# ZUT - Utilities ETF



## bloschuk (Jul 20, 2011)

BMO Equal Weight Utilities Index ETF. Thinking about adding this to my portfolio to have more exposure to utilities. Does anyone know how the distributions would be taxed? Wondering if this should go into my non-registered (if dividends) or RRSP/TFSA.


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## FrugalTrader (Oct 13, 2008)

This ETF will likely distribute very similarly to 2010: dividends, return of capital and other income.

http://www.etfs.bmo.com/bmo-etfs/distribution?fundId=75756


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## james4beach (Nov 15, 2012)

Some calculations that may be relevant as the market becomes more concerned about dividend payout sustainability (click for spreadsheet; you can download it too)

ZUT's weighted average payout ratio (of underlying stocks) is 64%. That's not horrible but it's on the high side (paying out over 50% of generated cash gets iffy)

66% of fund's assets in stocks with payout ratio > 0.5
39% of fund's assets in stocks with payout ratio > 0.75
23% of fund's assets in stocks with payout ratio > 0.9

The last stat is the biggest worry. It means nearly one quarter of the fund's investments are in danger of an imminent dividend cut, and could take steep losses with the ensuing share selloff. Such cuts have been resulting in share price declines in the neighbourhood of -50%.

It's going to be hard to predict the effect of such distribution cuts, but the relevant shares will definitely plummet. I'm not sure what the overall effect on the ETF will be, but basically there's going to be a chronic drag on ZUT share price so long as distribution cuts are happening. How big that drag is, I don't know. The market seems not very efficient, in that it's not seeing the dividend cuts coming.

The stocks suffering cuts have traded right up to the cut as if nothing is wrong (Mr. Market is not being very smart). Then they sharply crash when the cut happens... even though the payout ratio signaled the problem. What this tells me is that many of ZUT's holdings -- and thus ZUT itself -- are overpriced and the price we see today is not reflecting the high probability distribution cuts. e.g. the charts of NPI ($18.67) and INE ($9.95) look like all is OK, but I don't think the price reflects the rather strong chance of rate cut. This would result in a very sharp drop if the dividend gets cut.

I think there are technical reasons why the market is being inefficient. Normally investment banks and hedge funds would short stocks like this, but market conditions (quantitative easing & ZIRP) make short selling really unattractive currently. Also utility stocks are not widely held in Canada, e.g. utilities are under 2% of the TSX Composite, so there's not much institutional involvement in these names. The market caps aren't very big, and the trading volumes are low... an institution wouldn't bother with them.

Basically I'm worried that holdings like NPI and INE are overvalued due to the market not properly considering their risks; resulting in ZUT being overvalued.


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## My Own Advisor (Sep 24, 2012)

TA has been touch-and-go for a dividend cut for at least a year. A few others, like FTS, EMA, CU, not too worried about. 

I'd like to say other Utility ETFs are better, but XUT is not and that one only has 11 holdings. Those three companies above comprise 50% of the ETF holdings.

Based on how many ETFs provide distributions (FrugalTrader provided the link) I would suggest to put most of them in TFSA or RRSP. This way, you avoid any tax headaches.


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## Belguy (May 24, 2010)

I once invested in some sector ETF's but, in the interest of keeping the management of my portfolio simple and keeping my trading costs to a minimum, I have largely eliminated them in favour of sticking with just a handful of the lowest fee, broadest based ETF's.

It works for me.


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## james4beach (Nov 15, 2012)

The reason I like investing in utilities is that the broad indexes have so little of them. It's less than 2% of the TSX Composite, so if you do standard Canadian investment, you hardly get any utilities. Even though ZUT may be overvalued currently, I'm still watching it closely with the intention to buy.


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## gibor365 (Apr 1, 2011)

james, I agree with you , but not sure if ZUT is really overvalued now.... current P/E = 16 , not so high (however, I couldn't find waht is historic P/E for ZUT) and it trading just 1.8% off 52 weeks low... yield also not bad , above 5%. What i don't like - is unpredictability of dividends, in last 12 months it ranges from 0.06 to 0.07 (even though cannot tell that it constantly declining ). yes, there is some danger "23% of fund's assets in stocks with payout ratio > 0.9" , but w/o danger ETF price would be much higher and imho Utilities are not banks or automakers, so Payout is a little less important . I would think that low 15's (about 1-1.5% down from current price) is a reasonable entry point.
What do you think?


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## Belguy (May 24, 2010)

Have you considered either of Canadian MoneySaver's top rated dividend ETF's?

They are CDZ which is 11% utilities and ZDV which is 15% utilities.


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## james4beach (Nov 15, 2012)

gibor: generally I agree with your points, except that "w/o danger ETF price would be much higher". This is the part I'm concerned about, I don't think it's true. I'm not sure the price accurately reflects the risk.

belguy: I don't like CDZ due to its very high MER, but ZDV is one I'm watching. Except that ZDV also has very high dividend payout ratios


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## Belguy (May 24, 2010)

"CDZ is an excellent and consistent performer, CDZ is a veteran in this category and has delivered for its unitholders. Yield is on the low side, and MER on the high side. Sector diversification is the best of the dividend ETF's and tax efficiency is OK."

"ZDV is a solid first-year performer and has the second lowest MER of the group. A great yield and respectable sector diversification and excellent tax efficiency are other considerations but we only have one year to go on."

--Canadian MoneySaver, June 2013


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## gibor365 (Apr 1, 2011)

Belguy, i was mentining it before...I don`t like CDZ top holding, payout is too high.... I`m tracking my mini-CDZ (extract of CDZ with reasonable P/E and Payout ) and it`s doing much better than CDZ.
XDV I just don`t need as many holdings I hold as invividual stocks, so why to pay MER


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## larry81 (Nov 22, 2010)

james4beach said:


> The reason I like investing in utilities is that the broad indexes have so little of them. It's less than 2% of the TSX Composite, so if you do standard Canadian investment, you hardly get any utilities. Even though ZUT may be overvalued currently, I'm still watching it closely with the intention to buy.


I also own some ZUT, ZWU.

I consider utilities as another slice of my fixed income allocation, they compliments bonds very well and are less correlated to equities than dividends ETF like CDZ.


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## Belguy (May 24, 2010)

It comes back to the question of how many individual investments a Couch Potato investor needs in his portfolio.

In other words, how much slicing and dicing should you do in order to achieve sufficient diversification before it leads to diworsification?

I have seen some portfolios that are put under the scrutiny of a so-called 'expert' who often returns with the criticism that the investor has too many funds in his portfolio.

After all, most ETF's already invest in hundreds and sometimes thousands of stocks and so do you really need more than four or five ETF's to provide for adequate diversification? One S&P 500 ETF alone is pretty well diversified.

Just discussin'.


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## gibor365 (Apr 1, 2011)

Belguy, VTI is even more diversified. 
Just 2 ETFs VTI + VXUS covering almost all world.


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## larry81 (Nov 22, 2010)

gibor said:


> Belguy, VTI is even more diversified.
> Just 2 ETFs VTI + VXUS covering almost all world.


VTI+VXUS = best combo

But for folks with larger portfolio and "special situation" (ex: small biz owner, non-reg investor, etc.) sometime it make sense to slice and dice. Adding assets classed like utilities, REIT, US REIT, and international bonds can be justified.


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## Belguy (May 24, 2010)

gibor said:


> Belguy, VTI is even more diversified.
> Just 2 ETFs VTI + VXUS covering almost all world.


