly for their goals and investing their extra savings with a part of it in conservative stocks and ETFs that pay a dividend. No doubt, a lot of money can be made this way!