Restructuring my portfolio and changing investing style 22


Hope all is well with everyone. I cannot believe that September is almost over and sneaky 2017 is coming closer to us.

My wife and I finally had some time off in August till beginning of September. We went to 1000 islands, Ottawa, Montreal, Quebec and Halifax, Nova Scotia. It was about 2-3 weeks of road trip that we desperately needed.

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After the boat tour. Great shot by a local!

 

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Maman in Ottawa

 

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Notre Dame Cathedral in Montreal

 

 

 

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Quebec was my favorite

 

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Long lake in Halifax

 

 

 

 

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Peaceful Carters Beach in Nova Scotia. There was literally only 10 people in a beautiful sunny day. 

 

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Rainbow Haven Beach in Cole Harbor where Sidney Crosby is from

 

It was so much fun and finally everything is back to normal. Working&studying and saving&investing life. Exciting huh?

The post wasn’t about showing off a great vacation we had (although I am glad I got that off my chest). I have two quite important announcements to make…

Two announcements

1. I changed my investing style from dividend chasing investing style to ROE oriented investing style

As you probably know, I had been chasing dividends and look for severely depressed value stocks like crazy but I realized that during the process, I have compromised the quality of companies I pick just because they offered consistent dividend incomes (mostly monthly from REITs and income trust) or look cheap but there are always reasons why they are cheap. Don’t get me wrong. I still love dividend incomes but if companies can allocate the capitals into a better use and make more money then that’s the way I am going to go. Our family still has many years left until we need dividend incomes so I will focus on finding great companies regardless of whether they payout dividends or not.

From now on, dividend income will have a very little impact in my stock picking process.  My summary of Buffett’s stock picking tips explains well.

11 most important Warren Buffett’s stock picking tips, especially 7th one.

 

Also Peter Lynch’s as well.

Legendary investor Peter Lynch’s Top 13 best stock picking tips from ‘One Up on Wall Street’

 

And this one.

How to save $200,000 in 6 years and retire before 45

 

 

I will look for

1. simple business that I understand

2. with consistent operating history (strong and consistent revenue, EPS, book value, free cash flows growth)

3. favorable long-term prospects (monopoly or possessing high % of recurring revenue)

4. Exceptional and honest management with long term goals in mind (hopefully with significant insider holding. E.g. Founders or its family members would be great as they wouldn’t sacrifice long term business objectives over short term ones.)

I think this point is probably one of the most important stock picking tips. It is all about finding exceptional leaders. Once you have identified them, then 80% of your work of finding great stocks is done. I cannot emphasize enough on this. Think about Warren Buffett’s Berkshire Hathaway, Frank Hasenfratz’s (currently his daughter Linda Hasenfratz) Linamar, Larry Rossy’s (currently his son Neil Rossy) Dollarama, Selim Bassoul’s Middleby etc… When you find this kind of exceptional leaders, what you pay for the stock is not an important issue anymore. Once you find exceptional leaders, stick with them for a long time until either one of you die. Don’t worry about corrections, bear markets, wars etc…

5. Importantly, solid historical ROE with 15 or more with low leverage and solid balance sheets

6. reasonable or fair P/E

7. forever stocks (or international ETFs only I feel no bargains are around.)

8. insiders are buying.

9. company is buying back its shares

This style change is going to be interesting and you will be on the front seats to watch me either fail or success 🙂 but I am confident this strategy will pay off handsomely.

 

2. I am restructuring my portfolio

My portfolio had been over 70% in Canada so I have sold off many Canadian stocks. I have been reading many articles about Canadians debt level and Canadian housing bubbles so it was hard for me to simply ignore the issues. So I sold off many great names including Bank of Montreal, Scotia Bank, CIBC, Artis REIT, Cominar REIT etc… lately

 

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Goodbye all. I will probably see you back someday.

 

and looking at and buying companies that are either have significant international presence or internationally diversified ETFs until I find suitable candidates for the proceeds to be deployed. Although I believe long term perspective of the stocks I sold especially the big 5 banks, I just needed to be diversified in case the bubble pops. I have no idea when but I can say that it will eventually pop and when it does, it will be quick and fast. I am just being ready.

I still have some oil&gas related Canadian stocks that I think have been beaten up quite badly thus still showing good values.

After the restructuring, the Canadian portion of my portfolio should be less than 50%.