Didn't CC recently suggest that this was not a viable way to invest? I don't recall his reasoning.


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## gibor365 (Apr 1, 2011)

I don`t really know.... I have some ETFs like VTI, PRF, XIU ..... but majority of my holdings are dividend stocks.... I just want to build stream of sividends that will be enough for early retirement


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## larry81 (Nov 22, 2010)

Belguy said:


> Didn't CC recently suggest that this was not a viable way to invest? I don't recall his reasoning.


any reference ? I would like to hear the reasoning


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## kitbuilder (Aug 15, 2013)

Any thoughts on ZUT lately? Price performance for the past year is -17%. Current price is $13.68 with a monthly distribution of $0.06 for net yield of 5.26% (approximately up to 20% of which could be ROC if last year is any guide.)

I think my biggest concern is the effect of rising interest rates on the underlying companies that have substantial debt levels. Might this be a trigger for some dividend cuts and further price declines for this sector?

Does it make any sense for an investor in the accumulation stage to own ZUT at this time for their non-registered account, or is this best avoided and left to the retired income seekers?


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## doctrine (Sep 30, 2011)

Where is the distribution going? The 6 cents they've given for the last two months is the lowest since the fund started in 2010. Not sure why you'd want to own a ETF with declining yield; but I've never liked the utility ETFs in Canada - they hold a lot of questionable companies. If you want a utility, it's better to start accumulating shares in one of the big 3 (Emera, Canadian Utilities, Fortis), although all of them have been hit lately - at least that makes them less expensive right now. I sold my last utility, Fortis, at $33.75 because the P/E of 20+ was not justified by 5% or less EPS growth.


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## liquidfinance (Jan 28, 2011)

Agree 100% Doctrine. A quick glance at the holdings and I walked away from this one. Not too mention a declining payout!


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## Soils4Peace (Mar 14, 2010)

For those who want safer, less cyclical holdings, there is also ZLB, which is cheaper than CDZ, ZUT and some other ETFs mentioned in this thread. It has 13% utilities.


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## liquidfinance (Jan 28, 2011)

From looking through the holding tonight this appears to be a "specualtive" play on the utilities sector. There is no way that this product should be relied upon for it's income in my opinion and I am one who is guilty of chasing yield. 

This doesn't have an attractive yield either at 5.3% when you consider the risk.

James had it covered on the second post but on taking a closer look at the current portfolio of 13 holdings we can highlight the following

3 Holdings have a 10year + history of Dividend increases. ACO, FTS, CU
Only 1 holding has a payout ratio below 50%. ACO although CU is very close at 51.67
Utilities typically payout higher % but even so only 4 Payout below 75% ACO, FTS, CU, EMA

2 Holdings have cut payouts this year. JE by 30% and ATP by 65%

There doesn't seem to be a quick way to see the holdings history within the BMO ETF's so I don't know whats been either cut or added. 

Either way with these smaller sector based ETF's I think the above highlights you really need to take a good look at the underlying. A look at this identifies that it is heavily laden towards risk with higher probability of payout cuts then increases. 

The best 4 ACO, FTS, EMA and CU have a 5 year combined dividend growth rate of 8%

I hope the above provides some food for thought for people thinking of putting money into this ETF. Especially if you are thinking of using it for income during retirement.


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## blin10 (Jun 27, 2011)

why hold etf when you can buy the best quality yourself?


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## liquidfinance (Jan 28, 2011)

That's my point blin. With such a low number of holdings and even fewer quality names.

I'm starting to think ETF's really only have a place in the portfolio when it comes to broad index and bonds.


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## doctrine (Sep 30, 2011)

For the utilities, it's just not a big sector in Canada. There might be something in the US ETF market, but not here.


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## fatcat (Nov 11, 2009)

used to own zut then xut but i sold my xut a while ago and bought equal shares of cu,fts and ema and plan to hold them all long term ...


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## kitbuilder (Aug 15, 2013)

Thanks for all your comments and feedback. As mentioned, the declining distribution for an equity ETF is definitely a concern, and it looks like one can get decent exposure to utilities through ZLB (13% utilities) or even ZDV (12% utilities) if they really want exposure through an ETF. When you consider the ROC, then ZUT doesn't even really yield 5.3%.

Interesting that you should mention the US. I'm not familiar with US-listed sector ETFs, but for a Canadian dollar account, ZGI actually looks to be a decent alternative. ZGI holds 46% utilities with 2/3 of its holdings from the US. Contrary to ZUT, ZGI actually has a history of increasing distribution in its 3.5 year history, though it too has its fair share of ROC. A bit of apples to oranges perhaps, but 1-year return for ZGI is +12% compared to the -17% for ZUT.

(Looking at US Utility ETFs now, 1-year return for VPU and IDU is about +3.5%. Really interesting how the shapes of the charts are similar, but really started diverging in February.)

Anyway, fully agree on the "speculative" aspect of ZUT. I always thought of utilities as being companies like FTS and EMA, but over time I've become familiar with the junk like ATP, JE, and TA - these aren't the rock-solid utility companies with solid, reliable, long-term sustainable yield that one would think they were investing in. The quality of the underlying assets, declining yields, high payout ratios, constant share dilution through DRIPs, high levels of debt, aging infrastructure, etc. leave me feeling that this is not something to sink money into. Given all this and its performance this year, ZUT seems like a good tax-loss candidate.


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## warp (Sep 4, 2010)

gibor said:


> Belguy, i was mentining it before...I don`t like CDZ top holding, payout is too high.... I`m tracking my mini-CDZ (extract of CDZ with reasonable P/E and Payout ) and it`s doing much better than CDZ.
> XDV I just don`t need as many holdings I hold as invividual stocks, so why to pay MER


GIBOR:
Would you care to post what your "mini-CDZ" looks like?
What are the "reasonable P/E and Payout" holdings of CDZ you are tracking?

I would be interested to know....thanks


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## james4beach (Nov 15, 2012)

I have a small position in ZUT but have not bought any more shares. Goes back to what I posted early in this thread ... it seems likely that distributions will be cut (and it's already been happening).

So when you look at BMO's page and see the portfolio yield quote of 6.19% (before the 0.62% MER) you have to remember it isn't a bond that pays out a constant cashflow ... that distribution will likely decline.

So utilities have two things working against them: (1) rising bond interest rates, which hurt all bond-like equities and (2) distributions that are actually declining


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## liquidfinance (Jan 28, 2011)

james4beach said:


> I have a small position in ZUT but have not bought any more shares. Goes back to what I posted early in this thread ... it seems likely that distributions will be cut (and it's already been happening).
> 
> So when you look at BMO's page and see the portfolio yield quote of 6.19% (before the 0.62% MER) you have to remember it isn't a bond that pays out a constant cashflow ... that distribution will likely decline.
> 
> So utilities have two things working against them: (1) rising bond interest rates, which hurt all bond-like equities and (2) distributions that are actually declining


James,

Considering some of the advice you give on this forum i'm curious to know why you would have any position at all within this etf given it's price performance, quality of underlying holdings and dividend reduction. 

It seems to go against most of what you write about on these boards.


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## james4beach (Nov 15, 2012)

liquidfinance said:


> Considering some of the advice you give on this forum i'm curious to know why you would have any position at all within this etf given it's price performance, quality of underlying holdings and dividend reduction.
> 
> It seems to go against most of what you write about on these boards.


