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    September wasn’t in perfect harmony with this great year on the market. In fact, it was the opposite; we left the month of September with a sour taste in our mouths… similar to what happened in January.

     

    I don’t know if you recall what happened in January of this year (the human is likely the living being with the largest memory and has an even larger capacity to forget!). After an incredible 2013, investors started to become nervous and greedy. Results were never good enough and everybody started to think the party was ending. It seems we are getting to the same scenario right now. Some people will tell you the magic line “but it’s different this time!

     

    What we have on the menu of terror

    I’m amused by this investors’ nervous reflex to find ten thousand reasons to see the economy crashing. I decided to call it the “menu of terror”. So if you want to be anxious, you can stop sleeping right away! Here’s the list of reasons why:

     

    The Menu of Terror

    #1 Huge tension in Iraq

    #2 Huge tension in Ukraine/Russia

    #3 Huge tension in Hong Kong!

    #4 China’s economic slowdown (read less than double digit growth)

    #5 A market that is already overvalued (around 18 times its profit)

    #6 A strong US dollar that could slowdown exports

    #7 The fact the FED printed so many dollars with all their quantitative easing measures

    #8 Canadian housing prices at a crazy level

    #9 Canadians’ debt at a crazy level

    #10 The inability of Central Banks to raise their interest rates without crushing the economy

    #11 Brazil’s social problems and their potential debt arising with the Summer Olympics

    #12 Higher expectations of companies by greedy investors

    #13 The fact that October is historically the worst month for the market (where we experience the worst crashes)

     

    I’ll stop at 13 reasons because I like this number and want to make sure you are anxious about the market J hahaha!

     

    What makes you worry right now?

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    We will never repeat this enough; You can never start saving too early! And being a father of three, I can appreciate that savings is not always the top priority when you work on the budget. Not so long ago, I wanted to start a new portfolio for my kids’ education (called an RESP in Canada). My oldest son just turned 9 this summer and college is not too far away. However, between my mortgage payments and retirement savings, I don’t have much cash left to save. This is why I started this portfolio with only $50 per week.

     

    Is $50/Week Enough?

     

    You might think $50/week is not much to start investing, but it’s more than enough. Between a an 30% Gov’t subsidy for education and two good years of market return, my portfolio is now showing a value over $8,500. As you can see, you don’t need a fortune to build an interesting portfolio.

     

    I must admit I made a mistake when I started this portfolio; since I didn’t have much money to start with, I started by investing in mutual funds. When I compare my two portfolios (my self-managed RRSP vs mutual funds in the RESP), I can see that it is a mistake:

     

      2013 YTD
    RRSP 21.70% 12.50%
    RESP 17.23% 12.09%
    Difference 4.47% 0.41%

     

    The choice of picking mutual funds cost me about 5% total over almost 2 years. It’s not the end of the world, but still, it is still money I didn’t make. When I realized this; I started working on how to build a portfolio with a small amount. If I had to start over with $0 in hand and savings of $50/week, this is how I would start my portfolio:

     

    #1 Setup an online brokerage account

     

    Well… this may sound obvious for some of you, but as soon as you are committed to start investing, you should open an online brokerage account. You don’t need $10,000 to start investing with a brokerage account; most companies will accept your money, no matter how much you want to save. If you are American, I recommend you start with TradeKing for two reasons: #1 great customer service and #2 the lowest trade commission in the industry ($4.95/trade). It definitely matters a lot if you intent to invest small amounts.

    You can check out TradeKing’s account special features here.

     

    If you are Canadian like me, Questrade is the way to go. They offer a USD RRSP (not all brokers do) and they are also the cheapest online broker on this side of the border. They offer promotions when you open an account so check out their website for their latest promotion.

     

    #2 Set up an automatic savings plan in my brokerage account

     

    The first move to make once you have opened your brokerage account is to setup an automatic savings plan in a money market fund or an index fund/ETF if you are more aggressive like me. I don’t like having money sitting on the sidelines. This is why I always prefer to have my small cash amount invested in an index instead of seeing it dying at 1-1.5% in the money market. However, this is up to you; both strategies will lead you to the same point: growing your fund up to $1,000. The $1,000 mark is important because of the transaction fee charged. If you pay $4.95 per trade, this represent 1% on a complete buy and sell transition ($9.90 on $1,000). Since your goal is to keep saving on a weekly basis, I wouldn’t bother buying with a smaller amount on hand (you will eventually have too many stocks with small positions).

     

    #3 While you save; build your “buy list”

     

    As soon as you start saving, build your buy list. At $50/week, you will be able to make your first trade only five months down the road! This is enough to make a list of about ten stocks that will meet your fundamental requirements (you can read mine here) and follow these companies through at least one quarter.

     

    I would personally aim for blue chips that show great diversification such as Procter & Gamble (PG) or Johnson & Johnson (JNJ). They are almost as diversified (product wise and geographic wise) as a mutual fund!

     

    #4 Get your first $1,000 to work for you!

