• On Monday, I wrote about my lump sum dilemma. I had a big bonus this year, but I decided not to invest in the stock market and pay off my consumer debts instead. Eventually, this will leave me more cash flow to invest on a regular basis, so I guess it is a good decision ;-).

     

    Where did the 2K Come From?

    One of my “debts” was to pay back my Home Buyer’s Plan (HBP). Each year, I “reimburse” 1K from the money I borrowed from my RRSP to buy my first house. It’s an amazing program we have in Canada where first time home buyer can withdraw up to 25K from their RRSP tax free to purchase their first home. Then, you have 15 years (plus a two year grace period) to put the money back in your RRSP to avoid a tax claw back.

    The other 1K comes from… drum roll… Dividends accumulated throughout 2014. I started the year 2014 with $45,000 in my RRSP account. It has generated $1,634 in dividend income for a 3.64% dividend yield. Part of it was reinvested during the year (when I make trades) and the remaining amount was sitting in a US equity index mutual fund. I sold the fund and am now ready to invest $2,000 in my portfolio!

     

    Two Options: Buy More Shares or Buy New Shares

    When you have additional money to invest, you usually have these two options; you either increase existing positions as it may be an opportunity to boost one of your holdings (as I did with AAPL last year… it was a very good move indeed!) or you simply go on the hunt for a new company for better diversification. However, adding a new stock, also adds to the time and effort required to manage your portfolio. I personally read all quarterly reports to make sure the companies I hold still demonstrate the same reasons why I bought them in the first place. Plus, as I’ve mentioned in my asset allocation post at the beginning of the month, I’m pretty well diversified right now.

     

    I’m Going to Increase not ONE but TWO positions

    The amount I have to invest is not really important this year, if I had to buy a new company, this would only represent 3.6% of my portfolio. This is not important enough in terms of asset weight. This is why I’ve decided to boost two of my holdings. I looked at all my positions and decided to increase Gluskin & Sheff (GS.TO) and Black Diamond Group (BDI.TO). Yeah… I decided to buy two losing stocks in my portfolio!

     

    First: Gluskin & Sheff

    Unfortunately, the Canadian stock market took a hit due to the price of oil. Most financials where hit during this period and GS was part of the lot. In order to make things worse, GS published disappointing asset under management (AUM) numbers in November. For a private wealth company, it is important to have as much money under management as possible since this is the source of your income (a percentage is charged as management fees). Therefore, the more AUM you show, the higher your income will be. After the purchase of Blair Franklin, the market didn’t expect to see so many investors defect (I recall the drop in AUM was 8%). Nonetheless, December AUM numbers were much better and the stock bounced back.

    The fundamentals why I purchased GS last year are still there: strong cash flow machine evolving in one of the most profitable segments of the financial industry. Chances are GS will be bought out by one of its competitors and the company will pay a generous dividend (don’t forget the special dividend at the end of the year!) to its investors.

     

    Second: Black Diamond Group

    When I sold McDonald’s (MCD) to generate some liquidity in order to buy BDI, many people on this blog weren’t convinced of my move… and they were right… for now anyways! While MCD hasn’t gone anywhere since my trade, Black Diamond has followed oil prices down the drain. I’m currently showing -41% on this trade… not my best shot since I started investing I must say the least!

    At this point, I have two options: #1 I admit I’ve made a mistake, sell the stock and never look back. #2 I still think it is not a mistake, average my cost down and earn a bigger dividend from this “gamble”.

    You understand I took option #2. I believe BDI will go through this rough phase of oil pricing and once the commodity kicks back, I’ll be laughing. I just have to be patient!

     

    What do you think?

    I’m pretty sure I’ll have a few comments about my “journey to hell” with BDI, but I’m really interested in hearing what you have say about my two trades!

