# Buy, Hold and Sleep Well



## Belguy (May 24, 2010)

Here is another sample 'Couch Potato' portfolio for those who want to get a good night's sleep:

http://www.theglobeandmail.com/glob.../investments-you-can-sleep-on/article1769576/

Also, from Bill Carrigan in the Toronto Star:

McDonalds' stock has experienced a non-stop linear advance from under $15 to $78 in seven years. It is the top five-year performer on the Dow gaining 145% while the Dow itself gained 5% over the same period.

The other top performers have been IBM, HP, Walt Disney, Caterpillar, Coca-Cola and Chevron Corp.

What these have in common is that they are all multi-national companies while the bottom ten components, including Bank of America (down 140%), JP Morgan Chase, and Verizon Communications had businesses which focussed domestically.

At home, the S&P/TSX Materials Index is up 124% over five years.

According to Mr. Carrigan, "if we pause and listen to what the markets are telling us, we may see themes like global consumerism and commodities in our future".

"Buy, hold, and enjoy!"

THE top performing Canadian Equity fund over three years, as of September 30, is the Claymore CAN Fundamental Index ETF with a spectacular return of 0.5%!!! At least you weren't paying some manager a 2.50% MER to lose you money over that term as ALL managed funds in that category did!! In fact as MOST managed funds in MOST broad-based categories did!!


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## furgy (Apr 20, 2009)

It's all in the way you look at stocks , take your Mcdonalds for example , 145% or so in five years to date.

BUT , there was a period there where it was $61.16 on dec 14/07 and two years later on dec 14/2009 , it was $61.66 , for a grand total of 1% growth in two years.

I wonder how many wondered at that time if it was ever going higher or not and pulled out , there was a lot of volatility during that period as well , major pullbacks of 20% , 30% and more , that must have caused some sleepless nites for those two years.

I'm sure there are just as many who played the dips and made as much or more.

Is that really considered a non-stop linear advance , the majority of those five year gains were made in 2007 and 2010 , with two years of incredible volatility in the middle , I know I would have lost some sleep over those two years.


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## Belguy (May 24, 2010)

Even my broad-based ETF's have suffered from incredible volatility over the past few years. 

Most of those who escaped the volatility held a portfolio of cash or GIC's but they weren't getting rich going that route (but maybe sleeping a little more soundly).

If you want to avoid volatility, stay away from stocks.

Just wait until the next 'Black Swan' event to experience what I mean.

And, there will be future 'Black Swan' events--you can bet on it.

When you're on the stock market rollercoaster, hang on to handles because every climb is followed by a death defying drop of one degree or another.

Recently, we have been on a climb but can you see over the top yet?

I have been in this game for enough years now to know what volatility means.


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## janbjarne (Jun 7, 2009)

I'm always amazed that the stocks recommended for the 'sleep well' couch potato investor invariably are the ones that have done well lately. Yes, MCD has been great over the last 5 years, but 5 years ago it was not on the list of 'sleep well' stocks. It had done poorly for years and there was great doubt about the company's prospects. The list at that time would have included Manulife, Citigroup, AIG. 

Hindsight is great. 

Volatility is always present. Good companies turn bad, bad companies turn around. Life goes on.


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## fatcat (Nov 11, 2009)

> (but maybe sleeping a little more soundly).


 sleeping soundly should be the number one goal of any portfolio


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## furgy (Apr 20, 2009)

fatcat said:


> sleeping soundly should be the number one goal of any portfolio


I disagree , in my opinion , making money should be the number one goal of any portfolio.


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## osc (Oct 17, 2009)

If what the market tells us in the previous 10 years would be an indication for what will do in the next 10, then everyone would be rich. Think about tech stocks in 1999.


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## Jungle (Feb 17, 2010)

When the market crashes again I am making big leveraged bets with index etfs.


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## Belguy (May 24, 2010)

While we are on the subject of investing, my current Canadian Equity portfolio allocation is equally divided between the iShares CDN Smallcap ETF and the iShares CDN Value ETF.

While I am a long time investor in firstly mutual funds and more recently ETF's, I am thinking about taking a chunk of change out of each of the above ETF's and investing it in Norm Rothery's StingyInvestor 7 'Retirement All-Stars' as featured in the November issue of MoneySense.