A few reasons ... the price action looked much better at the time I bought it. So when I bought it on a dip, I thought I was buying into a strong price trend at a discount. That technical trend has since broken down and the 'strong trend' is no longer intact. So to start with, I made a T/A call that turned out wrong.

My position is small and was meant to test the waters before buying more. In this respect it's accomplishing what I want ... after putting real money down on ZUT, suddenly I became more motivated to do in-depth research and I became more critical of the investment. Most of what I discovered about excessively high payout ratios came after I bought ZUT (which is why I'm not buying more). Also, I'm very hesitant to add to losing positions.

Another reason is that just like others in these forums, I was coerced into "chasing yield" by the central banks. The low interest rate environment manipulated me into making a decision I normally wouldn't make. Given what a stingy equity buyer I am, this experience makes me think we are approaching the end of the ZIRP / QE / low interest rate bubble. The market even got *me* to "join the party".

It's really hard to get me to join an equity bubble party. I really think it says something when ultra bears such as myself are roped into joining. What we have been seeing in the last few months with utilities, REITs, high risk bonds, and dividend stocks _could_ now be the party unravelling.


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## liquidfinance (Jan 28, 2011)

Thanks James. 

This brings me to another question. 

If you wouldn't buy now and wouldn't add then what would make you a seller?
Is there a reason still to hold?

I'm curious as I often have issues myself with deciding when to sell.


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## james4beach (Nov 15, 2012)

I take positions slowly. I don't like trading in and out of positions too quickly. I would likely be holding this a minimum of two years, but selling it is always on the table as an option.

After all it's always possible that the "low interest rates forever" party resumes and utilities & REITs take off again.

Due to the small size of my position, it's not nearly at the point where it causes me pain. If I started to feel pain from losses then I would consider closing the position.


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## favelle75 (Feb 6, 2013)

james4beach said:


> I take positions slowly. I don't like trading in and out of positions too quickly. I would likely be holding this a minimum of two years, but selling it is always on the table as an option.
> 
> After all it's always possible that the "low interest rates forever" party resumes and utilities & REITs take off again.
> 
> Due to the small size of my position, it's not nearly at the point where it causes me pain. If I started to feel pain from losses then I would consider closing the position.


I am in the same boat. ZUT is about 3% of my total portfolio, but my buy-in has been DCA`d to about $15. If it gets anywhere close back to that, I will likely close it and redeploy the funds elsewhere. Time will tell...


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## Mookie (Feb 29, 2012)

What do you guys think about ZUT vs. ZWU - the covered call version? If utilities are expected to be negative or sideways for a while, wouldn't ZWU be a good move at this point? The yield is pretty good at this point.


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## HaroldCrump (Jun 10, 2009)

Mookie said:


> What do you guys think about ZUT vs. ZWU - the covered call version? If utilities are expected to be negative or sideways for a while, wouldn't ZWU be a good move at this point? The yield is pretty good at this point.


Don't be fooled by distribution yields.
You should read this thread :
http://canadianmoneyforum.com/showt...Fs-ZWB-HEX-etc?p=196406&viewfull=1#post196406


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## james4beach (Nov 15, 2012)

Thought I'd share a chart I made, ZUT holdings at Jan 31, 2014 and their yields
The ZUT portfolio yield is currently 5.31%, which is *4.69% yield* after MER


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## Killer Z (Oct 25, 2013)

james4beach said:


> Thought I'd share a chart I made, ZUT holdings at Jan 31, 2014 and their yields
> The ZUT portfolio yield is currently 5.31%, which is *4.69% yield* after MER
> 
> View attachment 408


Terrific, thanks J4B. I also hold ZUT, although I have been contemplating for the past few months on whether it might be time to "unbundle" and just own 2 or 3 of its holdings. I recently started a position with FTS so I would just need to pick up a couple more. 

How does one decide when it's time to "unbundle"?


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## My Own Advisor (Sep 24, 2012)

I unbundled when I had enough shares of each stock to DRIP, e.g., FTS, EMA, AQN, TA, etc. Larger positions include FTS and EMA over the others so I'm not really "equal weight" on utilities.


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## james4beach (Nov 15, 2012)

Just a heads up that ZUT's distribution is dropping again (this is a reflection of the fact that several holdings had to cut their distributions, which is the consequence of payout ratios that are too high). The distribution in March dropped from the previous level of 0.060 down to 0.056

When I bought ZUT the monthly distribution was 0.0670 and now it's down to 0.0560... so in the year and a half I've held it, the cashflow from this ETF has declined -16%

This is a good illustration of what can go wrong when payout ratios are too high initially

I continue to hold it as I'm seeing an annualized total return of around 5%, but I do worry about further reductions in distributions


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## james4beach (Nov 15, 2012)

By the way, my primary criteria for keeping or ditching any position is whether it's showing a gain or loss over time. Over the years I've found this to be a helpful (albeit simplistic) way to keep winners in my portfolio, and avoid losers. This test starts to speak loudly at say the 2 yr, 5 yr marks.

It's always helpful to look at a list of all your positions and their total gains/loss to date. My idea with this is that you only want to keep positions that are making money for you


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## My Own Advisor (Sep 24, 2012)

I like owning most of the holdings of ZUT directly, collect the dividends. No need to ditch a position.


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## Killer Z (Oct 25, 2013)

I used to own ZUT, but now I just own FTS and CU. Felt like a few of the positions were doing the heavy lifting for the entire ETF.


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## humble_pie (Jun 7, 2009)

Killer Z said:


> ... now I just own FTS and CU. Felt like a few of the positions were doing the heavy lifting for the entire ETF.


that's what Argo always used to say when he'd put forth his Five-Pack instead of the TSX 60 or the TSX 300. Why own the losers in an index, he'd say. Why not just own a few of the winners.


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## AltaRed (Jun 8, 2009)

humble_pie said:


> that's what Argo always used to say when he'd put forth his Five-Pack instead of the TSX 60 or the TSX 300. Why own the losers in an index, he'd say. Why not just own a few of the winners.


If you know them in advance. Anyone who says they can is not credible. A good investor can work the odds in one's favour, but no one can bat 1.000. Even the so-called best companies can go off the rails. Remember TRP years ago? The same thing will happen someday to one or more of today's high flyers.


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## gibor365 (Apr 1, 2011)

I used to have ZUT, but un-bundled is couple of months ago, now I hold FTS and EMA, may initiate position in CU...also have SO:NYSE


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## doctrine (Sep 30, 2011)

> A good investor can work the odds in one's favour, but no one can bat 1.000.


All true. In the case of ZUT though, it has been pretty easy to spot the high risk plays. There are only a handful of quality utility companies in Canada.


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## fatcat (Nov 11, 2009)

sold my ZUT some time ago and have equal shares of FTS, CU and EMA for long term hold



> that's what Argo always used to say when he'd put forth his Five-Pack instead of the TSX 60 or the TSX 300. Why own the losers in an index, he'd say. Why not just own a few of the winners.


 problem is, i think he recommended FTS which has, so far been the worst performer of the 3 ... though that may change

for this sector, which many people hold for long periods, i think it's worth holding a small basket


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## My Own Advisor (Sep 24, 2012)

Same, own FTS, EMA, and a few others in ZUT for the long haul. I DRIP them. Don't own enough CU yet to DRIP, not with the run-up in price either....someday though...


