household savings rate

I thought it would be interesting to figure out what our household savings rate was. I know, not the most exciting stat in the world, but I get amused by these things, because I'm a bit of a numbers guy, so bear with me.

Basically, I wanted to know how much money we were keeping (investing in equities, mutual funds within registered and non registered accounts) when compared with the total employment income that was coming in.

Here are the results I came up with for the last year from today:

Out of $1.00 earned in gross income we were able to save $0.25 or 25%.
Out of $1.00 earned in net income we were able to save $0.34 or 34%

This was eye opening to me as this value ($0.34), is much greater than our next greatest expenditure, which is mortgage and property tax ($0.19 out of $1.00). Groceries came in at $0.07 on the dollar and electricity/water at $0.013 cents.

Of course, out of the remaining $0.66 it is not all getting burned, (or not saved or invested), as some is paying off our mortgage, and improving our home which should be viewed as investments, and are related to savings as they are positive for our net worth.

top 5 stock picks

I want to introduce a new post-series called 'top 5 stock picks', where I select 5 stocks that I currently believe to be undervalued, and then check on the progress of these stocks over longer time frames. Basically, I believe it will be a fun way to test my models and analysis of stocks.

Remember, I am not a financial advisor.

Here are my top 5 stock picks as of May 24, 2007:

1. Manulife Financial (MFC) = $39.72

2. Lowes Companies (LOW) = $32.06

3. FedEx Corporation (FDX) = $105.92

4. Walgreen Company (WAG) = $44.59

5. Johnson & Johnson (JNJ) = $63.52

I may elaborate on why I like these stocks right now, and why I believe they are cheap going forward, in future posts in the series.

google finance

One of the websites that I would recommend for anyone who enjoys following stocks is Google's finance site at http://finance.google.com/finance, which is still in the 'beta' stage, so new upgrades are apparent every few weeks. I have been along for the ride probably for about a year or more, so I have seen many changes, most of which have been pretty neat. I guess I still think of the site as a bit of a hidden gem because it gets overshadowed by yahoo, msn, and globeinvestor.

Some of the features I like most about Google Finance are:

• Stock charts in Flash are quick, interactive, and great for looking at comparisons between companies and time frames. They also mark dividend payments right on the chart which I really like for quickly looking at dividend growth or dividend history without much digging. Volume seems to be very obvious when compared with other sources as well.
• Relevant news stories are sorted chronologically for your stocks, as well as general stories; also company events, and a link to investor relations are right there on the company page which has very much a 'one stop shop' approach to everything.
• A 'Historical Prices' link can quickly show you volume and prices on any trading day.
• The field where you type your symbol or company name and it automatically fills in is extremely quick and handy.

Recent additions include video, the ability to create a portfolio, top movers, market cap, popularity, and many more.

Some areas that Google needs to work on, (and I'm sure they are) are more on the financial and fundamental end. The site is certainly not my first choice for analyzing a company's key ratios, or financials.

Just like several other products from Google, 'Finance' is quick, very user friendly, and intuitive. I look forward to seeing more upgrades and changes as time goes on. I am expecting big things, as some of Google's other sites like 'Maps' and 'Earth' are nothing short of amazing. I would encourage anyone who has not checked this site out to go on and run a few charts and compare a few companies. You never know, you might get hooked like me.

Inter Pipeline Fund purchase

I made by first foray into income trusts yesterday by buying some Inter Pipeline Fund(IPL.UN).

The purchase is out of the norm for me, as I usually am a buyer of dividend growing stocks.

The Reason
Our family employment income will be decreasing substantially from Jan., 2008 - Jan., 2009. I'm sure it's quite obvious why this will occur.

The Strategy
Develop a section of my portfolio that will be used for capital stability, capital availability, and high income. The section should be complete by late 2007. Due to the reason for investment, the trusts will not be entered into DRIPS or invested for growth. Stable income is to be the goal. Ideally the money will not be required for removal; the income stream will be valuable throughout the period and beyond.

