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Monday, January 9, 2017

Investing - 2016 Results

As much as I've criticized passive index investing in the past, mainly because of the "blind trust dogma" status it has achieved and apparently absent concerns about valuations, I do recognize that there is an inherent upside bias in the markets that can be taken advantage of to improve our future financial picture.

As my savings started to grow, I suddenly found myself feeling a little uncomfortable putting all my capital in the hands of Forex automated trend following systems. That's when I started to get deep into Options (Yep, I was primarily an FX trader back in the day).

At some point around 2013 I also started to get concerned about capital growing in a more sustainable and diversified fashion. I was realizing I wouldn't be totally comfortable with my money invested in just two different vehicles and strategies which could fail on any given year, and so I added Investing to the mix.

Many of you probably remember that there used to be a Portfolio of dividend stocks reflected on the Results page. Once I moved to the US, my broker forced me to close the taxable account due to the Canada-US Tax Treaty. You can only have taxable accounts in either one of the countries but not on both. So, I was forced to closing my investing account at Questrade and as a result I decided to remove the Portfolio page I had here. It only made sense.

Now, one thing the Tax Treaty does not completely affect is retirement accounts. So, my TFSA Account (American Roth IRA equivalent) did not need to be closed. (For the record I never had an RRSP account, which is the equivalent to the Traditional IRA in the Land of the Free).

There is a rather small contribution limit in a TFSA ($5,500/year). Except...once you stop residing in Canada. Due to the Tax Treaty between the countries, your contribution room gets frozen and you can't inject fresh capital into this account anymore. Unless, of course, you go back to permanently living in Canada. Due to these limitations, there is not a lot going on in my TFSA and I rarely mention it on this site since, well, it is boring. But with that said, it deserves at least one article per year. So, here it is.

2016 Starting Balance: $30,763.97
2016 Ending Balance: $38,309.07 

Account growth: +24.53%

By comparison, the Canadian TSX Index was up 17.51% (13,009.95 close on Dec 31, 2015 up to 15,287.59 close on Dec 30, 2016). So, I think I did pretty good :)

Here's my portfolio at the beginning of 2017

I am taking this screenshot on January 7. I forgot to do it on December 31st. For this reason the total value in the account is different from the 2016 closing value of $38,309.07  mentioned earlier.

Total dividends received throughout the year: $1,354.23. So, a tiny river of some 110 bucks every month. But hey, it's free!

Changes in the Portfolio throughout 2016:

 - Initiated position in Royal Bank of Canada (RY.TO) at a $78.6616 average cost.

 - Initiated position in Fortis (FTS.TO) at a $40.4013 average cost.

- (July 8) Sold half my position in TransCanada (TRP.TO). 33 shares at $60.59 that had been purchased in late 2013 at $44.64. That was a +35.7% gain plus all the dividends paid by those 33 shares during that period. This left me with 33 shares left then.

- (September 2)  Added 10 shares to the Enbridge (ENB.TO) position at $52.37

- (October 27) Sold 26 shares of Suncor (SU.TO) at $41.94. These shares had been purchased at $32.59 in December of 2014. So, a 28.7% gain plus all the dividends received in almost two years. This transaction left the largest position in the portfolio reduced to 100 shares.

- (November 4) Sold my Agrium (AGU.TO) position. 15 shares at $120.35. This position existed since October of 2014 when the shares were bought at $95.77. A +25.7% gain, plus two years of quarterly dividends received. I decided to reduce my exposure to fertilizers after the Agrium - Potash merger was announced. I figured, eventually it would be the same thing to own either one. Although, in retrospective, it would have been better to get rid of Potash instead. I guess it is my contrarian mindset of keeping the more damaged good.

- (November 23)  Added 34 shares to the Emera (EMA.TO) position at $45.07

- (Nov 23 & Dec 2) Got rid of the Finning International (FTT.TO) position AT A $26.885 average. My average cost in this position had been $26.95, but I was sick of it. Finning got into the mid 16's in early 2016 and I was tired of holding it two years for just the dividends.  So, after it recovered from the 40%+ draw-down I decided that our relationship was not working.

- (December 2)  Bought 27 shares of TransCanada (TRP.TO) at $58.99, increasing the position to the current 60 shares.

So, this is how my little TFSA account looks. It will continue to be fairly passive throughout 2017. I'm waiting for good opportunities to add to my Canada National Railway position (CNR.TO) and to initiate a position in Rogers (RCI.B.TO), which I used to own in my now defunct taxable account. Other than that, perhaps increase the position in Fortis (FTS.TO).

If something becomes insanely overvalued, especially symbols I am not very attached to, like GWO.TO, FTS.TO, REI.UN.TO, I will gladly lock the gains to accumulate cash for future deployment at more attractive valuations.

It will be interesting to see where this account is in 20 years with zero fresh capital contributions and purely based on reinvested dividends plus capital gains. At a 7% Compounded Annual Growth Rate, the final balance 20 years later is roughly $148,000. At 10% CAGR, the projection is $258,000 (Yeap, 1% per year really means a lot when compounding. 3% is huge). But, only time will tell. I hope we are all alive by then. Especially me.

Investing brought me the best results in 2016 out of the three activities: Options Trading, Forex and Investing. You could argue: "Well, the hell with Options trading and FX! Why not just passively invest?" In which case I would have to remind you that last year, Investing was my worst area due to a negative year in the Canadian markets. Forex and Options came to the rescue in 2015. So, I like to be active in all three areas.

Thanks for reading!

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