I would keep some funds in the two ETF's and divide the remaining money between the 7 stocks which are:

BCE (BCE)
Husky Energy (HSE)
Industrial Alliance Insurance (IAG)
Intact Financial (IFC)
Power Corporation of Canada (POW)
Telus (T.A)
Toronto-Dominion Bank (TD)

The remainder of the equity portion of my overall portfolio is invested mainly in International ETF's.

This would be my first time purchasing individual stocks and it is probably about time.

Any critiques about this plan?

http://www.moneysense.ca/2010/05/19/dividends-the-stocks-that-pay-you-back/

http://www.ndir.com/


Dividends, dividends, dividends!!! Happy, happy, happy!!!


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## Riff Raff (Sep 5, 2010)

Jungle said:


> When the market crashes again I am making big leveraged bets with index etfs.


same, but i'll also snag blue chip dividend stocks as well.


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## jason26 (Apr 6, 2009)

I'm looking at dividend stocks that are in the MoneySense article as well. But I'm also considering how popular dividend stocks have become, especially in the media over the past while which suggests that dividend players may be a little over priced as more investors flock to those.

I did however add TA (for the yield) and ECA (lower yield, but am going for some shorter term capital gain here as well) as they seem to be a little low. While I'd really like some TD it seems a little high, and my current, but rather small BMO holding is yielding 6%+ of book value which has me chasing holdings that yield at least 4%.


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## Rox (Oct 17, 2010)

Hmm, I hear a lot of people are into BMO assets, perhaps this should be my one buy in the CDN market,........


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## warp (Sep 4, 2010)

Jungle said:


> When the market crashes again I am making big leveraged bets with index etfs.



I"ve been patiently "waiting" for a market correction for the last 4 months!
Sitting on the sidelines waiting has cost me !!
I now hold too much cash!...which is usually not a problem except that these days you earn very little on cash.

Just shows how tough "market timing" is...and I'm certainle no better at it than anyone else.

What worries me now..is that of course, the minute I stop waiting and buy into the market.....the correction will inevitably follow!

I'm laughing to myself at how the capital markets can play with your head.
Unfortunately we are playing with real money.


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## CanadianCapitalist (Mar 31, 2009)

janbjarne said:


> I'm always amazed that the stocks recommended for the 'sleep well' couch potato investor invariably are the ones that have done well lately. Yes, MCD has been great over the last 5 years, but 5 years ago it was not on the list of 'sleep well' stocks. It had done poorly for years and there was great doubt about the company's prospects. The list at that time would have included Manulife, Citigroup, AIG.
> 
> Hindsight is great.
> 
> Volatility is always present. Good companies turn bad, bad companies turn around. Life goes on.


IIRC, MCD was considered a dog of a stock in early 2003. I don't remember the details now but the chain was supposed to have lost its mojo back then. Again, I'm going my memory here but I think they refreshed their menu, launched the "I'm loving it" campaign and the stock went from $15 to $75. It may still be a good stock for all I know, but I don't remember many investors saying MCD was a great buy back then. Hindsight, as always, is 20/20.


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## furgy (Apr 20, 2009)

warp said:


> I"ve been patiently "waiting" for a market correction for the last 4 months!
> Sitting on the sidelines waiting has cost me !!
> I now hold too much cash!...which is usually not a problem except that these days you earn very little on cash.
> 
> ...


That's something one hears a lot these days , I rebalanced just after the big crash in early 2009 , stayed 100% in stocks and took a more active approach trying to make use of the market volatility (more trading) , I'm now up more than 70% , a good return IMO.

Trading fees during that time have not been enough to even worry about , maybe 1 - 2 %.

I don't think there is a major market correction coming for a few years , just lot's af small ones 10-15% , and I intend to take advantage of all of them.


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## davext (Apr 11, 2010)

warp said:


> I"ve been patiently "waiting" for a market correction for the last 4 months!
> Sitting on the sidelines waiting has cost me !!
> I now hold too much cash!...which is usually not a problem except that these days you earn very little on cash.
> 
> ...


To avoid having too much in cash, I just get in slowly when the market is hot instead of ALL-IN right away and go in faster after corrections.