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  • Have you looked at the stock market yesterday? Let’s just say it wasn’t the best day if you were invested… However, if you are looking for an entry point, here are a few stocks we hold in our DSR portfolios and match our 7 investing principles that dropped more than 3% yesterday. This can be your entry point. You might want to check them out before you go to work this morning:

    Seagate Technology (STX) -3.38%

    STX met analysts estimates but deceived with soft guidance for 2015
    Slow Euro economy is the main reason why sales won’t be as high as expected this year
    dividend yiled: 3.79%

    Procter & Gamble (PG): -3.45%

    Currency headwinds hurts sales and profits as they missed estimates
    Profit drops 31%
    Still the company is a strong consumer defensive stock
    dividend yield: 2.98%

    Apple (AAPL): -3.50%

    70% iphone sales increase in China during the Holidays
    They sold 74.5 million iPhones while expectations were between 64.5 and 67 million
    Apples’s cash in bank is enough to buy IBM! ($178 billion)
    dividend yiled: 1.72%

    Intel (INTC): -4.52%

    It was definitely not techno’s best day!
    While Intel posted good earnings and announced a dividend increase last week, it suffered from bad news from STX & MSFT.
    dividend yiled: 2.81%

    Caterpillar (CAT): -7.18%

    profit plunges 25% last quarter on oil drop
    it’s a tough time for CAT, but it’s a good entry point since the stock is now trading below 13 PE
    dividend yiled: 3.51%

    Microsoft (MSFT): -9.25%

    Windows sales deceived and their ongoing restructuring effort in line with the Nokia acquisition cost 2 cents per shares to investors
    dividend yiled: 2.91%
    As you can see, it is not catastrophic news, it definitely be a good entry point if you were looking to buy one of these stocks!
    I’ll keep following them closely, let me know if you have any questions.
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  • A week ago, it was payday. But not just any ordinary payday, the big one! My year-end bonus was deposited in my bank account. The product of a long and hard year where I truly earned each dollar. Why do I do that? I’ll tell you here; it’s my little secret ;-). I’m not the kind of guy who wants to win contests (been there, done that), not the guy who wants to tell all his colleagues he’s the best and not the guy who’s looking for my boss’ appreciation. I’m simply the kind of guy who works hard to earn a big fat check at the end of the year.

    I won’t disclose my real bonus, the title is completely phoney and not the point of my article anyways. The point is; what would you do with a lump sum deposited in your account? Tax season is approaching and you might want to ask this question for a smaller amount anyway. I didn’t always spend my money wisely or the way I should have done it. In fact, many of my bonuses were used to treat myself (like going to Hawaii last year with my wife!). But this year, I’ve tried to make sound decisions.

     

    The Eternal Question; Pay Your Debt or Invest?

    My first thought was to make a huge contribution to my TFSA and invest this money in the stock market. After all, I could easily create a 4% dividend yield portfolio right now with the recent volatility. On the other hand, I still have a couple of loans that I’ve carried for the past two years. One was used to install a central AC in my house and the second one was for the pool. You can tell, these were priorities back then ;-). The first point to settle when you are wondering if you should pay down your debt or invest is how much interest you pay vs how much return you can expect. Considering this rule, I should have invested the money in my TFSA since my expected return is greater than the loan interest.

    However, I’ve decided to pay both loans and clean my balance sheet of consumer debts. The second point is to consider your current financial goals; do you wish to decrease your monthly payments or increase your balance sheet. Right now, I’m in the middle of my 18 month countdown before I retire and go live in an RV for a year. I don’t want to have any loans hanging over my head during that period. This is why I’ve decided to pay off my debts.

    I now have three debts; my car loan, my RV loan and my mortgage. My car loan will be paid off by selling my car in 2016 and my mortgage along with my RV loan will also be cleared by selling my house. If I’m lucky, I’ll even have about 50K in cash once I become “debt free”. That’s a pretty solid plan since I expect to spend roughly $2,000 per month in my RV, this means I can easily live 12 months without even trying to make a penny with my websites…

     

    Crazy Idea: Invest in a Margin Account

    While I think I’ve made the right and foremost conservative decision, I’ve also looked at the possibility of taking my money in a margin account to almost double my investment. But I’ve made the following calculation to see if it was worth it:

    Assume an investment of $10,000 with a margin at 70%. If I want to give myself some room for volatility, I can’t invest more than $30,000 (9K cash + 21K from the margin) and leave 1K in cash to cover for a potential margin call. So what can I do with 30K? Let’s say I do the best case scenario possible and make 20% return on it. This means I make $6,000 in a single year. That’s pretty amazing when you think about it in term of return (that means a 67% return on my initial investment of $9,000). But does it really change my life for a year considering all the risks taken?

    I’ve leveraged several times in my life and it almost always paid off. However, with three kids and a financial future that is uncertain, I would rather play it safe this time. I might want to do it when I leave with my RV as I will live from my websites and investments, but for now, I would still rather pay off all my debts. I will keep the idea of leveraging with a margin account for next year, what do you think? Have you ever traded on margin?

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