Recently, we’ve increased our positions in a few key holdings including CIBC, Genworth Mortgage Insurance and Blackberry. Initially the returns were positive, lately, based on the news cycle or lack thereof, their values have decreased somewhat. Nothing materially has changed for either one of these holdings, including Blackberry, which made an unexpected profit even when you back out the Qualcomm payment.
Analysts are paid to overreact, we do not. These businesses are sound, make money, and will make more money.
Our Criteria for investing is simple:
- Good or Service is Vital (Need)
- High Barriers to entry (Financial moat)
- Good Management
- Strong Balance Sheet and Cash position
The true mark of an investor versus a trader is how long they can sit still when things are not going in their favour at the moment. If you panic and “limit your losses” you are a trader, if you believe in your analysis and see these swings as temporary, then you are an investor. Limiting your losses also means wiping out future returns.
Stay Calm and Carry on.
Believe it or not, the manner in which you can build your nest egg hasn’t changed since the dawn of the 20th century. The tools may have improved but these foundational pillars still exist.
- Discipline – Stay true to your purpose and never lose sight of your goal.
- Save – Learn how to keep and grow your money
- Research – The best results come from the most informed decisions.
- Plan – Anticipate life, surprises, retirement, and set out to meet these obligations.
Contact us to learn how to use these tools and start building your wealth.
Our clients enjoyed a 10 day window to buy up depressed stocks from our client update on May 12th. See the Barclays post below:
BUZZ-Barclays upgrades 5 Canadian banks on valuation, outlook
23 May 2017 – Reuters
BUZZ-Barclays upgrades 5 Canadian banks on valuation, outlook** Barclays raised its outlook on 5 Canadian banks due to low valuations following Q1 results
** Analyst John Aiken writes depressed valuation also attributable to housing market worries arising from non-bank lender Home Capital Group’s rapid decline in deposit accounts
** Cites upcoming switch to 2018 valuation year as painting rosier earnings growth outlook
** Among ‘big 6,’ raises Bank of Montreal to equal weight from under weight, PT to $98 from $95
** Lifts Bank of Nova Scotia to overweight from equal weight, PT to $84 from $78
** Upgrades National Bank of Canada to overweight from equal weight, PT unchanged at $59
** Boosts TD Bank Group to equal weight from under weight, PT to $69 from $64
** Also raises regional bank Laurentian to equal weight from under weight, though trims PT to $58 from $59
** In last 12 months, banks have outperformed the broader Canadian equities market, with the Thomson Reuters Canada Banks Index up 14.9 pct vs. the TSX Composite (up 11.1 pct)
Even with the BMO earnings today, we see a buying opportunity.
Our Call 05/24/17
We predict that enough republicans will vote for impeachment before US Thanksgiving, leading to further depressed values for banks in the US. Canadian Banks should see continued strength as safe havens. Oil will bounce higher despite incremental supply. Overall infrastructure spending will boost oil demand over the next 2 years so hold on or add to your energy stocks.
The recent Home Capital transparency issue, and now the downgrade from Moody’s on Canadian Banks has supressed valuations recently. We personally have GIC’s with Home Trust that are coming due. Although we don’t envision investing in the Company, (once trust is an issue) we do anticipate adding to our CIBC and Genworth positions. Canadian Banks and non-sub prime lenders do a great job of valuing risk, even in this environment. Canadian banks do not write risky loans, you’d know if you’ve ever tried to borrow from them. Hence we see this as a buying opportunity.
CIBC (CM) Close 107.29
P/E Ratio 9.1
Book Value 1.8
Debt to Capital 4%
Genworth Mortgage Insurance (MIC) Close 33.48
P/E Ratio 7.1
Book Value .8
Debt to capital 10.3%
For more portfolio advice, Look up Rick’s Pick’s Page
For individual portfolio management contact our office.
Lately, there has been increasing pressure for government intervention in establishing rent controls on newer purpose-built rental properties. The current market fuelled by low-interest rates and just plain stupidity, is causing unsustainable demand. When this happens greed steps in. Unfortunately, some people will get hurt when greed rears its head. Trying to intervene by legislation will mean that developers and landlords will adapt. They will either cut back on maintenance, stop building new projects, or add other fees to make up the difference. Whenever we intervene in a market we are picking sides, meaning that one side gets disadvantaged. There are repercussions. Historically Governments have done more damage when they pick winners than if the market does. I could list several examples but that would take too long.
We need to let nature take its course. No one has long-term memories anymore. But those of us who study history know better. This market will crash and the problems that have come with it will correct themselves, albeit in a dramatic fashion. You need to let people fail so that they learn from their mistakes. If there was no idiotic demand and speculation, prices and rents could not be met.
Keep the market free… and remember, those who fail to remember history are doomed to repeat it.
Companies and Individuals that exude both trust and competency in their work are increasingly hard to find.
A few recent examples:
- Leadership charged with collusion
- Produces sub-standard home appliances
- Revealed only recently that “Smart TV’s” are prone to hacking and can be used to record behaviour
City of Toronto
- Road maintenance contracts awarded to “select” firms who are then sub-contracting to lower bidders
Province of Ontario
- Contractors using sub-standard asphalt to win the bid, only to keep repaving because of the poor quality
- Ontario Power Generation/Ontario Hydro-Ridiculous solar re-purchase agreements for residential producers that lead to super high hydro rates
I could go on but would rather focus on why this continues to happen. When we accept sub-standard and poor performance as the new “Norm” we endanger the very existence of our institutions and companies. Dealing with poor performance adds costs and inefficiencies. We must go back to demanding more from our workers, management and governments to live up to what is expected of them.
Holding people, managers and representatives to account is not easy, nor HR friendly, but it must be something we are prepared to do. Accepting sub-par performance will mean that people will go elsewhere or lose faith entirely. Both scenarios are not good, but losing someone’s trust can be devastating.
If you are not happy with your product, service or government representative, make it known that you demand better. Hold them to account, vote, or find someone that you can trust and is competent.
Are you with me?
I’ve told this to many of my clients and potential clients, but I’ve never had a “public” example to refer to. Just because you work for a big 4 Accounting firm or large Fortune 500 company does not mean you are competent. Throughout my career in private accounting where I’ve worked at some large companies, there was never a shortage of ill-qualified managers or so-called experts. Instead when I pulled back the covers on their ascent to these roles, more often than not there were social or organizational connections that helped them attain these posts.
I also found that Managers that were appointed based on their connections instead of their merit, tended to propagate the pattern. They would hire subordinates that posed no threat to their dominance in the company or more specifically their department. It would make these Managers seem all-knowing and indispensable by their own doing.
We need to get back to hiring the best people period. Forget about equal opportunity or quotas Mr. Trudeau, these just create tensions among those that are much more qualified and have more experience.
As for the two Accountants who didn’t do the one job they were hired for, please resign from your position and go back to your cubicles where you belong, not the corner office. You embarrass the rest of us.