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## fatcat (Nov 11, 2009)

> I"ve been patiently "waiting" for a market correction for the last 4 months!
> Sitting on the sidelines waiting has cost me !!
> I now hold too much cash!...which is usually not a problem except that these days you earn very little on cash.


 warp, me too, but with inflation so low, we need to be careful that we lose perspective, i have been in cash for way to long because i am hypersensitive to the downside

there is nothing wrong with being in cash, it is after all, an asset allocation, correct ?

many of the big boys are in cash also, there is a very strong argument that this thing is far from over ...

read zerohedge.com if you want a sobering, different point of view


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## Jungle (Feb 17, 2010)

Belguy I wanted to comment on your interest to invest in individual stocks and I wanted to give you my opinion. I read a lot of your posts and you are very pro index fund. I don't think you can go wrong with that. It's a really good approach as it's low cost and nearly matches or match(ed) the index. 

I noticed that you got the stock list from another source and it appears to be dividend focused. 

I think the main advantage is purchasing those stocks at a good price point. Right now, I don't think that price point is there. We had is back in July-Aug. I also own one of those stocks that I purchased back in July and it's been a dog to be honest, but I get a nice dividend payment so that makes up for it. Again it's all about price point. 

With index funds you don't need to really look at balance sheets, just dollar cost average it's a no brainer and you can be certain your gains will be the index.


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## Rox (Oct 17, 2010)

I too am very much against losing out on opportunity cost, and holding on to too much cash, 'cos cash can't earn you much. As much as possible, we should always be in the market.

And especially if we are in it for the long term, then it really doesn't matter at what price point we got in at,.... what then that makes the difference is if there is a good dividend payout. The dividend will give us some 'free money' every now and then, the more regular, the better it is,....


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## Square Root (Jan 30, 2010)

ROX- I am of the opinion that of the big banks BMO would have one of the lower growth prospects. Agree that current yield is higher than the others but this has been the case for much of the last 30 years. BMO has not been one of the better in terms of total returns over this period. In MHO I would go with TD/RY/BNS rather than BMO or CM.


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## Rox (Oct 17, 2010)

Square Root said:


> ROX- I am of the opinion that of the big banks BMO would have one of the lower growth prospects. Agree that current yield is higher than the others but this has been the case for much of the last 30 years. BMO has not been one of the better in terms of total returns over this period. In MHO I would go with TD/RY/BNS rather than BMO or CM.


Thank you, Sqr,... well, I guessed you might have a point there if you are into total returns, ie dividend plus growth over the last 30 years,.. however, if it's a person like me, who is into cashflow, I would think a safe counter that does not drop in value but pays out great monthly "income" is better.

Your ranking is as in the above, huh ?? ...ie first TD, then RY followed by BNS,.. 

Does TD have an Income Fund too ?


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## m3s (Apr 3, 2010)

CanadianCapitalist said:


> they refreshed their menu, launched the "I'm loving it" campaign and the stock went from $15 to $75.


Haha! IMO MCD will always survive as long as people keep having kids and they keep selling happy meals and building playgrounds. The newer ones look a lot higher scale with WiFi and classier service etc. One thing about MCD is they adapt to the culture. In Germany you get a beer with your happy meal!


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## HaroldCrump (Jun 10, 2009)

Rox said:


> Does TD have an Income Fund too ?


Yes - http://www.tdcanadatrust.com/mutualfunds/perforFrame.jsp


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## osc (Oct 17, 2009)

I think MCD is a riskier investment, especially for buy and hold strategies. Selling junk food may become less profitable in the medium to long term. Potential risks include proper taxation, changes in people's lifestyles (less work and more free time), and maybe prohibition for addictive unhealthy foods (similar to the prohibition for addictive unhealthy drugs).


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## warp (Sep 4, 2010)

fatcat said:


> warp, me too, but with inflation so low, we need to be careful that we lose perspective, i have been in cash for way to long because i am hypersensitive to the downside
> 
> there is nothing wrong with being in cash, it is after all, an asset allocation, correct ?
> 
> ...


FATCAT:

Cash is ,indeed, an asset allocation.

During late 2008, and into 2009, I did buy into equities....many of them in Canada and near the lows.
I am not afraid to buy when the markets tank.....in fact , thats usually the best time to buy..if you can stomach the volitility.

Im not sure what to make of :furgy" who always seems to buy at lows, be 100% in stocks, and make huge returns.

Like you..I try to limit my downside.

One of the reasons I now have way too much cash is because almost every 2 weeks , it seems, some of my bond holdings, ( bought several years ago, at great yields), are being redeemed early by the compny tht issued them.