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## Synergy (Mar 18, 2013)

ZUT doesn't look appealing to me, close to 10% in Just Energy. Have you not had one of these guys at your door claiming to be concerned over your bill, just wanting to make sure that you're getting the current "discounted rate", wanting to see your physical bill, never really disclosing who they are, etc. Door to door manipulation at it's best.

Seems like a no brainer to unbundle this fund considering there's only a handful of stocks to pick from.


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## gibor365 (Apr 1, 2011)

I just didn't want to have within ZUT, stocks like ATP, TA, JE ....


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## plasmasnake (Apr 17, 2014)

I picked up 100 shares of ZWU @ $14.07 last year when it tanked (it fell further to $13.80), mostly due to rumours of impending rate hikes, and because ENB (a major holding) wasn't doing too well. It's back up to $15.35 now but I'm just holding on to it for the income. Difference between ZWU and ZUT is the covered call, US exposure, and telecom exposure.


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## james4beach (Nov 15, 2012)

The ZUT distribution has reduced, once again. Remember folks... this is one danger of yield-chasing. These stocks were paying out unsustainable yields a couple years ago, and now as the companies reduce their dividends (a necessity) you experience a decline in yield.

A quick history, ommitting points where the distribution stayed constant

ex date, distribution
2012-11-27 0.0670
2012-12-24 0.0610
2013-01-28 0.0690 <-- highest
2013-03-25 0.0650
2013-06-25 0.0600
2014-03-26 0.0560
2014-06-25 0.0520 <-- new low

So the dividend has declined by a whopping 25% from its peak!

Remember, in the end, total return is what matters. From my ZUT purchase of Nov 2012, I have an annualized return of 3.0% on this. Not so great.


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## My Own Advisor (Sep 24, 2012)

Another reason to own stocks directly, I get dividends from many holdings in ZUT, some will increase this year (FTS, EMA, CU, PPL) and many others will stay the same, and no MER of 0.55%.


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## james4beach (Nov 15, 2012)

My Own Advisor: if you don't like the broad utilities (ZUT), how do you pick the stocks that have strong returns and more consistent payouts?

If you're really able to pick those so reliably, you should create your own fund / index / ETF. You would make millions doing that and drive ZUT out of business.

(I'm trying to illustrate that you can't, because if it was possible to do, someone would have done this)


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## Pluto (Sep 12, 2013)

james4beach said:


> Another reason is that just like others in these forums, I was coerced into "chasing yield" by the central banks. The low interest rate environment manipulated me into making a decision I normally wouldn't make. Given what a stingy equity buyer I am, this experience makes me think we are approaching the end of the ZIRP / QE / low interest rate bubble. The market even got *me* to "join the party".
> 
> It's really hard to get me to join an equity bubble party. I really think it says something when ultra bears such as myself are roped into joining. What we have been seeing in the last few months with utilities, REITs, high risk bonds, and dividend stocks _could_ now be the party unravelling.


That's the way I read it. Look at the drop in zut last year from about April to August that coincided with a drop in REITS apparently in reaction to taper talk. OK, so they recovered a bit since then, but not to previous highs. The trend is down as we inch towards the end of the cycle. Better to buy these when most are convinced the sky is falling, whenever that will be. One will be compensated for waiting by lower prices, and subsequent capital appreciation.


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## liquidfinance (Jan 28, 2011)

james4beach said:


> My Own Advisor: if you don't like the broad utilities (ZUT), how do you pick the stocks that have strong returns and more consistent payouts?
> 
> If you're really able to pick those so reliably, you should create your own fund / index / ETF. You would make millions doing that and drive ZUT out of business.
> 
> (I'm trying to illustrate that you can't, because if it was possible to do, someone would have done this)




Time and time again it has been said that the stocks MOA holds are the only ones within ZUT that are worth holding onto. For someone so risk averse it makes no sense why you somehow try to justify this ETF to yourself despite the 25% drop in payout.


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## fatcat (Nov 11, 2009)

james4beach said:


> My Own Advisor: if you don't like the broad utilities (ZUT), how do you pick the stocks that have strong returns and more consistent payouts?
> 
> If you're really able to pick those so reliably, you should create your own fund / index / ETF. You would make millions doing that and drive ZUT out of business.
> 
> (I'm trying to illustrate that you can't, because if it was possible to do, someone would have done this)


i own equal shares of CU, FTS and EMA

if you bought 10K of each of them and 10K of ZUT on the day ZUT began (01/25/2010)

your returns with reinvested divys would be:

ZUT 
6.18%
$13,078.88

FTS
7.08%
$13,585.06

EMA
13.25%
$17,457.03

CU
17.44%
$20,536.91

plus you are not paying the .55 and accounting and tracking is much easier

no way ZUT is any safer or likely to outperform EMA, CU and FTS (as a basket) over any long time period


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## doctrine (Sep 30, 2011)

james4beach said:


> My Own Advisor: if you don't like the broad utilities (ZUT), how do you pick the stocks that have strong returns and more consistent payouts?
> 
> If you're really able to pick those so reliably, you should create your own fund / index / ETF. You would make millions doing that and drive ZUT out of business.
> 
> (I'm trying to illustrate that you can't, because if it was possible to do, someone would have done this)


You can't? Have you heard of fundamental stock analysis? It works, you know. The very basics of fundamental analysis showed the dogs of ZUT, primarily Atlantic Power (ATP) and Just Energy (JE), as well as Transalta (TA), couldn't sustain their dividends. Atlantic Power wasn't profitable, and JE has massive debt and actually has negative shareholder equity even with huge goodwill on the books. TA had been paying out too much cash for too long.

The bottom line is that there are only a handful of quality utilities in Canada. FTS, EMA, CU, ACO.X. A few good smaller names but not much (I've done well in CSE). Without sufficient names, it may actually be not feasible to create a useful ETF in this sector in Canada.


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## gibor365 (Apr 1, 2011)

doctrine said:


> The bottom line is that there are only a handful of quality utilities in Canada. FTS, EMA, CU, ACO.X. A few good smaller names but not much (I've done well in CSE). Without sufficient names, it may actually be not feasible to create a useful ETF in this sector in Canada.


I was holding ZUT for some time, but than unbundled it and now hold only FTS and EMA, considering to buy CU at some point when yiled will be high/price drops... Other ZUT holding have very bad fundamentals or low yield...
imho, if you invest significant amount of $$$, there is no sense to buy small holdings ETFs like ZUT, ZEB, even CDZ (I had paper portfolio when selected CDZ holdings with P/E < 20 and payout < 80 - and this portfolio outperformed CDZ by far). 
I think it does make sense to hold big ETFs like VEA, DEM/VWO, VTI ..
I'd like to see ETF holding several good Canadaian Utilities (listed by doctrine), US's utilities (I hold directly only SO), European and emerging market utilities ... something like Global Utilities ETF


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## fatcat (Nov 11, 2009)

gibor said:


> I was holding ZUT for some time, but than unbundled it and now hold only FTS and EMA, considering to buy CU at some point when yiled will be high/price drops... Other ZUT holding have very bad fundamentals or low yield...
> imho, if you invest significant amount of $$$, there is no sense to buy small holdings ETFs like ZUT, ZEB, even CDZ (I had paper portfolio when selected CDZ holdings with P/E < 20 and payout < 80 - and this portfolio outperformed CDZ by far).
> I think it does make sense to hold big ETFs like VEA, DEM/VWO, VTI ..
> I'd like to see ETF holding several good Canadaian Utilities (listed by doctrine), US's utilities (I hold directly only SO), European and emerging market utilities ... something like Global Utilities ETF


+1 great post ... 

i agree completely on the "small etf's" 

when i started comparing the performance of a small basket (3-4 names) of the best bank, utilities, energy and telecom stocks, it quickly becomes clear that, if you plan to hold for long periods, the individual names are a much better way to go

you save the mer, accounting is easier, they are easier to follow and tweak


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## humble_pie (Jun 7, 2009)

same thing goes for a large basket imho.

after all, much of the canadian market *is* banks, utilities, energy & telecom stocks.

why complicate things by holding these in an etf? 

to an investor who holds the plain stocks, the broker will deliver 100% of the dividends. No MERs.

