Here are my posts for this week: Debating What Income Level is Safe in Retirement The Stock Picker’s Checklist Here are some short takes and some weekend reading: Canadian Couch Potato explains some of the sources of tracking error in international ETFs. Boomer and Echo explain the problems with running a core-and-explore portfolio. Spoiler: most investors can expect lower returns if they add an explore part of their portfolio. The Blunt Bean Counter explains some of the capital gains rules that apply at your death. The main catch is that your can end up owing capital gains taxes even if nothing is sold. Andrew Hallam reviews Larry Swedroe’s latest book, The Incredible Shrinking Alpha . InsureEye has a very interesting list of 16 factors that affect your home insurance costs. The table layout of the factors makes it easy to digest the information. One that caught my eye was whether you run a business out of your home. I know several people who do this but don’...

I was a stock-picker for about 12 years . In the early years my habits were very effective for protecting my ego and maintaining my confidence. However, as time passed I began to slip. Reality invaded my thoughts. I was no longer blind to my real skill level. Eventually, I couldn’t pick stocks any more. I’ve turned my cautionary tale into a checklist for those who want to feel good about their stock picking. 1. Don’t calculate your returns. In my first few years of stock picking, I never calculated my return on any stock investment. I just had the vague warm feeling that I’d made some good picks. This was helped greatly by some extremely good early luck in 1998 and 1999. 2. If you must calculate returns, do it separately for each stock. When I first made the mistake of examining my returns, I looked at each stock separately. I also managed to not calculate the returns for picks that worked out badly. This had the advantage of allowing me to focus on my wins and not th...

How much we can safely spend each month from our savings during retirement can be an emotional subject. People want more income, but they also want to know that they won’t run out of money. The truth on this subject can be very unwelcome. Financial advisors seem to feel this pressure from their clients because advisors often seek ways to argue that higher withdrawal rates are possible. I give a couple of examples here. Most people whose lifestyles are not fully covered by CPP and OAS payments have not saved enough to cover the difference over a long retirement. Either their lifestyles must become less expensive or they will drain their savings too fast. These people don’t want to hear that their withdrawal rates are unsustainable. People seek reasons to believe that they can exceed the well-known 4% rule when the reality is that this rule is overly optimistic because it is based on zero investment fees. In truth, a 3% rule is closer to the mark for a long retirement . Amon...

Here are my posts for this week: Alternative Canadian Indexes The Average Investor Here are some short takes and some weekend reading: Tom Bradley at Steadyhand called for higher interest rates in Canada. However, Rob Carrick reported that the Bank of Canada just lowered interest rates . Then Tom Bradley followed up with comments on the interest rate decrease concluding that the Bank of Canada is more concerned about the short term than the long term. However this all plays out, the cheap debt party can’t last forever. Canadian Couch Potato found that it’s not a good idea to trade a Canadian ETF that holds U.S. stocks on a day when the U.S. stock market is closed. LSM Insurance explains why paying your life insurance premiums yearly instead of monthly can save you a bundle. The Blunt Bean Counter clarifies which self-employed Ontarians will be eligible for the Ontario Retirement Pension Plan (ORPP). Big Cajun Man has more trouble taking money out of a TD RESP. ...

Few of us like to admit we are merely average in some respect. You’ll hear commentators say that anyone who is just an average investor would be better off owning low-cost index funds. Curiously, it is both indexing proponents and detractors who say this. Digging deeper into the meaning of “average investor” gives some insight the value of index investing. We often hear proponents of active stock-picking or market timing say things like “indexing is fine if you’re just average,” or “why would you want only average returns?” On the other side of this debate, Dave Nadig wrote “you have to accept that you, the investor, are not a special flower. You have to accept that you, the investor, are average.” I see little hope of convincing overconfident stock pickers and market timers that they are merely average until we define “average investor.” After all, I’ve met many of my neighbours. I’m willing to bet that I can comb through companies’ financial statements better than most of ...

A reader, J.H., asked the following thoughtful question about non-market-weighted indexes in Canada (edited for length): “I wonder if it’s wise to not buy a Canadian Index ETF because these funds are so over-weighted in financials and energy equity (as high as 65% in November in some indexes). “I note a more equally-weighted fund, ZLB has beaten the index since its inception, and is doing better than the Canadian index during these unsettled times. It's designed to defend against volatility, but its composition of generally equal-weighted stocks also offers more diversity than a Canadian Index ETF. Index funds seem to be better investments when they have greater diversification, like those mirroring the US market . At least that's the hunch of this investor who is still learning the ropes. “If ZLB is not for some, they could try a strategy of setting up their own Canadian portfolio of equally-weighted stocks.” A great virtue of market weighted indexes is that when a st...