I can, understand whay they are doing this....as they can borrow cheaper now,....and if I was ashareholder, instaed of a bonholder in these companies, I would be happy.

Just this week a pile of bonds were redeemed in several of my accounts!...So i'm stuck with holding all this cash,,,and am wondering if the markets may not come back a bit...

Either way....cash has to be put to work, as per ones asset allocation plan...and tahst the problem,,,my cash is now a much higher percentage of my assets thn I'd like

problems, problems!

I may just buy some ETF's...


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## MoneyMaker (Jun 1, 2009)

warp said:


> FATCAT:
> 
> Cash is ,indeed, an asset allocation.
> 
> ...



There are around 5000 stocks in the universe, i'm pretty sure you can find a few that are undervalued compared to their intrinsic value otherwise there's no harm in sitting on cash and waiting for the fat pitch

To quote Pascal and Mohnish Pabrai.. "All man's miseries derive from not being able to sit quietly in a room alone."


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## Belguy (May 24, 2010)

I stay fully invested in my portfolio of mainly broad-based ETF's.

To each his own but I am not a market timer.

However, if you are into market timing, you might be interested in this:

http://www.theglobeandmail.com/glob...ree-key-signs-of-a-market-top/article1775166/


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## Rox (Oct 17, 2010)

warp said:


> FATCAT:
> 
> Cash is ,indeed, an asset allocation.
> 
> ...


Yes, the problem faced by warp is very real, especially when one (say, a retiree) depends on bond coupons for his income, where such bonds with great yields were purchased during high-interest times were giving great income to the bond-holder, then later, when interest rates fall, all the issuers redeemed their bonds and leave us in the lurch with our returned money.

If we are not able to find a viable instrument to go into, then we have to spend on that nestegg, and well, that nestegg is not going to get replenished on its own,....

Yes, there are so many counters out there,... sure certainly some would be good-to-buy,... then why do we not just go into the stock market at the very onset and not get trapped by buying these redeemable bonds ?

Just a thought here,....


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## HaroldCrump (Jun 10, 2009)

Rox said:


> Yes, the problem faced by warp is very real, especially when one (say, a retiree) depends on bond coupons for his income, where such bonds with great yields were purchased during high-interest times were giving great income to the bond-holder, then later, when interest rates fall, all the issuers redeemed their bonds and leave us in the lurch with our returned money.


That is a risk you take when you buy a redeemable bond.
You knew the terms and conditions before you bought...you signed up for this.


> then why do we not just go into the stock market at the very onset and not get trapped by buying these redeemable bonds ?


Nobody "trapped" you into buying those bonds.
You reviewed the information, read the prospectus, and then bought - right?
There are risks with bonds, just like there are risks with stocks.
Interest rate risk, inflation risk, credit risk and of course redemption risk (related to interest rate changes).
Which is why laddering bonds works best.


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## kcowan (Jul 1, 2010)

MoneyMaker said:


> To quote Pascal and Mohnish Pabrai.. "All man's miseries derive from not being able to sit quietly in a room alone."


Yea a bond with a low yield looks bad when the rates rise. That is a sure thing. The only question is when. Doing nothing seems pretty good right now.


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## kcowan (Jul 1, 2010)

HaroldCrump said:


> Which is why laddering bonds works best.


I find that my 5 year rolling ladder does not seem long enough anymore. We are well into redemptions and the renewals are low yield. I am trying to buy convertible debentures at IPO but they are all snapped up 2 hours after coming out!


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## fatcat (Nov 11, 2009)

if we are really entering a period where lower returns are going to be the norm

then we are likely to see some very large asset bubbles created as people chase foolish investments

i would say that the best response is to stay the course and learn to live with less ...

if you *have* to get out of cash, it seems to me that you are inevitably going to make bad investments

just my 2 cents (worth a penny)


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## Belguy (May 24, 2010)

Again, I consider myself a simple man and thus have never purchased individual bonds through my discount brokerage account.

The biggest part of my fixed income holding is with the PH&N Bond Fund D:

https://www.phn.com/Default.aspx?tabid=526

I am curious as to how you individual bond investors, and laddered bond holders, have done historically against the returns of the PH&N fund--long term?

Has the extra effort of managing a laddered bond portfolio been worth it or has my simple approach more or less kept pace?