*all* of the eligible dividend tax credits will be reported on one neat T5 slip. No mysterious returns of capital, upward cost base adjustments or other baffling accounting fiddlings.

brokers will deliver this magic tax slip in february, so there'll be no waiting around for the etf T3 to straggle in, frustratingly late, in late march.

it's also much easier for an investor who holds the plain stocks to custom-control his capital gains as each tax year unfolds. None of that weird discovery in the spring of the following year - when it's too late to do anything about it - after the broker mails out an unusual ETF T3 tax slip with what look like lopsided capital gains.

plus ETFs can't flow through capital losses on T3s. Whereas an individual investor can usually set up an offsetting capital loss with an individual stock if he so chooses.

imho etfs are suitable for 1) beginner investors; 2) very small accounts; or 3) exceptionally passive investors who are physically or mentally absent from their accounts, or who have some mental block against learning about finance.


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## Pluto (Sep 12, 2013)

humble_pie said:


> same thing goes for a large basket imho.
> 
> after all, much of the canadian market *is* banks, utilities, energy & telecom stocks.
> 
> ...


I agree. I don't think anyone could say it any better.


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## gibor365 (Apr 1, 2011)

Pluto said:


> I agree. I don't think anyone could say it any better.


I agree about Canadian and to some degree US stocks.... but I'm more comfortable to hold DEM for emerging market than buy individual stock like gasprom or some brasilian banks 
 or VEA than research good European ones, or VSC than deal with individual bonds....


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## HaroldCrump (Jun 10, 2009)

doctrine said:


> The bottom line is that there are only a handful of quality utilities in Canada. FTS, EMA, CU, ACO.X. A few good smaller names but not much (I've done well in CSE).


Add AQN to that list.


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## My Own Advisor (Sep 24, 2012)

I wonder when AQN will take off?


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## fatcat (Nov 11, 2009)

i agree with pie's post for the most part
but i am not certain that her characterization of index investors is completely fair
there is plenty of hard evidence that index investing works and even buffet who is a stock picker recommends it
owning individual or index each have pluses and minuses and both can be used by very smart investors

nevertheless i agree and switched to individual stocks a couple years back for the transparency especially as well as the ability to target all 10 sectors better


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## My Own Advisor (Sep 24, 2012)

Same fatcat, where indexing wins for the most part is avoiding the attachment to individual stocks. I've learned the emotions that come with owning some companies creates poor decisions. At least on my part it has but I'm getting better.

Sticking to an indexing plan takes these poor decisions out of the equation.


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## fatcat (Nov 11, 2009)

My Own Advisor said:


> Same fatcat, where indexing wins for the most part is avoiding the attachment to individual stocks. I've learned the emotions that come with owning some companies creates poor decisions. At least on my part it has but I'm getting better.
> 
> Sticking to an indexing plan takes these poor decisions out of the equation.


+1 ... you _do_ get attached to individual stocks and that can be a good thing as you think about the economy and the market and different companies .... this can also be a bad thing as you say since you get emotional and end up, say, owning nortel much too long since they "were" such a great company ... i know what pie means but was poking her a bit for her somewhat loaded characterization of indexers

i am trying to build an individual stock portfolio that i can walk away from and not check for 6 months if i wanted to (though that would be highly unlikely ! ... where's the fun ? :biggrin:


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## humble_pie (Jun 7, 2009)

fatcat said:


> i agree with pie's post for the most part ...
> 
> there is plenty of hard evidence that index investing works and even buffet who is a stock picker recommends it



cat i tend to agree with myself for the most part but upon reflection i see that i was way too narrow & draconian about who'd benefit from etfs.

there's a broader range of such investors: (1) not just beginning but mid-range investors; (2) not just tiny accounts, but accounts of all sizes, especially accounts whose owners are the same folks as (3) investors who for one reason or another don't want to be all that up close & friendly with their investment accounts.

i'm writing only about the canadian market. It's not that big of a market, especially when one lops off all the venture exchange type microcaps & miscellaneous riffraff. Mainstream, the canadian market is relatively small & simple.

in bigger markets - US, international, emerging - folks will benefit from etfs because they'll often be hard put to muster the required expertise.

what stops me from most etfs is that i do options on top of the stocks. Most etfs have horrifically poor options markets. In canada, the option biggie is XIU but premiums for its puts & calls are so low they're pitiful.

on the other hand, unbundle XIU & out springs a spectrum of stocks with nifty often-high-value options, especially when these trade stateside, where option markets are better than montreal.

for this reason, an option trader can accurately say that he just plain cannot afford to own XIU.

re buffett & the oft-quoted advice that investors should index only, i think that here buffett is being a bit of a hypocritical snob. He's talking down to "dumb" investors who, he thinks, will fail at the job. So he says buy an index, at least you won't fail.

it's noticeable that this isn't what buffett does himself.


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## fatcat (Nov 11, 2009)

humble_pie said:


> cat i tend to agree with myself for the most part but upon reflection i see that i was way too narrow & draconian about who'd benefit from etfs.
> 
> there's a broader range of such investors: (1) not just beginning but mid-range investors; (2) not just tiny accounts, but accounts of all sizes, especially accounts whose owners are the same folks as (3) investors who for one reason or another don't want to be all that up close & friendly with their investment accounts.


right, yes, i agree



> i'm writing only about the canadian market. It's not that big of a market, especially when one lops off all the venture exchange type microcaps & miscellaneous riffraff. Mainstream, the canadian market is relatively small & simple.


right, in energy, financials, telecom, utilities, consumer staples and even industrials (just buy CNR and be done with it) you can easily put together a nice basket of individual stocks that will track the indexes pretty well



> what stops me from most etfs is that i do options on top of the stocks. Most etfs have horrifically poor options markets. In canada, the option biggie is XIU but premiums for its puts & calls are so low they're pitiful.
> 
> on the other hand, unbundle XIU & out springs a spectrum of stocks with nifty often-high-value options, especially when these trade stateside, where option markets are better than montreal.
> 
> for this reason, an option trader can accurately say that he just plain cannot afford to own XIU.


and of course that makes you something of an outlier since the vast majority here do not trade options ... my local tdw puts on a covered-call seminar just about every month and i keep meaning to go but always take a pass ... one day i will attend just to see what is going on



> re buffett & the oft-quoted advice that investors should index only, i think that here buffett is being a bit of a hypocritical snob. He's talking down to "dumb" investors who, he thinks, will fail at the job. So he says buy an index, at least you won't fail.
> 
> it's noticeable that this isn't what buffett does himself.


i thought i read somewhere that he has stipulated in his will that his widows share is to be invested in the the sp500 via an etf ? ... in any event, he is in his own category, i would rather follow his advice to buy solid companies with decent moats and hold them for long periods which strikes me as good advice


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## james4beach (Nov 15, 2012)

humble_pie said:


> re buffett & the oft-quoted advice that investors should index only, i think that here buffett is being a bit of a hypocritical snob. He's talking down to "dumb" investors who, he thinks, will fail at the job. So he says buy an index, at least you won't fail.
> 
> it's noticeable that this isn't what buffett does himself.


