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.
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…
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.
Also Peter Lynch’s as well.
And this one.
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
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%.