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## fatcat (Nov 11, 2009)

> Again, I consider myself a simple man and thus have never purchased individual bonds through my discount brokerage account.
> 
> The biggest part of my fixed income holding is with the PH&N Bond Fund D:
> 
> ...


i would love to hear that answer also

i don't think the extra effort is worth the return, especially since you don't have access to the same products that the bond fund managers do

after the fed announces, i am plannning to open a phn account as well and buy 2 or maybe 3 of their bond funds


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## HaroldCrump (Jun 10, 2009)

fatcat said:


> if we are really entering a period where lower returns are going to be the norm
> 
> then we are likely to see some very large asset bubbles created as people chase foolish investments


IMHO, we are entering a period of low fixed income returns, moderately high inflation and rising interest rates.
Fixed income products like bonds will be playing catch up with inflation and interest rates.
Returns from buy-and-hold of fixed income products as well as equity will be modest and will not keep pace with inflation.
Individual investors will have to boost their returns through active trading and producing income from a portfolio.
That's my free crystal ball for the day.
If you want more, I charge a free


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## fatcat (Nov 11, 2009)

> IMHO, we are entering a period of low fixed income returns, moderately high inflation and rising interest rates.
> Fixed income products like bonds will be playing catch up with inflation and interest rates.
> Returns from buy-and-hold of fixed income products as well as equity will be modest and will not keep pace with inflation.
> Individual investors will have to boost their returns through active trading and producing income from a portfolio.
> ...


 all right harold, i have just paid your "free" ... let's hear it !

in the meantime, i agree with your analysis ...

i just wonder how many dumb, exotic investments will be sold to people chasing returns ?


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## martinv (Apr 30, 2009)

HaroldCrump said:


> Individual investors will have to boost their returns through active trading and producing income from a portfolio.


Just a quick question; what is your definition of active trading?


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## furgy (Apr 20, 2009)

martinv said:


> Just a quick question; what is your definition of active trading?


Not day/swing trading!!!!
Make a cross and wear a garlic necklace!!!

We all know that frequent trading just loses more money.


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## Rox (Oct 17, 2010)

HaroldCrump said:


> IMHO, we are entering a period of low fixed income returns, moderately high inflation and rising interest rates.
> Fixed income products like bonds will be playing catch up with inflation and interest rates.
> Returns from buy-and-hold of fixed income products as well as equity will be modest and will not keep pace with inflation.
> Individual investors will have to boost their returns through active trading and producing income from a portfolio.
> ...


Harold, just paid your "free" too, ...

I know it's not really related to this forum, but if we are talking about rising inflation and rising interest rates soon, and we have to do active trading instead of just "sitting down" and reaping the passive money, I'd say if our portfolio is diversified enough, it is now time to focus on the collecting rentals part of our portfolio,... 

That should go up together with inflation, and put us on the advantageous-end of this environment.


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## warp (Sep 4, 2010)

MoneyMaker said:


> There are around 5000 stocks in the universe, i'm pretty sure you can find a few that are undervalued compared to their intrinsic value otherwise there's no harm in sitting on cash and waiting for the fat pitch
> 
> To quote Pascal and Mohnish Pabrai.. "All man's miseries derive from not being able to sit quietly in a room alone."



MONEY MAKER:

care to mention any of those undervalued stocks that are trading below their intrinsic values?

I am finding that difficult...especially in the Canadian market.
I am finding some interesting stocks in the US......but in CANADA, where I want to buy.....the pickings seem slim at the moment..

Any ideas?

thanks for the thoughts.


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## scomac (Aug 22, 2009)

Belguy said:


> I am curious as to how you individual bond investors, and laddered bond holders, have done historically against the returns of the PH&N fund--long term?
> 
> Has the extra effort of managing a laddered bond portfolio been worth it or has my simple approach more or less kept pace?


I have 6 years or so of performance tracking with a stand alone bond portfolio. The CAGR has been 5.74%/annum. This return has been generated by a laddered investment grade bond portfolio that was built from existing inventory at my discount brokerage. Purchases were made in $15K-$25K face value lots with staggered maturities extending out to 2023.

My returns compare favourably with PH&N Bond and XBB beating both net of fees while maintaining comparable durations.


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## Rox (Oct 17, 2010)

scomac said:


> I have 6 years or so of performance tracking with a stand alone bond portfolio. The CA GR has been 5.74%/annum. This return has been generated by a laddered investment grade bond portfolio that was built from existing inventory at my discount brokerage. Purchases were made in $15K-$25K face value lots with staggered maturities extending out to 2023.
> 
> My returns compare favourably with PH&N Bond and XBB beating both net of fees while maintaining comparable durations.