There's a big difference between what Buffett does and what retail investors do.

Buffett has direct connections into management at these companies. He knows what's going on because he has good information. Retail investors don't.
*Buffett actually reads financial statements*. Retail investors don't.
Buffett does this full time. Retail investors don't.

I approve of small retail investors doing direct stock investment, as long as they're spending significant time analyzing and monitoring the companies, and - more critically - reading the quarterly and annual financial statements in full, including all the notes.

But from what I've seen, nobody does that. More likely they start with some enthusiasm, do some research, skim the financial statements (even this is rare) then people buy a bunch of stocks and get busy with life... so the investments go ignored. Most people are better off with indexing unless you're really giving it the time and attention it deserves. And I really don't think you can make significant investments in stocks without reading their financial statements.


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## Eclectic12 (Oct 20, 2010)

humble_pie said:


> same thing goes for a large basket imho.
> 
> after all, much of the canadian market *is* banks, utilities, energy & telecom stocks.
> 
> ...


Some good points ... though I'd also add into the list those who are time/access challenged and those who sleep better at night.

*Edit:*
Another use would be to be in the market while learning about some of the more advanced areas such as options.




fatcat said:


> i agree with pie's post for the most part
> but i am not certain that her characterization of index investors is completely fair...


I'm not following ... either one disagrees with that the described investor should use an ETF or one disagrees that these types of investors are the only ones who should be using the ETF (i.e. adding to the list).

For example, I'd add to the list those who are time challenged ... but having met investors like described in 3), IMO it does not change the validity of the description.




fatcat said:


> ... there is plenty of hard evidence that index investing works and even buffet who is a stock picker recommends it
> owning individual or index each have pluses and minuses and both can be used by very smart investors...


.... which seems to say there's more profiles of the investor who should use an ETF.


Cheers


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## Eclectic12 (Oct 20, 2010)

humble_pie said:


> ... re buffett & the oft-quoted advice that investors should index only, i think that here buffett is being a bit of a hypocritical snob. He's talking down to "dumb" investors who, he thinks, will fail at the job. So he says buy an index, at least you won't fail.
> 
> it's noticeable that this isn't what buffett does himself.


I've seen lots of smart people decide they have time/knowledge to take on stock picking, make dumb moves despite others warning them in advance and lose a lot before giving up. So it would not surprise me at all if the "average" investor wouldn't be better off with an ETF.

As for the "practice what you preach" bit - IMO, that's silly. 

You really think someone doing something full time for many years who comments on what he thinks part timers would benefit from is being hypocritical? By that definition, the garage owner who recommends a gas tank replacement or engine ring job be done by a specialist is also being hypocritical.

... never mind that the amounts involved give him leverage that a retail investor can't hope to come close to.


Cheers


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## humble_pie (Jun 7, 2009)

eclectic for shame! i amended my post! folks who are time constrained or who want to sleep fall into the category of parties - i might say that the majority of investors are & should be such parties - who, like i said, are physically or mentally absent from their investment accounts for significant periods of time.

me i hang in because i happen to enjoy it. Not because i make money at finance, but because it's a game with no ending. It's a rubik's cube that cannot ever be solved.

the fact that there will never be any right solution is the fun part.


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## Eclectic12 (Oct 20, 2010)

fatcat said:


> ... my local tdw puts on a covered-call seminar just about every month and i keep meaning to go but always take a pass ... one day i will attend just to see what is going on ...


My co-worker was keen on it so we attended the session. He decided that when he was more established so that he more time, he'd revisit it but for now, it's more work than he wants to do.


Cheers


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## HaroldCrump (Jun 10, 2009)

My Own Advisor said:


> I wonder when AQN will *take off*?


Take off?
It has already _taken off_, LOL
Stock was $5 barely 3 years ago.
During this time, dividend has increased by over 20% (8.5c. from 7c.).

It is a utility, not a tech. stock, you are expecting too much


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## Eclectic12 (Oct 20, 2010)

humble_pie said:


> eclectic for shame! i amended my post!


That you did ...



humble_pie said:


> ... folks who are time constrained or who want to sleep fall into the category of parties - i might say that the majority of investors are & should be such parties - who, like i said, are physically or mentally absent from their investment accounts for significant periods of time.


So what's the difference between saying "the majority of investors are & should be" versus Buffett's "hypocritical" comments?




humble_pie said:


> ... me i hang in because i happen to enjoy it. Not because i make money at finance, but because it's a game with no ending. It's a rubik's cube that cannot ever be solved...


I can't help thinking you are underplaying the making money part. I have no doubt that the game is a powerful motivator but I have my doubts that you'd keep playing if there's steady losses without profits ... especially if you calculated an ETF would have give profits instead of the method used.


Cheers


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## HaroldCrump (Jun 10, 2009)

james4beach said:


> There's a big difference between what Buffett does and what retail investors do.
> Buffett has direct connections into management at these companies. He knows what's going on because he has good information.


Warren Buffet circa 2014 is not the same Buffet circa 1990 is not the same Buffet circa 1969.
He, like everyone else, has evolved and changed over the years.

These days, not only does he have direct connections into management, he has deep connections and influences within the political and economic structure of the US.
He is able to score deals and manipulate situations in ways that none of us can even dream of.

None of us can, for instance, walk up to the board of Goldman Sachs or Bank of America and buy for ourselves convertible preferred shares at firesale prices with guaranteed high yield dividends.
Neither can we influence the direction of America's energy policy, and geo-political policy.


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## humble_pie (Jun 7, 2009)

Eclectic12 said:


> My co-worker was keen on it so we attended the session [options]. He decided that when he was more established so that he more time, he'd revisit it but for now, it's more work than he wants to do


but how did you decide, for yourself, since you both attended?

alas, there's a steep learning curve right at the beginning of option trading.

some people have the knack. I can usually tell from their debut questions here in the forum whether they have the knack or not. Argo & avrex had visibly accurate knacks right off the bat.

there are others here who don't post much but they pace along steadily with their options in a fairly conservative, non-metatheta kind of way. Sort of like i do myself.




Eclectic12 said:


> I can't help thinking you are underplaying the making money part. I have no doubt that the game is a powerful motivator but I have my doubts that you'd keep playing if there's steady losses without profits


u are right! how did u guess! i do have net supra-index profits over time!

not by a grandiose amount, though, so if it were not so much fun i would not do it ...