     

    Once you reach $1,000, it’s time to buy your first stock. Make sure you keep your $50/week investment plan in your money market fund or index to make sure you build another $1,000 very fast. You can also use your dividend payouts to build your next $1,000. Since the dividend payout will be very small on a $1,000 investment, dripping at this point is not very useful. Keep in mind that in another five months, you’ll have enough money to buy another stock!

     

    Risk management and diversification is extremely difficult when starting a new portfolio with a small amount. Your investment return for the first two years are pretty much luck as it will be hard to compete against the market with so few positions in hand. In order to help new investors choose their first stocks, I built a starter portfolio with four stocks.

     

    #5 In two years; you’ll have a “real portfolio”

     

    With an annual savings of $2,600, you will get reach a total of five different companies in only two years. At this point, you will have something that looks like a real portfolio and going forward will be easier. The point is to keep buying stocks with your next $1,000 available until you have 10-15 stocks in hand. This will happen after another two-three years of savings. Then, you can add to your existing position through dripping or by adding an extra $1,000 to each of your positions.

     

    It’s a long process but as you can see, you don’t need much money on hand to start investing. Only $50/week is enough to build your nest egg! Now, I have to get moving and sell my funds to start trading for my kids’ future!

     

    Disclaimer: I hold shares of JNJ

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  •  

    Have you ever heard of WSP Global (WSP.TO)? Probably not. This “brand new company” (they changed their structure and get a new name in January 2014) is one of the world’s leading professional services firms. They recently entered into an agreement to buy another US firm, Parsons Brinckerhoff for the small bid of 1.2G$.

     

    WSP Global (WSP) Business Description:

     

    WSP Global Inc is a professional services firm, working with governments, businesses, architects and planners and providing integrated solutions across many disciplines. The core of WSP Global comes from Genivar, a Canadian engineer firm that was caught doing “inappropriate conduct” in the financing of political parties in Quebec back in 2012. This was quite a rough period for them and they cut their dividend.

    Why should we care about some shady firm which cut its dividend only two years ago? Because the clean-up has been done and the firm is now back in some serious business.

     

    WSP Stock Graph

     

     WSP profile

    A quick look at this graph and you get a headache right away. This is not the kind of stock I’m used to picking either. But since I’m Canadian and am well aware of the Charbonneau Commission (which discovers shady political parties’ financing methods), I know why the company took a big dip in revenues and earnings in 2012. During the commission, several firms were removed from the Government approved service providers list.

    The dust has now settled and the company is looking forward. As you can see, revenues have never been higher and EPS is back on the uptrend.

    WSP Dividend Growth Graph

     wsp dividend growth

    Then again, the red line going down big time in 2012 is scary. According to my selling rules, I would have dropped this stock in a heartbeat in 2012. But we are now at the end of 2014 and the landscape is completely different.

    I selected WSP for our Canadian Dividend Growth Portfolio toward the end of 2013 for a reason: things were about to change for this company. Now, WSP shows a reasonable payout ratio under 60%, a dividend yield of 4.33% and a great acquisition to offer even more stability to their business model. It’s not luck that the stock is up 37% over the past twelve months.

    Management’s focus is probably not on dividend growth yet. They clearly mentioned in their 2013 financial statements that the focus was on presenting a solid balance sheet, finding the right firm to buy (done with Parsons Brinckerhoff) and to reward their investors with dividends. Still, at 4.33%, I think you can wait for an increase and appreciate the nice stock ride in the meantime. We also have to mention that WSP offers a DRIP plan.

     

    WSP Global Upcoming opportunities and dangers:

    The results in 2013 were strong enough to push WSP to their highest stock price ever. Now, in 2014, the uptrend continues with a strong second quarter announced in August. Net revenues were up 20.2% and EPS up by 37.8%.

    The key for 2015 is how well WSP integrates this huge piece that is Parsons Brinckerhoff. In term of revenues we are talking about doubling for WSP (going from 2G$ to 3.8G$), same thing for its work force (going from 17,000 to 31,000). While this seems like quite an elephant to manage, this will also enable WSP to have more diversified revenue streams across the world:

     wsp revenue per country

    The company was mainly getting its revenue from Canada before the transaction; WSP’s face is completely changing now. It was a great move since they will most likely not cannibalize their own market and simply gain expertise across a wider range.

    Through this acquisition, WSP aims at increasing its earnings by 5% right away and 15% once all synergy is completed. Let’s be conservative and aim for an additional 8% once everything is completed. If the normal business continues to grow, WSP is set for a double digit growth over the upcoming years.

    We keep seeing more and more infrastructure projects across North America and Europe as all Gov’ts have to invest massively in this sector. This is also great news for all engineering firms. WSP definitely represents a great mix of a dividend paying stock combined with double digit growth.

     

    Disclaimer: I don’t hold WSP in my personal portfolio but WSP is part of our Canadian Dividend Stocks Rock Portfolio.

     

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