After having put in quite some thought process here, I feel dabbling in stocks is still the way to go, that is going after the dividend-payers. But time and effort must be put in to research carefully, and lots of due diligence may need to go in prior to buying the counters.

Then that's a fact of life after all, right ? What is there to complain ? We do the work ourselves, so we don't pay management fees. If we let others do the DD, then there are such things as MER and management fees involved.

Think I'll focus on stocks only, perhaps get my friends in on the same idea as well. TSX is the way to go,....


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## kcowan (Jul 1, 2010)

scomac said:


> ...My returns compare favourably with PH&N Bond and XBB beating both net of fees while maintaining comparable durations.


I know that this is somewhat of a hobby but would you care to guesstimate how much time it takes to achieve these results?

How often do you have to make a purchase decision when bonds mature? Is it monthly or less often? Do you get early redemptions?


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## scomac (Aug 22, 2009)

kcowan said:


> I know that this is somewhat of a hobby but would you care to guesstimate how much time it takes to achieve these results?


Not a lot. There is very little on-going management of a laddered bond portfolio. You can pretty much buy a domestic gov't bond blind due to the implied guarantee that comes with these securities. For corporate bonds, I don't consider any that are outside of the universe of stocks that I follow. As a result, I have a pretty good idea about the underlying businesses and credit quality.



> How often do you have to make a purchase decision when bonds mature? Is it monthly or less often? Do you get early redemptions?


I make purchases once or twice a year at the most depending on what I have that is maturing. 

I generally stick to stripped bonds if I can find something suitable. This eliminates early calls and also removes reinvestment risk. Patience is a virtue when shopping for corporate bonds on the secondary market. You really must be prepared to wait if there isn't anything currently available that meets your criteria. I find that making a call to my brokerage's bond desk can speed things along especially if they have some odd lots that they are trying to clear out.


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## HaroldCrump (Jun 10, 2009)

kcowan said:


> I find that my 5 year rolling ladder does not seem long enough anymore. We are well into redemptions and the renewals are low yield. I am trying to buy convertible debentures at IPO but they are all snapped up 2 hours after coming out!


If I recall correctly, Hank recommends a 10 year ladder.
His ideal portfolio is a 10 year ladder of zero coupon bonds.


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## Rox (Oct 17, 2010)

scomac said:


> Not a lot. There is very little on-going management of a laddered bond portfolio. You can pretty much buy a domestic gov't bond blind due to the implied guarantee that comes with these securities. For corporate bonds, I don't consider any that are outside of the universe of stocks that I follow. As a result, I have a pretty good idea about the underlying businesses and credit quality.
> 
> I make purchases once or twice a year at the most depending on what I have that is maturing.
> 
> I generally stick to stripped bonds if I can find something suitable. This eliminates early calls and also removes reinvestment risk. *Patience is a virtue when shopping for corporate bonds on the secondary market. You really must be prepared to wait if there isn't anything currently available that meets your criteria.* I find that making a call to my brokerage's bond desk can speed things along especially if they have some odd lots that they are trying to clear out.


The problem with waiting is it hits the cashflow, unless of course, you have other instruments in-place which are still holding-up your cashflow, but that's like bonds are not worthy of your time anymore - to me, that's a different story.

We really have to find a worthy product after the redemption. As we pressure ourselves into getting back on-track with a product, we are forced into facing reinvestment risks.

Redemption is never good - when it comes, we are faced with either reinvestment risks, or opportunity costs, or possible cashflow issues.


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## scomac (Aug 22, 2009)

Rox said:


> The problem with waiting is it hits the cash-flow, unless of course, you have other instruments in-place which are still holding-up your cash-flow.


I think that you're overstating this. Firstly, unlike those who rely of funds/ETFs for their fixed income investing, when a bond matures within the context of a laddered portfolio, it's not the only security that you own. You have other bonds' coupons still paying out on schedule or, if you are invested in strips and cash flow is irrelevant.



> We really have to find a worthy product after the redemption. As we pressure ourselves into getting back on-track with a product, we are forced into facing reinvestment risks.