Here are my posts for this week: Crashing a 2014 stock-picking contest When would you offer more than the asking price? Here are some short takes and some weekend reading: Robb Engen at Boomer and Echo gives a thoughtful discussion of his 2014 portfolio return and his decision to switch to simple ETF-based index investing. Preet Banerjee explains how your capital gains on investment real estate can be much less than simply the sale price minus the purchase price. Canadian Couch Potato has made some extensive changes to his model portfolios.  I like the changes.  He ’ s sticking to the major asset classes instead of including REITs and other assets.  Simplicity is important.  It ’ s amazing how complicated things can get as you try to manage several types of accounts in a single portfolio.  For the ETF-based portfolios, he ’ s focusing on Vanguard's ETFs.  This makes sense to me because they're a great company. Canadian Portfolio Manager an...

You sit down to begin negotiating with the car guy. But you have an edge. You know that the last customer paid $19,000 for the same car you’re planning to buy. The car guy knows you know this. So, the first thing you say is “the most I’ll pay for this car is $20,000.” What!? Why would you say that? The answer, of course, is that you wouldn’t say that. But in the world of limit orders for stock trading, this is perfectly reasonable behaviour as I’ll explain. A sensible strategy for limit orders was explained clearly by Canadian Couch Potato . However, I’ve run into two people now who say they’ve read this article but say they just use market orders because they don’t want to dicker over small price differences. This comment makes it clear they’ve missed the point. The point is to offer to pay more than the asking price for your shares. Yep, that’s right. Offer more. I assume that this point gets missed because it seems counterintuitive and readers get baffled by a jum...

It’s that time of year again where I compare the return of my real-money portfolio against those of the entries in a stock-picking contest held at Financial Uproar. Because my portfolio is almost completely indexed, I tend to end up somewhere near the middle. The important question is whether I’m above or below the middle. Back in 2012, my return was trounced, but I made a partial comeback in 2013. Now for 2014 ... drum-roll, please ... I beat the average by 4.6%. I would have placed fourth out of 11 participants. If we look at the three-year results among the stock-pickers who participated in 2012, 2013, and 2014, none beat my portfolio. What’s the lesson here? It’s certainly not that I’m a great investor. Anyone capable of ignoring the market’s ups and downs can be an index investor. The real lesson is that it’s hard to beat the index over the long term by picking your own stocks. There appear to be some investors, like Warren Buffett, who can do it, but these investors ...

Here are my posts for this week: Security Analysis My Investment Record to 2014 The Dumbest Argument for Dividend Paying Stocks Here are some short takes and some weekend reading: Canadian Couch Potato explains just how useless and dangerous financial forecasters are. Amusingly, I saw the following ad above the article: “Gold Price Forecast: Where We Are and Where We Are Going.” This happens on my blog as well sometimes. Celebrating Financial Freedom has a message for people with balances on their credit cards: the 7 huge credit card lies we tell ourselves. My Own Advisor lists his personal financial goals for 2015. I found it interesting that he chose not to list RRSP contributions because they are on auto-pilot. This speaks to how painless saving can be when it comes off the top of your pay automatically. Big Cajun Man made me laugh with his interpretation of the Chinese year of the Ram, but the picture of a computer’s RAM seemed to be only in the version of t...

This article’s title is a play on the title of a recent article by Dividend Growth Investor, “The dumbest argument against dividend paying stocks” (see the comment section below for the article's address).  In it the writer uses a straw man argument to misrepresent criticisms of dividend investors who ignore past “solid dividend-paying stocks” that subsequently performed poorly or went bankrupt. I won’t repeat DGI’s points here, but will point out two mistakes that many (but not all) dividend investors make when they ignore the existence of past solid dividend-paying stocks that faltered. 1. Too many dividend investors own far too few stocks. In Canada, many people who consider themselves dividend investors own nothing but a few of the big bank stocks. This worked well in the past, but is risky for the future. The failure of just one of their holdings would be very harmful to their portfolios. One of the problems here is the stories we hear occasionally about an elderly ...

Each year I calculate my portfolio’s overall investment return. This used to be more important when I was actively picking individual stocks because it’s easy to delude yourself into thinking you’re doing well when you aren’t. Now that my portfolio is almost completely indexed, I continue measuring my returns. This forces me to review my less-than-stellar stock-picking record. My 2014 return using the internal rate of return method was 14.12%. This includes index ETFs as well as a block of Berkshire Hathaway stock my wife still holds because we don’t want to realize the capital gain. Berkshire had a very good year. If my wife had held Vanguard’s large-cap value ETF (VTV) instead, our portfolio’s overall return would have been 12.67%. I consider this return to be our benchmark for 2014. Sharp-eyed readers may find both of these return numbers strangely high considering that Canadian, U.S., and international indexes didn’t do this well. I measure my returns in Canadian dolla...

Even among stock pickers, few investors will read Benjamin Graham and David L. Dodd’s book Security Analysis cover to cover. It contains many useful insights into investing but is not an easy read. Originally written in 1934, this classic is now in its sixth edition that adds modern introductions to each section including a Foreword by Warren Buffett. My main goal in reading it is to see if it re-sparks my passion for stock picking. Security Analysis is like a bible for value investors. It contains many lessons backed up with numerous examples of real stocks and bonds to illustrate the points. Even value investors who have never read the book speak of it reverently. However, Benjamin Graham himself said the following in 1976: “I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook ‘Graham and Dodd’ was first published; but the situation has cha...