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## fatcat (Nov 11, 2009)

james4beach said:


> There's a big difference between what Buffett does and what retail investors do.
> 
> Buffett has direct connections into management at these companies. He knows what's going on because he has good information. Retail investors don't.
> *Buffett actually reads financial statements*. Retail investors don't.
> ...


why would i even _think_ of doing all that research when there are analysts who read this stuff and i can read their summaries by the dozen ?
no one person can even come close to understanding the full scope of a very large company like apple or suncor

the numbers ? ... there are now so many numbers that can be manipulated so many ways, that they are meaningless

you look at the company itself and its product or service, its competition, reputation, it "moat" so to speak, its record of dividends or growth, market cap and yes, you follow the analyst who read this stuff for a living full time and whose findings are freely available then you make your call

there are dozens and dozens of people who do nothing but read and follow everything that procter and gamble does, why would i bother ?

if you own more than about 5 stocks you don't even have the time to do what you suggest
you overestimate yourself and your investing skill james

good companies have pedigrees that are well known .... they are the usual suspects

the real key is not reading all the reports and the numbers, the real key to investing is cash management and holding on long enough to bring out a decent profit, that has always been buffets best advice


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## humble_pie (Jun 7, 2009)

fatcat said:


> why would i even _think_ of doing all that research when there are analysts who read this stuff and i can read their summaries by the dozen ?
> no one person can even come close to understanding the full scope of a very large company like apple or suncor
> 
> the numbers ? ... there are now so many numbers that can be manipulated so many ways, that they are meaningless
> ...



could not agree more
never reinvent the wheel
if a major company says Boo the media are going to report analyst quotes all over it

PS james4 surely u want to look at the fundamentals in VRX? charts in valeant are hopelessly misleading. A little attention to media reports would have gone a long way ...


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## Eclectic12 (Oct 20, 2010)

humble_pie said:


> but how did you decide, for yourself, since you both attended?
> 
> alas, there's a steep learning curve right at the beginning of option trading.


I pretty much went into the session with a good understanding of the concept ... the details I heard put me in the category of needing to learn more ... which so far I haven't spent the time yet. Some of the detailed posts on CMF suggest from time to time that I could start ... but usually it's when I'm crunched for time.


Cheers


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## My Own Advisor (Sep 24, 2012)

I know we're off topic on this thread...but no way I could count on myself to execute options successfully over time. It seems tempting though.


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## fatcat (Nov 11, 2009)

humble_pie said:


> if a major company says Boo the media are going to report analyst quotes all over it


i was trying to think of exceptions to this rule and only lehman brothers came to mind, which sank like the empress of ireland but nortel, chrysler, general motors et al went down with no shortage of analysts calling attention to problems and pointing out vulnerabilities


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## james4beach (Nov 15, 2012)

fatcat said:


> why would i even _think_ of doing all that research when there are analysts who read this stuff and i can read their summaries by the dozen ?


Because the "analysts" have a well established history of being biased, fraudulent and irresponsible. They recommended tech stock when they were heavily overvalued, and pushed worthless companies on unsuspecting investors. They also endorsed financial companies and banks just shortly before they all collapsed. They were even endorsing US banks that -- according to the most basic metrics -- were in deep financial trouble.

Analysts have tremendous conflicts of interests. Their investment banks have positions in these stocks, or underwrite them, or underwrite their debt, or are underwriting M&A, or receive fees from the company for promotional purposes, etc. It's a very biased relationship and you can't trust anything these analysts say.



> the numbers ? ... there are now so many numbers that can be manipulated so many ways, that they are meaningless


This is true, that accounting is fully of trickery & games. But while you can skew numbers one quarter, the truth usually comes out over longer periods like 2 to 5 years.

Still, this is no excuse for failing to analyze the financial statements. The audited statements are one of your only hopes of figuring out the true financial situation of an investment. Yes, it's still potentially manipulated and can't be trusted 100%, but it's a heck of a lot more accurate than some "analyst" who puts a stamp and smiley sticker on any junky stock that he's paid to analyze positively, because his investment bank has a big interest in underwriting its stock, etc.

Reading financial statements *yourself* is your only hope of not being screwed in the investment world.



> you look at the company itself and its product or service, its competition, reputation, it "moat" so to speak, its record of dividends or growth, market cap and yes, you follow the analyst who read this stuff for a living full time and whose findings are freely available then you make your call


This is ridiculous. This is not enough to properly analyze a company, but yes it is how most people do it, which is why most people lose money in stock picking over long enough horizons.


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## james4beach (Nov 15, 2012)

humble_pie said:


> PS james4 surely u want to look at the fundamentals in VRX? charts in valeant are hopelessly misleading. A little attention to media reports would have gone a long way ...


I already wrote with VRX that it's a pure gamble, and I'm gambling with money. It's not investment.


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## fatcat (Nov 11, 2009)

james4beach said:


> Because the "analysts" have a well established history of being biased, fraudulent and irresponsible. They recommended tech stock when they were heavily overvalued, and pushed worthless companies on unsuspecting investors. They also endorsed financial companies and banks just shortly before they all collapsed. They were even endorsing US banks that -- according to the most basic metrics -- were in deep financial trouble.
> 
> Analysts have tremendous conflicts of interests. Their investment banks have positions in these stocks, or underwrite them, or underwrite their debt, or are underwriting M&A, or receive fees from the company for promotional purposes, etc. It's a very biased relationship and you can't trust anything these analysts say.


your well known paranoia is showing james, you look at many analysts not just one and if you are seriously saying that all analysts are somehow morally compromised then we are at the end of our discussion ... all those guys who guest on BNN are crooked ? .. do i have that right ?



> This is true, that accounting is fully of trickery & games. But while you can skew numbers one quarter, the truth usually comes out over longer periods like 2 to 5 years.


james, try to get this through your head, when you buy a company, you are buying a lot more than numbers, you are buying products and services 

when you buy procter and gamble as an example, you are buying pampers diapers ... are you suggesting that babies are going to stop sh*tting ?



> Still, this is no excuse for failing to analyze the financial statements. The audited statements are one of your only hopes of figuring out the true financial situation of an investment. Yes, it's still potentially manipulated and can't be trusted 100%, but it's a heck of a lot more accurate than some "analyst" who puts a stamp and smiley sticker on any junky stock that he's paid to analyze positively, because his investment bank has a big interest in underwriting its stock, etc.
> 
> Reading financial statements *yourself* is your only hope of not being screwed in the investment world.


 but what if *you* read them *wrong* james ? :biggrin:



> This is ridiculous. This is not enough to properly analyze a company, but yes it is how most people do it, which is why most people lose money in stock picking over long enough horizons.


there is a difference between owning good companies for long periods and stock picking / active trading

i admit, i drink the buffet kool-aid because (despite his faults) frankly, his is the only advice (and example especially) i have seen that will actually work with certainty: pay close attention to cash management and buy good companies with market leading products and services and hold them long enough to let their quality shine

i just painted my bathroom with benjamin moore aura paint ... amazing ... well worth the $72 a gallon ... i wonder who owns them ?


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## james4beach (Nov 15, 2012)

I own Berkshire stock by the way.

Yes, doing your own analysis of a company, it's always possible you screw up your analysis and make bad mistakes.

But frankly, after seeing virtually every analyst in the industry endorse US banks in the months before their crisis... I can't see how they have any credibility left as an industry.


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## james4beach (Nov 15, 2012)

This thread got off topic. Back to ZUT,

Today I sold my ZUT position at 15.55 ... giving me a total return of +6.0%. Reasons I dumped ZUT

* decent exit point now, as it's had this 15% rally from last year's low
* it's a PFIC for US tax purposes and the IRS requires ridiculously complex disclosures (I have to file a US return)
* has been a poor performer, and distributions have been substantially cut over time
* MER too high
* fund has been shrinking over the last couple years (# of outstanding shares decreasing)


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## gibor365 (Apr 1, 2011)

james4beach said:


> * has been a poor performer, and distributions have been substantially cut over time
> * MER too high
> * fund has been shrinking over the last couple years (# of outstanding shares decreasing)


Those are reasons when I unbundled ZUT several months ago.... I hold FTS, EMA and SO:NYSE (CU is on my watchlist) -> I like predictable dividend growth every year.... james, so what you gonna do with proceeds? buy individual utilities or what?