That's the wrong approach to treat investing as though you are under some sort of a deadline. You aren't required to swing at every pitch. There's no limit to the number of pitches you can look at until you find one that you like. For myself, if I can't find a bond that I like, I will use this as a pinch hitter until the right pitch comes along.


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## kcowan (Jul 1, 2010)

HaroldCrump said:


> If I recall correctly, Hank recommends a 10 year ladder.
> His ideal portfolio is a 10 year ladder of zero coupon bonds.


I used to be longer at times but I have reduced the timeframe to reduce my exposure to inflation. I still hold a Convertible that I bought in 2004 that matures in 2014. But now its remaining duration is within range (and pays out 6.5%).


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## Rox (Oct 17, 2010)

scomac said:


> I think that you're overstating this. Firstly, unlike those who rely of funds/ETFs for their fixed income investing, when a bond matures within the context of a laddered portfolio, it's not the only security that you own. You have other bonds' coupons still paying out on schedule or, if you are invested in strips and cash flow is irrelevant.
> 
> Reply : We are consistent in our views then, as you said in the above : have other bonds' coupons still paying-out on schedule, or have other instruments, or cashflow is unimportant.
> 
> ...


Thank you, Scomac,... my responses in Red after your input,...


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## Rox (Oct 17, 2010)

kcowan said:


> I used to be longer at times but I have reduced the timeframe to reduce my exposure to inflation. I still hold a Convertible that I bought in 2004 that matures in 2014. But now its remaining duration is within range (and pays out 6.5%).


What are the chances that the bond you are holding will get redeemed since the coupon rate payout is so high ?


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## HaroldCrump (Jun 10, 2009)

Rox said:


> What are the chances that the bond you are holding will get redeemed since the coupon rate payout is so high ?


Redemption depends on the terms and conditions of the issue.
Whether they do redeem or not depends on other factors like current interest rates, expectations of future interest rates, any changes to their credit quality, etc.
If the rate on the current issue is higher than what they expect for a similar term, they'll most likely redeem (assuming all else is equal).


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## kcowan (Jul 1, 2010)

Rox said:


> What are the chances that the bond you are holding will get redeemed since the coupon rate payout is so high ?


I don't buy redeemable bonds. Too hard to calculate YTM.


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## andrewf (Mar 1, 2010)

kcowan said:


> I don't buy redeemable bonds. Too hard to calculate YTM.


The guy who writes PrefBlog uses 'yield to worst', which is the worst possible yield if the security is redeemed. Not sure how hard that is to calculate on bonds--the info ought to be available.


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## Rox (Oct 17, 2010)

kcowan said:


> I don't buy redeemable bonds. Too hard to calculate YTM.


Same here, KC,... unless it is called non-redeemable, but if it is to be called non-redeemable, then I think the coupon will not be worthy at the onset.

It's not a good game to play,...

Guessed I stand by my earlier comment in one of my postings - going into individual dividend stocks is still the way to go. More work to do, but in the longer run, the profit and the returns are worth it.


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## kcowan (Jul 1, 2010)

andrewf said:


> The guy who writes PrefBlog uses 'yield to worst', which is the worst possible yield if the security is redeemed. Not sure how hard that is to calculate on bonds--the info ought to be available.


I avoid the problem by investing in MAPF for preferred shares, and let James handle it. In the year since I made that decision, the return has been 17% exclusive of his management fee.



Rox said:


> Same here, KC,... unless it is called non-redeemable, but if it is to be called non-redeemable, then I think the coupon will not be worthy at the onset.
> 
> It's not a good game to play,...
> 
> Guessed I stand by my earlier comment in one of my postings - going into individual dividend stocks is still the way to go. More work to do, but in the longer run, the profit and the returns are worth it.


In fact, it is close to the same amount of work because you have to be confident in the underlying company (although munis and GSEs are easier).


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## Rox (Oct 17, 2010)

KC, if you say the amount of work is the same, then I wouldn't want to pay any management fees whatsoever, 'cos I still need to check and study the underlyings carefully and to take risks. It becomes ridiculous if there is another party in front of me that I have to pay to take this risk "together" with me, especially if he can't reduce the risk factor.


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## kcowan (Jul 1, 2010)

Rox said:


> It becomes ridiculous if there is another party in front of me that I have to pay to take this risk "together" with me, especially if he can't reduce the risk factor.


Or stick to munis and GSEs and only those companies that you happen to follow as equities.