 


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22 thoughts on “Restructuring my portfolio and changing investing style

    • monsterid
      Be Smart Rich Post author

      Nice. French and Atlantic Canada area is really amazing. You will have lots of fun there for sure.
      I am quite confident that I made a right decision of changing my investing style. I am agreeing more and more with Buffett who said buying a great company at a reasonable price is one of his core principles of picking stocks. Let’s see how it goes!

  • Mustard Seed Money

    We were just in Halifax. What a beautiful area.

    That’s awesome that you are flexible in the way that you invest. Earlier I decided to start concentrating on companies that don’t carry debt on their balance sheet because I am terrified of companies covering dividends with debt. It definitely narrowed down some stocks but I took a leap with ROL which is in pest control. Best known for owning ORKIN. It’s not a huge dividend but I feel comfortable with their growth and the steady dividend that they are going to pay.

    • monsterid
      Be Smart Rich Post author

      Halifax is beautiful isn’t it? Did you get to go Cape Breton- Cabot trail? The hour long scenic drive and walking Skyline Trail will give a great vacation.

      Just looked through ROL and it seems to be an amazing stock. Great ROE around 30 with very reasonable leverage. Consistent growth in revenue, net earning and free cash flows. Seems like a great pick for sure. Valuation seems a bit higher than I like but I will keep it in my watch list.

      • Mustard Seed Money

        We unfortunately did not get to do the Breton-Cabot trail as our 11 month old son was a little fussy that day. We were able to get to the public gardens and other scenic landscapes around the city. We wish we had more time to explore.

        ROL is definitely one of my favorites, I was able to get when it was trading about 10% less so I can see why you think the valuation is a bit high.

    • monsterid
      Be Smart Rich Post author

      You are very right. Picking broadly diversified ETFs is a great choice for many people (including me) Unfortunately, I have financial training (CPA) and military discipline that I want to make some use of. I enjoy picking stocks and believe it makes my life a little more interesting. I am still young so I want to test the water before completely going on ETF investing. Dividend& value investing served me well so far resulting annual average return of 8-10% while TSX index retracted 2% annually last 2 years. I realized that growth at a reasonable price strategy would fit my personality better. I will look for great companies at fair price and am confident that I can beat the market going forward. I have some global ETFs and I will keep buying whenever I feel no deals are around.

  • Penetrator

    Nice move. Dividends are not that important. A great business like Couche-Tard offers a really small dividend but the company manages to grow 15-20% each year. They keep their money and that’s perfect.

    • monsterid
      Be Smart Rich Post author

      I totally agree with Penetrator. I wish I bought Couchetard a long time ago. It is sitting in my watchlist now until I find a better time to jump in (although I think the current price would not really matter 2-3 years later from now). I was distracted by dividend and value investing but deep value investing is tougher for me to execute properly. I believe GARP fits me better. Thanks to Buffett (who should be categorized as a GARP investor influenced by Charlie Munger), Joel Greenblatt, Philip Fisher, Jason Donville, Bernard Mooney and you. Solid ROE, great management with aligned interest and great capital allocation skills and reasonable PE are what’s really important. Once I find stocks fit that criteria, I should consider them as permanent stocks and would hold them forever. I loved Berdnard Mooney’s last article (thanks to google translator) before retiring of where he gave an example of Richelieu Hardware stock.

  • DivHut

    I can understand you wanting to shift your investing style a bit in recent weeks. To tell you the truth, I have it in the back of my head to potentially lighten up on some of my holdings too. Many stocks in my portfolio have had an amazing run and it seems like many of our fellow dividend bloggers have been hitting the ‘sell’ button the last few weeks as the markets still remains in a “frothy” territory. Sorry to see those Canadian banks sold off. I still plan on keeping mine. Thanks for sharing.

    • monsterid
      Be Smart Rich Post author

      Yeah. I think Canadian banks are great investments if you plan to hold for years but I could not simply ignore housing bubbles. Everyone knows Canadian real estate market is currently very overvalued and there are some signs and government movements to reduce the overvaluation which will definitely negatively impact housing related stocks. I will simply redirect my focus on other opportunities at this time.

  • MrSLM

    So many dividend investors these days seem to be hitting the sell button and sitting on the sidelines or restructuring their portfolios. I probably won’t sell my holdings, but going forward I may just beef up my US/international diversification instead.