My Struggles As An Investor

struggle1

 

Hello everyone are you an investor in individual stocks and ETFs? Do you have concerns or struggle with how to select a stock or ETF, how many shares should you buy etc…. Then I think this post is for you.

In today’s post I am going to share with you some areas that I struggle with. Back in July 2014 I decided to try investing in stocks that offered a dividend. At that point I had been a index investor for the past six months. You could kind of say I was in no man’s land as an investor bouncing around trying different investment strategies.

When I chose to invest in individual stocks I had zero experience, I didn’t know about what stocks I should be buying, ones I should stay away from etc… I can remember when my brokerage account was opened typing in companies names, and I would look at the share price, then I would grab my calculator and divide that number by 5,000. Why 5,000? Well at that time I had around $55,000 to invest and so I randomly decided that I would invest $5,000 in a stock. Once I got my number of shares that I could buy I would then multiple that by company’s dividend to see how much money I would earn. That is pretty much how I come to own BCE, Bank of Montreal, Royal Bank of Canada, TransCanada, Fortis and Canadian Utilities.

So let’s now get to some of the issues that I have been struggling with.

What To Look For When Buying A Stock

As mentioned above when I started investing I began buying stocks based on how much money I would earn back in dividends. Not the greatest strategy I know! Last month marked my third anniversary as a dividend investor I no longer just look at how much money I will earn, I look at the following:

  • P/E (Price to Earnings)
  • Net Earnings
  • Revenue
  • Dividend
  • Payout Ratio

I always tend to feel like I am missing other key metrics to look at. Should I be looking at other metrics??? Please let me know your thoughts in the comments below.

Diversification

Here in Canada our stock market is dominated by the resource, financial, telecoms and pipeline sectors. We always hear that we need to be invested in Canadian, US and International equities. At the moment I am invested in 25 stocks and 1 ETF. All of the stocks are Canadian and the ETF is focused on the US market with 100 dividend paying stocks.

I have struggled so far in geographical diversification with my portfolio and it is an area that I need to address. I currently have no investments beyond Canada and the US. Some of my companies have operations around the world Canadian Utilities (Australia, Chile), TransCanada (Mexico), and Power Corp of Canada (Europe, China). However this isn’t enough.

Sector diversification is another area of concern for me, my portfolio currently has the following areas covered.

  • financial, telecoms, pipelines, utilities, industrial, consumer and reits.

Areas that I am currently missing:

  • healthcare, technology, resources such as gold & silver, renewable energy, infrastructure.

The Canadian Government is currently planning to spend billions of dollars on infrastructure across the country. They are also in the stages of setting up a $35 billion infrastructure bank. So it might be advantageous  to look at industrial companies.

How Much Or Little To Buy

This is one that I seem to have the most difficulty with. I never know the quantity to buy. One reason for this is that my brokerage charges me $9.99 per trade so I try to usually set a minimum of $1,000 per purchase.

At the moment I currently have $2,510 in my Tax Free Savings Account (TFSA) so I have a decision to make, if I were to make a purchase today should I buy one stock with the full amount or do I split the money and invest $1,255 in two stocks. This is what usually bounces around in my head before buying.

My last three purchases have been for 33, 26 and 25 shares. I usually set a minimum number of shares to buy at 25 as that seems like a good number to acquire. Do you do the same? Or does the number matter to you?

One stock I like is Canadian National Railway the stock currently trades for $100.37. Let’s say I have $1,000 to spend I would only be able to buy 9 shares which in my opinion is to few. Is my thinking flawed??? Should I look past the number of shares and just focus on making an investment in the company??

Exchange Rate

One problem being a Canadian investor is having to pay US dollars if we want to purchase US stocks. Why is this a problem? Well for the past few years the Canadian dollar has been weaker which raises the price of the stock.

For example if I wanted to buy 1 Apple share at the time of this post an Apple share costs $158.59US that would cost me $200.96 Canadian.

I see other Canadian bloggers and investors continuing to buy US stocks should I?? Why I struggle with this area is because I don’t have a lot of money to invest and always default to Canadian stocks where I can purchase more. Let’s go back to Apple if I were to buy 10 shares that would cost me $1,585.90USD, Canadian it would be $2008.46 so it would cost an extra $422.56. For that price I could get an extra 10 to 15 shares of a Canadian stock.

The exchange rate is a big reason why last November I decided to sell my shares in JP Morgan and Proctor & Gamble as I felt that I wouldn’t be able to buy more. In my mind a way to get around the exchange rate was to invest in an ETF that invests in US stocks, and that is what I did. I own an ETF that invests in 100 dividend paying stocks.