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## james4beach (Nov 15, 2012)

It's going into cash for now. I am unnerved by the complexity of the US tax situations I face (see the thread). The IRS is bullying me out of my Canadian ETF positions and I'm angry about this. I have to re-think how to position my investments, but cash and GICs have no tax complications so they're the path of least resistance for now.

I'm in no hurry to buy any new equities. Valuations are universally high. Stock indices are at all time highs. At the same time, my job situation is (as always) not very secure so keeping lots of cash on hand is always good.


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## Pluto (Sep 12, 2013)

james4beach said:


> *Buffett actually reads financial statements*. Retail investors don't.
> Buffett does this full time. Retail investors don't.


I watched a clip of him on youtube; I think it's the one where he talked of buying Petro China back around 2008. If I remember correctly he said he read 2000 annual reports in one day. that's maybe 2 to 3 minutes per annual report. It doesn't sound like he is doing the kind or reading you suggest. It's more like he is looking for something specific, and if he doesn't see it he moves on to the next one. And I doubt if he does that full time. There's nothing like a market crash to motivate one to crank through 2000 in one day looking for a bargain.


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## james4beach (Nov 15, 2012)

Berkshire is not a one-man show. He's got tons of managers and besides, Buffett doesn't even manage the stock picks -- another manager does.

I assure you people at Berkshire read the financial statements before they acquire companies.


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## Pluto (Sep 12, 2013)

james4beach said:


> Berkshire is not a one-man show. He's got tons of managers and besides, Buffett doesn't even manage the stock picks -- another manager does.
> 
> I assure you people at Berkshire read the financial statements before they acquire companies.


I assure you that it wasn't one of his managers being interviewed, it was the man himself. Watch the video. 
I think you are making it way more of a chore than it needs to be. If you know what you are looking for, you can dismiss thousands of them very quickly, and focus on maybe half a dozen, or less. You should be able to crack a half dozen in a three days or less. So what's the big deal? Besides, one doesn't need to read them anymore as you suggest.


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## james4beach (Nov 15, 2012)

We should really move this to a Berkshire thread...

I'm sure Buffett, Munger and the stock portfolio managers all skim through and screen tons of financial statements in the pursuit of great companies to invest or buy. Yes I agree this can be done quickly. Every analyst has their own quick metrics and rules of thumb to determine if a company is in good shape or bad shape.

But when it comes to actually deciding to invest in them, as in actually putting money down (either buying stock or buying the company outright) they are most definitely reading the financials inside & out. It makes sense to quickly skim documents to screen them, to isolate a few promising companies. Then you study those in detail.

My original point was that unlike the managers at BRK, the retail investors on this board don't ever look at financial statements. This is just one way that retail stock picking is extremely unlike the way BRK decides to acquire companies. You think they just went and bought BNSF because it sounded like a cool name, trains seem to have a future and they read a magazine article on it?

Compare that to investors on this board, who literally go and buy bank stocks because they do business with bank X, think the bank seems like a pretty sharp operation and figure they will always make lots of money no matter what happens. This is insanely reckless behaviour! What about the bank's capital position, amount of leverage, risk exposures, risk of equity dilution, off balance sheet derivative exposures, loan portfolio, vulnerability to capital markets, foreign exposures, vulnerability to housing... nobody ever considers this stuff.

I know even wealthy investors who show this same cavalier attitude to stock picking. A family friend of ours, an accomplished accountant, heavily invested in Citigroup shortly before 2007. He never bothered to read their financial statements, he just figured it was a well known brand and a big established company. Of course his investment was decimated. But this is how retail approaches stock investment: don't bother with analysis, don't bother with math, don't bother with critical thinking.

Many retail investors have this notion that that they're virtually the same as Buffett... which I find ludicrous: they don't have the experience, they don't put in the time to analyze numbers, they don't have the opportunity to talk to managers, they don't have a second pro (Munger) for a sober second thought, and they don't have a fleet of managers in a huge range of companies under ownership that are regularly reporting to them the general state of the economy and other vital reports from the field.

Buffett has lots of other things you don't have. He has connections everywhere in big industry. When General Electric couldn't pay its daily bills and became de facto insolvent, do you think they phoned up humble_pie or dogcom for an opportunity to lend them money? No... but they can come to BRK and say, listen guys we're totally screwed because we're inept at managing our cash, how about we sell you X million $ of warrants yielding Y% maturing in year Z etc etc

Sorry to ramble on but I feel scared when small investors get the message that "they can do the same thing Buffett does". Retail investors, generally, are ridiculously over-confident in their abilities to profit in stocks long-term. A bull market like our current 5 year one only fuels this over-confidence further. It's dangerous and it's going to lead to widespread losses. I'm trying to help people avoid these costly mistakes.


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## Pluto (Sep 12, 2013)

james4beach said:


> I know even wealthy investors who show this same cavalier attitude to stock picking. A family friend of ours, an accomplished accountant, heavily invested in Citigroup shortly before 2007. He never bothered to read their financial statements, he just figured it was a well known brand and a big established company. Of course his investment was decimated. But this is how retail approaches stock investment: don't bother with analysis, don't bother with math, don't bother with critical thinking.
> 
> 
> Sorry to ramble on but I feel scared when small investors get the message that "they can do the same thing Buffett does". Retail investors, generally, are ridiculously over-confident in their abilities to profit in stocks long-term. A bull market like our current 5 year one only fuels this over-confidence further. It's dangerous and it's going to lead to widespread losses. I'm trying to help people avoid these costly mistakes.


reading Citigroup financial statements probably wouldn't have helped him avoid problems. What is in their pre 2007 statements that foretells the real estate problems and a couple of banks going bust in 2008? Anyway, I share concerns about an aging bull market. Investors are having a wonderful don't worry, be happy summer, the opposite of a horrifying 2009 winter. Hmmm. Time to reread Lynch's "Cocktail party".


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## HaroldCrump (Jun 10, 2009)

Pluto said:


> What is in their pre 2007 statements that foretells the real estate problems and a couple of banks going bust in 2008?


Just ask *Meredith Whitney*


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## james4beach (Nov 15, 2012)

Pluto said:


> reading Citigroup financial statements probably wouldn't have helped him avoid problems. What is in their pre 2007 statements that foretells the real estate problems and a couple of banks going bust in 2008?


Not true, from what I read. I read Citi financials and I decided to _short_ Citigroup.

There were so many warning flags. Tons of intangible assets, tons of goodwill propping up the balance sheet. Tremendous leverage. Questionable, overoptimistic loan loss reserves. Tremendous off balance sheet derivative exposures. Ridiculous surprise losses propping out of the blue.

Just the capital position and leverage alone was enough of a big warning sign. And once large losses started emerging, it became clear their investments and assets were blowing up on them.


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## HaroldCrump (Jun 10, 2009)

james4beach said:


> I read Citi financials and I decided to _short_ Citigroup.
> 
> There were so many warning flags. Tons of intangible assets, tons of goodwill propping up the balance sheet. Tremendous leverage. Questionable, overoptimistic loan loss reserves. Tremendous off balance sheet derivative exposures. Ridiculous surprise losses propping out of the blue.


Did you also short JPM in 2011/2012?
Based on your description, you should have.
Everything you said applies to JPM...


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## james4beach (Nov 15, 2012)

I didn't short JPM but I did short XLF, an ETF for the lot of 'em


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