I decided to start with IPL.UN for several reasons which are not limited to:

- stable industry and business model
- higher yield (8.6%)
- good earnings record
- pay out ratio practices and trends
- lower debt levels
- market share improvement and outlook

net worth update may, 2007

NET WORTH - One Year Results (Year Over Year):

Net worth change = +109%
Total asset change = +21%
Total Liability change = -5%

House Value / Total Assets - 2006 May = 83%.....2007 May = 77%

Debt/Asset* Ratio - 2006 May = 0.77........... 2007 May = 0.60

*Reader kindly pointed out it is actually asset not equity.

I am very pleased with our results this year, and I look forward to continuing on the path we are on. We are growing our assets at a phenomenal rate, and slowly shedding liabilities along the way. The less of our total assets that the house accounts for the better, and we have reduced this from 83% to 77%, which is great given the appreciation of our home during the year.

my weird money saving attributes

In order to save a good proportion of your income, I believe you must possess some traits that others may consider 'weird', 'different', or even 'cheap'. Following the crowd will never leave you wealthy. Here is a list of some of our quirks that certainly help us (my wife and I) save a significant portion of our take home income (I'll elaborate on how large that portion is on a later post) :

• We don't own cell phones
• We eat food that can be found in our refrigerator for lunch
• We shop for groceries at discount stores (ie Price Chopper, Costco, Wal-Mart)
• I only buy beer, and wine when I feel like it
• We only have one bank account
• We will only use an ATM at our own bank
• I drive a fuel efficient car, and my wife drives a more fuel efficient car
• We only get gas from a certain brand of station (PCA) where I save $0.02 / L off the top
• My favourite shopping experience occurs at Costco
• I try to view most purchases as investments
• I always barter for large purchases
• I genuinely get a kick out of saving, and investing
• I married someone who is probably more frugal than I am
• We bought a house for significantly less money than we were pre-approved for
• We keep our house at 64 - 68 degrees Fahrenheit in the winter
• Shopping is not usually our first choice for a recreational activity
• We set financial goals and track our monthly performance
• We discuss our finances frequently make plans going forward

scary stock beliefs

Recently I met someone at a conference that was actively investing in stocks and believed the following to be true (which literally frightened me so much I couldn't stop thinking about it):

1. A stock splitting, basically means that you need to buy in quick because it is going up, and fast.

2. The price of a stock is indicative of it's worth. (for example: JNJ is $64 so why the heck would I buy that over PFE which is $27, JNJ is far too expensive)

3. Since a stock has gone up significantly in the recent past, then that, and that alone indicates that the stock will rise much further, and thus it is a great time to buy now.

net worth introduction

Similarly to many other bloggers and financial nerds out there, I track and plot my net worth on a regular basis. By 'net worth' I am referring to all of our assets minus all of our liabilities.

Items I do include:
All registered and non registered investments
All real estate, including principle residence
Automobiles
Loans including mortgage's
Cash on hand

Items I don't include:
Insurance
Assets with a value of less than $5,000

I update the values every second month on the 15th of the month. I have only been doing so since May of 2006.

I'll introduce these posts by recording the following item:

May, 2006 - Debt/Equity ratio (all debts divided by all assets) = 0.77

This is probably the number one value that I strive to move on a regular basis. The lower it goes the better, and the quicker I can move it down the better.

I will be back to this topic on or after May 15, 2007 to update my Debt/Equity for the annual period 2006-2007, and provide growth rates for all my assets and liabilities

Sun Life Financial purchase

I have taken an opening position in Sun Life Financial (SLF) today. Usually the way I get into a stock is to take a half position when I see good value, and then either finish my position lower, thus lowering my ACB, or else holding off until a later date if the stock moves higher.

Briefly - what I like about Sun Life:

• Exposed to two great industries to be in, if your goal is making money, insurance and wealth management (they have a stake in CI mutual funds among other names in Canada and the U.S.)
• Exposed internationally, including Asia
• Very good demographic play
• Earnings growth has been impressive and consistent (boring is good!)
• Debt to equity of 0.32 and a dividend payout ratio of 31%
• Dividend yield of 2.5%, and they have been raising dividends twice per year at a rate of over 13% per annum
• Once again boring is good!