If your a Canadian investor do you worry about the price of the Canadian dollar?? Has it stopped you from buying US stocks?? Or should I not worry about the exchange rate and get back into the US market??

Well folks I hope you like this post. I wanted to share with you some the areas that I have struggled with since I started investing in individual stocks. I’m sure that everyone struggles with investing and I hope you feel comfortable sharing, as I feel that is how we learn and grow and improve ourselves. If you any concerns please feel free to let me know in the comments below.

Thank you for reading I appreciate it.

Matthew

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16 thoughts on “My Struggles As An Investor”

  1. Dear Matthew,

    A great bunch of thoughts.

    Based on your “random” purchases, I think that you should keep investing that way (just kidding, kinda) as you got some great stocks (in my opinion). I hold all of them except BoM (but I’m heavy in banks, sold a bit this year because I was so heavy, not sure if I made the right decision but it’s done) and Canadian Utilities.

    There’s a lot of talk out there about diversification, why to and not to. I don’t hold any US stocks (although I hold VGK in US$). I would like to get in because I like the companies (specifically Colgate-Palmolive and American Waterworks). I like to understand the Canadian tax implications of my investments and I’ve done the math and based on the value of the USD, at an exchange rate of 25% (or lower), I’m paying more tax on my USD dividends then if they were in Canadian funds. Now, owning USD stock isn’t only about paying less tax, but I’m trying to simplify things for myself and I get a lot of forms come tax time.

    Until this month (!!!), I have never purchased smaller than 100 shares of a stock and always in multiples of 100 (or 1,000). I also have only invested in January and (usually) August when I had a bunch of dividend money saved up. One reason was because I didn’t want to pay “unnecessary/too many” fees (I’m with TD Waterhouse and also pay 9.99). But after reading some blog posts and doing the math, I realized that the dividends that I could earn in say a 4 month period would more than pay for the buy fees. And so I’ve started investing when I have the money and buying smaller amounts.

    Having said that, we’re looking to be FI and RE as of January 2018 and the stock market is a bit high right now (I don’t usually try and buy low and sell high but given we’re about to “retire”, I’m being a bit more “safe” — we’re heavy in the stock market so not so safe). So, I’m not reinvesting all our dividends but saving up a nest egg of one years expenses.

    As for areas you’re currently missing, I’m in all of them…. unfortunately. Well, not so much unfortunately as I’m in the wrong ones 😦 From the beginning of time until August 2015, my money had been managed by three different groups. It’s finally back in my hands (for good!) and I’m trying to create a portfolio that reflects my interests and knowledge. I will be getting out of technology (I used to work for Nortel Networks and lost a lot of money, I never would have been in the sector), resources (some one else can make all the money), renewable energy is too speculative for me right now (I recently sold Innergex Renewable Energy Inc.). I like healthcare and own Extendicare and Medical Facilities Corp (although one is technically a REIT) as I like their dividend payouts however, I’m a bit worried about the stability of the dividend payout (I’ve been focusing on buying companies with long term, uninterrupted dividends) but, I like the long-term stock growth potential as we are living longer and there are a lot of baby boomers. You and I were talking about books and I forgot that I read “The Pig and the Python: How to Prosper from the Aging Baby Boom”. I like the idea of being in infrastructure. I’ve bought and sold Stantec recently (the deal was that once we made a certain amount we would sell and we did, I have not employed this buy/sell strategy since and don’t plan on doing it in the future). I like SNC Lavelin as they have good dividend and have owned Aecon. Currently, I own SOX and they’re not doing so well. I hold it in my RRSP so I’m reluctant to sell. Besides, they pay a great dividend so I’ll stick it out. Not sure which area insurance falls into (finance maybe) but I like it as well. Otherwise, my portfolio is pretty predictable (most of the big Canadian corporations).

    I’m a fan of Warren Buffett and he says “Invest in what you know…and nothing more.” There will always be people telling us what we should and shouldn’t do but at the end of the day, it’s your money and you have to be comfortable with how you’re spending it.

    Well, I think that covered everything 🙂

    I welcome your feedback on my strateg(ies) or that of your followers.

    Besos Sarah.

    Liked by 1 person

    1. Hi Sarah thank you for reading and commenting on the post. First off I love that quote from Warren Buffett “Invest in what you know…. and nothing more.” When I owned US stocks I had them in my RRSP to take advantage of the tax treaty between Canada and the United States so I could save money by paying no tax. I noticed you mentioned the stocks Extendicare and Aecon I am currently looking at them myself. Other stocks that I am looking at are Brookfield Infrastructure (bip.un) and Brookfield Renewable Partners (bep.un), Canadian National Railway. Sorry to hear about the Nortel Networks situation. I am looking forward to hearing from you that you achieved FI and RE in Jan 2018 you can do it 🙂 Thanks again for stopping by I appreciate it. P.S. I will go check my email to read your book recommendations.

