What to do when idiots run the world?

When you combine Trudeau’s Selfie politics with Morneau’s silver spoon trust fund mentality, you get ongoing budget deficits, careless spending on wasted programs and social agenda’s with no economic merit. Couple that with Trump’s war on everybody, and our lack of true leadership, and voila. Stock market downturns, investors pulling out of Canadian projects and infighting between provinces for political gain without consideration for economic fallout.

So what’s a person to do? Well if you’ve invested using time-tested fundamentals you weather the storm. When deploying new capital, go for fixed income instruments that have low volatility and meager returns. Now is not the time to bet the Farm.

Stay Calm and Build your Cash reserves.

Rick Barbosa

 

Can you sit still?

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:

  1. Good or Service is Vital (Need)
  2. High Barriers to entry (Financial moat)
  3. Good Management
  4. 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.

Rick Barbosa

 

Making Friends with the Bear

Bear fight

Like everyone else who has non-fixed income investments, I have felt the pain this year like you. When you put your money at risk you should in fact be aware of “the risk” and have the stomach to ride it out. No one, and I mean no one gets a free ride. If you go to sleep in a deep sweat at night worried about losing 15% of your investment, then you should not be in the market. Every investor should know that a balanced fund should always include cash and fixed income portions to counter balance the risk of equities. Mutual Funds (not my choice) do this automatically as they spread both the gains and losses over a wide swath of instruments.

If you’ve ever looked at my “Rick’s Picks” you won’t see very much change, even during this volatile period. It’s important to keep your head above the noise and realize that external forces are driving this Bear Market not fundamentals. Some of the 2015 forces included:

  • Oil prices (even the Saudi’s can’t keep this up forever)
  • Demand from China (Market is maturing)
  • Low Growth (Mature markets and economies here to stay)
  • Interest Rates (artificially low)

So instead of fighting the Bear, learn from it, make friends with it, and use it to your advantage. How you say?

  1. Watch your portfolio and the 52 week low points as they come up and buy into your gems on the cheap.
  2. The stocks on your wish list that were out of reach are probably cheap now-Load up
  3.  Take advantage of DRIP plans to lower your acquisition costs and “buy low” automatically

Bottom line, keep your head on your shoulders, don’t follow the crowd, and continue to do your research based on the fundamentals.

 

Till next time…

Rick

 

Why I sold First Capital Stock

First Capital

It  wasn’t any easy decision to make. I have owned this stock for about 8 years and enjoyed the modest returns as a conservative yield play. What tipped the scales was yet another round of debt to equity conversion as a solution to paying off bond debt.  If you look back, these conversions have been taking place for awhile as a means to keep cash in the business and reduce interest expenses. A sound strategy when rates are rising, but they have not. Debt is cheap and when you’re paying a yield of 4.4% on your shares, what incentive is there to further dilute your shareholders value? Their debt load is also increasing to uncomfortably higher levels, hovering around 50% while Boardwalk and CREIT have levels in the 30’s. Their ROE is lower and Price to Book higher than industry peers at this time. The numbers are working against them. They have not done a good job of increasing my shareholder value over the last 2 years and it’s time for me to look for greener pastures.

Sorry FCR you have been eliminated.

Rick Barbosa