Risks

• Last quarter experienced negative earnings growth in their U.S. insurance business
• Looking to sell off their MFS mutual fund unit in the U.S., without much success, they may end up not getting enough money for it, however they held their ground so far
• Their growth in their domestic businesses may be slowing.
• ROE needs improvement to increase multiple and trade with MFC and GWO

The Current Value?

• They reported earnings that were impressive, in my opinion, at 14% growth, and were hammered down ~5% by investors
• I have SLF as a 'buy' assuming a 9% eps growth rate, which is conservative
• PEG ratio is 1.06
• P/E is 13.6, for projected growth of 11% per annum

SLF now becomes a 6% weight of my portfolio.

Telus, which I recently added to is now a 12% weight

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On another note their competitor and a stock that I also own, Manulife Financial increased their dividend today from $0.80 to $0.88 cents per share (an increase of 10%) - a slightly smaller raise than in the recent past, but they are raising twice per year lately.

watchlist explained

I thought I would give readers a little background on my watchlist, since I may refer to it from time to time...

It's pretty simple really, and I'm sure many of you keep watchlists. Mine is currently around 40 companies, that I wouldn't mind owning at a reasonable or rock bottom price. (I will explain in a later post how I select stocks that qualify for the list, and how I determine what is cheap.) These stocks, and only these stocks, are equities that I would be comfortable buying if the price and other factors are right. By 'other factors' I am referring to what I might want to own at the time given time due to: my outlook for the future, and my current diversification mix, among other things that include 'gut feeling'.

The list you see on the right panel of the blog called 'cheap stocks as per my watchlist', is a regularly updated list of stocks on my watchlist that I currently consider to be 'cheap'. Stocks may fall in and out of the list depending on earnings, trading price, and small revisions to my models. As I note at the bottom of this blog, I am not a financial advisor, nor a fortune teller.

my current watchlist:

JNJ, GE, MMM, SC, LNF, RET.A, THI, ADP, TOC, CL, PG, PEP, WAG, SBUX, MCD, SMG, LOW, HD, MFC, SLF, GWO, IGM, TROW, RY, TD, BNS, BMO, BAC, C, WFC, CNR, CP, T, FDX, FTS, TRP, and TIH.

stocks awaiting analysis: CLX, AXP

currency risk vs. 'canada risk'

With the great appreciation of the Canadian dollar recently, I'm sure many of us that hold U.S. stocks in a Canadian account have been experiencing some devaluation of our securities. What appears to be a rising stock on paper may look like a red ink blotch on your record keeping. This phenomenon has been occurring within my portfolio in a big way lately. I'm not going to get too concerned with this though.

The reason I'm not concerned is that if I'm going to hold U.S. stocks in a Canadian account, I have no choice in the matter. Avoiding these problems with currency changes is akin to avoiding rainy days, in lieu of sunny ones; it just can't be done. If one is going to live (invest) in this market, one has to know that this part of the game. Just like the weather, it can't be controlled or predicted accurately.

With a long term horizon I believe one can look at this with a 'glass half' full view. Currencies will fluctuate both ways, many times, the longer the investment time horizon. What seems like running on a treadmill now, might feel like jumping onto the moving conveyor with all your bags in toe at the airport, a year from now, when the currency is moving the other way.

When making investment decisions I have often heard people express concern about 'currency risk'. These people then go on to say that they stay away from U.S. equities because of this risk.

For me 'Canada risk' is a far greater risk than currency risk will ever be.

'Canada risk' is concentrating your portfolio too much in this great country of ours. While we live in an amazing country, the sum of the corporations which play here do to even come close to running the gamut of diversification. Trying to find companies in Canada that can expose you in the same way that companies like Johnson and Johnson, UPS, Colgate Palmolive, ADP, and Microsoft can, is a daunting task. What ends up happening is that you run out of investment options, or settle for mediocre value, or worse yet, mediocre performers in specific markets. Canada is such a small economy and so concentrated in financials and resource plays, that being 100% Canadian equities is not something I believe is wise, for proper diversification.

There are great things about Canadian investments, which include the dividend tax credit and not having to pay withholding tax on dividends. There is also a certain familiarity, knowledge, and even 'feeling' that you can garner about companies that operate within this country, that seems to help. Staying properly diversified, while taking advantage of these benefits while you can is key, in my opinion.