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  2. I wouldn’t worry about how many shares. Instead I would focus on what percentage of your portolio your investments will be. Cut your fees down and diversify more. Use apps like Robinhood that offer no fees. If you have a $10 fee per trade, and you average $1000 per trade, that’s 1% you have to make up at purchase, and around 1% at sell. Fees really cut into an individual investor’s return. Unless you’re comfortable with high volatility, which I assume you aren’t since diversity is important, Invest in value companies and spread your investments across multiple companies. Buy 1 share if you have to. With apps with free trades you are able to diversify with relatively small assets. I would also focus on free cash flow, price to sales, debt, and book value per share. And don’t forget to compare them to the industry. I won’t make that mistake again. Lastly, Have a margin of safety so you don’t lose money. Hope this helps. Good luck!

    Liked by 1 person

  3. This is a great post, Matthew. I really like how you have captured all the struggles that go with decision making on purchasing a stock or any asset, for that matter.

    I think most of the questions you have asked and experienced are part of the growing pains as an investor. What works for one person may not for someone else. And even what works for one person changes over time as the education continues and risk tolerance changes over the years. In the end,I think more than anything else, everything boils down to risk management. What your risk tolerance is will structure your trades & positions.

    Best wishes
    R2R

    Liked by 1 person

  4. Great post Matthew. I think a lot of the questions/concerns you have are really common, I know I’m still dealing with many of them.
    I avoid US stocks exactly for the exchange rate issue. That puts you at an automatic disadvantage and I think there are great Canadian companies out there to fill the void. Sometimes I wish I had more time to do research on stocks but it’s really not where my interest lies so I tend to go with less risky/more divirsified options. Basically I want some growth but am not looking to hit it out of the park.

    Liked by 1 person

    1. Thanks Sarah for the comment. I agree there are some great Canadian companies out there that can fill the void. I’m with you on wanting some growth while not taking gambles. Thanks for stopping by 🙂

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  5. Great post Matthew, always helpful!

    Since we don’t have any platform that offers free trade (yet) in Canada, I would definitely be looking at the number of shares I buy before paying the fee. You can calculate it into the price of the stock to see if it is still worth it to you. Hopefully something like Robinhood becomes available soon!

    As for the $USD, it’s definitely something to monitor. What is important is mostly the long term outlook. As long as the $CAD-USD comes back one day at around the same level you “bought in”, it will even out. Right now would be a good time to buy investments in $USD as the $CAD is likely to trade below current levels in the future, which would be a gain for you if you were to transfer your investments back to $CAD one day!

    Sam

    Liked by 1 person

  6. Great post. I think at its current price aecon and extendicare would be great additions. I used to debate the us conversion rate but their dividends are paid in us dollars too! In a rrsp i think us stocks are the way to go for us. The tfsa is for canadian stocks we need to diversify and simply put the us has alot of great companies. As for purchases like you i like to spend a minimum 1000 per trade. Hope that helps cheers

    Liked by 1 person

  8. Hey Matt,

    I can only speak from personal experience.

    Price/Currency:
    I tend to not look at price at all. Currency is also not a factor when I’m looking to invest in something. The only time price is somewhat a factor is if the gap to the 52-week high is too narrow. But I don’t let this get in the way of a good investment. The currency fluctuations are just blips on the radar. I’m not looking to trade based on fluctuations, only to buy more if the exchange is favorable and vice versa. I feel like having the extra hedge can be interesting, and can almost make decisions for you (i.e. if the CDN$ is strong… buy USD stocks, if its weak… buy more CDN stocks.) In the long run, none of this really matters in my opinion. Acting upon (SELLING and planning to REBUY) the fluctuations will only hurt you.

    Number of shares:
    I don’t find it logical to look at the share amount. The invested amount is what really matters. I’d rather have 1 share of AMZN than have 10 shares of Dollorama.

    Metrics:
    You could/should probably add some financial trends. I usually give every company a quick check-up based on the financial trends (Totals assets, liabilities, debts, income, revenue, EPS) of the last 3-4 years. Always making sure the assets are growing by more than the debts, and making sure the revenue is always increasing by a healthy %. These metrics are usually found on ever online broker when looking at the stock info in the Financial Tab.

    Diversification:
    If you would rather stick to CDN currency, maybe an emerging market ETF could give you the exposure you seek while giving you a small (1.5-2% dividend). Personally I’m looking at VWO (Vanguard Emerging Markets) which is USD and gives 2.3% dividend for a 0.14% fee.

    Cheers!!
    -DI

    Liked by 1 person

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