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## scomac (Aug 22, 2009)

There are reasons beyond performance when it comes to justifying managing your own portfolio of bonds versus opting for a pooled approach with funds or ETFs. In fact, performance is rather secondary, IMO, to the other valid reasons for wanting to roll your own ladder of bonds.

1. Owning individual bonds provides the investor with a promise to deliver specific funds at a specific time in the future. There is no such promise with a fund or ETF.

2. With a portfolio of individual bonds, you know in advance what your rate of return will be as it is determined when you purchase the bond. This is beneficial for planning and is much better than throwing some money at a fund and hoping there will be enough in the end to meet your goal.

3. Tax efficiency in taxable accounts. Funds give no consideration to this where as if you are building your own bond portfolio you can ensure that you aren't trading interest income at your full marginal rate for a capital loss as is the case when buying premium bonds.

4. Concentration. This is something that is given no attention as bonds in funds will be representative of those sectors which issue the most debt. It is fairly easy to get a big sectoral overweight when looking at a total portfolio make-up that for income investors can have large exposures to financials and utilities when combining holdings in common shares, preferred shares and corporate bonds.


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## Rox (Oct 17, 2010)

scomac said:


> There are reasons beyond performance when it comes to justifying managing your own portfolio of bonds versus opting for a pooled approach with funds or ETFs. In fact, performance is rather secondary, IMO, to the other valid reasons for wanting to roll your own ladder of bonds.
> 
> 1. Owning individual bonds provides the investor with a promise to deliver specific funds at a specific time in the future. There is no such promise with a fund or ETF.
> 
> ...


Scomac,.... my counter-replies (CR) after your individual points in the above.


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## HaroldCrump (Jun 10, 2009)

Rox, you are getting hung up on redeemable bonds.
Perhaps you got your hands burnt in the past....
Just don't buy redeemable bonds if the YTW is not palatable to you.
There are many, many non redeemable bonds available to retail investors through their brokerages.
Check the details, read the prospectus, do your research like anything else and buy.


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## kcowan (Jul 1, 2010)

1. & 2. CR : Agreed. Yes, this is totally correct - specific funds from a bond, coupon payouts are certain. But, if redeemed, then all is lost. Not even any "in-between figures" coming in. Either all or none - is this good ? I preferred if can still get back a little bit, if not for the full amount of coupon.

_KC: You are confusing redeemable bonds. YTM is only known for non-redeemable. Otherwise it is YTW and this point is not valid._

3. CR : Can't comment yet, the calculations must be accurate with the availability of the RRSP and especially, with the TFSA around now. Must know how to apportion out, I would think. Am studying CCRA methodologies now.

_KC: You know specifically what is interest that you prepaid and can deduct that on your CRA submission. You know this amount before purchasing. With a fund, you cannot know_.

4. CR : Depends on the underlyings of the bonds you buy. I would think if the bond is advantageous to the holder/purchaser in any way, the coupon rate will not be favourable. But can't mention any specific examples here.

_KC: The point is that you control what companies are being invested in. If I hold 20% of the Canadian Banks as equities, do I want to double up by buying their bonds too. With a fund I have no control._


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## Rox (Oct 17, 2010)

Thanks, guys,.. where I come from, the non-redeemable bonds are not worth buying because the local interest rates are very low, hence allowing many different types of organizations to get credit easily. The better companies with solid credit ratings from the Ratings Agencies usually offers redeemable bonds, while the sub ones offer non-redeemables.

Some even dropped into defaults,.....


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## HaroldCrump (Jun 10, 2009)

Rox said:


> Thanks, guys,.. where I come from, the non-redeemable bonds are not worth buying because the local interest rates are very low, hence allowing many different types of organizations to get credit easily. The better companies with solid credit ratings from the Ratings Agencies usually offers redeemable bonds, while the sub ones offer non-redeemables.
> 
> Some even dropped into defaults,.....


In Singapore? Hmm...
There's another thing that doesn't add up: the organizations with sub-prime rating should be issuing bonds with higher yields, not lower.
Unless an economy is in a consistently falling interest rate environment, it is not the norm to keep issuing redeemable bonds because the offer yield will have to higher than non-redeemable.
And in general, sub-prime organizations have to offer higher yields than solid companies, regardless of the redeemable nature of the issue.
Are we talking about a hypothetical situation or is this a real place?


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