Jan 212016
 

Netflix

I like to maintain an active lifestyle. So in 2014 I invited the popular online streaming service, Netflix, into my home because I wanted to do a marathon. 😆 After all, watching TV burns 70 calories per hour.

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Then earlier this week I welcomed Netflix (NFLX) into my stock portfolio. 😀

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The price of oil is falling, the global economy is slowing, many countries are in recession, and company earnings aren’t growing. But none of the gloomy financial and economic news in the world today have a negative impact on the the business of Netflix. 😀

However, this is somewhat of a contrarian play. 😌 NFLX has a price to earnings ratio of over 300 so it’s not a value stock. It also doesn’t pay a dividend so everything depends on the future appreciation of the stock price. Am I bullish on Netflix? Nope. 😥 But I decided to buy some shares anyway as an insurance against global cord-cutting.

Cover all the bases

I believe that media and entertainment will always be a strong industry. It’s hard to figure out which media conglomerates will expand their market share in the long run so my investment strategy is to diversify and own all of the big companies. This way, I don’t have to choose potential winners and losers because I’ll profit from the entire sector. 😉 A few years ago I blogged about doing the same thing for the coffee industry where I invest in large franchises such as Starbucks and McDonald’s. As it turns out all my coffee stocks have gained over 100% in value since I bought them! I’m using the same reasoning again now. Some people watch HBO while others prefer Netflix. I don’t know which service will have more viewers 10 years from now, but if I invest in the entire sector then I should be covered. :) With the addition of NFLX, my basket of media and entertainment stocks now feels complete.

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Dec 212015
 

Maximizing Utility

Earning money is a learned skill. If we put in the time and effort, we can learn to increase our earning potential. But making money is only half the battle.

An equally important aspect of personal finance is spending money. :) Some people may not realize it, but spending is a learned skill as well. This means we can learn to become better shoppers. Knowing where to look for deals, buying in bulk, and eating with the seasons will naturally help us save. But if we buy an expensive blazer on sale and only wear it once, then are we really saving money, or are we spending our earnings on something we don’t really want to keep? 😩

This is why part of being a skilled spender is understanding how much utility we’ll get out of our purchase. Utility refers to the total satisfaction received from consuming a good or service. For example I normally wouldn’t pay for a donut. 🍩 In fact, even if it was free I probably still donut want one. I’m just not a big fan of the hole thing. 😆 But I’ll gladly pay for a Hershey’s Cookies ‘n’ Creme. That’s my favourite chocolate bar!🍫 So to maximize my utility I would pick a Hershey’s over a donut given those two choices, even though the Hershey’s is likely more expensive. In other words, the value of my purchase comes from how much enjoyment it gives me, – not from what I paid for it. 😉

Consumers who understand this correlation between their spending and utility are smart. :) They tend to be excellent spenders since they don’t waste their hard-earned income on rubbish that doesn’t give them much fulfillment. Economists even have a unit of measuring enjoyment or utility, called Utils. 😀 At the end of the day it’s not about maximizing savings, but it’s rather about maximizing happiness. :) Instead of looking for deals on pricing, we should be looking for bargains on satisfaction. 😀

My $1,500 Gift

I noticed I had some money sitting around. So after considering what brings me enjoyment and satisfaction, I’ve decided this year for Christmas to buy myself some new stocks in my tax deferred account. :) So last week I purchased 20 shares of media company Viacom Inc (VIAB,) and 10 shares of the well-known retailer, Wal-Mart (WMT.) The total cost came to about $1,500 USD, rounded to the nearest hundred. This will be my last investment of the year.
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Nov 232015
 

Discounted Reinvest Plan 👌

Normally when we buy a stock we can expect to pay the market price for it. But there’s a guaranteed way to purchase certain stocks at a discount to the market every time. :)

This unfair advantage has saved me hundreds of dollars so far!

Stocks that pay dividends often offer a Dividend Re-Investment Plan (DRIP) for its shareholders. I’ve written about how that works in previous posts. It basically means instead of receiving cash distributions, investors can choose to reinvest the dividends by automatically buying more shares or units of the same stock.

Today I will demonstrate this example with one of my holdings, Smart REIT, which I blogged about a couple months ago. Currently Smart REIT (SRU.UN) pays a distribution of $0.1375 per unit every month.

The distribution date for this month was on November 16th. The average TSX market price of SRU.UN over the 10 business days prior to this date was used to determine the DRIP price for existing investors who wish to reinvest their distributions.

The average price of SRU.UN over the 10 trading days preceding the monthly distribution date was about $31.32. This is the market price that most investors would have to pay. However, when my Smart REIT distributions re-invested, I was able to purchase a new unit this month via DRIP for only $30.44, as shown in my portfolio activity below.

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$30.44 is 97% of the average price on the market over the 10 business days. 😀 This 3% discount in this cased saved me 88 cents! Wow! 💰

DRIP Purchase Discounts

DRIP discounts are very effective at retaining investor loyalty. :)

Unitholders who elect to participate (in the DRIP program) will see their monthly cash distributions automatically reinvested in units of SmartREIT at a price equal to 97% of the average TSX market price over the 10 business days preceding the monthly distribution date.” ~Smart REIT’s website.

While everyone else pays the market price to acquire SRU.UN, existing investors who DRIP can pick it up for cheaper. Other companies like Enbridge and Sun Life Financial offer DRIP discounts too. Some REITs such as Allied Properties even offer discounts up to 5% to its investors! Imagine purchasing new shares and units of our favorite companies that we already own, and paying less than market price for it every time with no commissions or fees. :) Great Scott! Over time this should give us a significant leading edge over other investors who don’t DRIP and only purchase stocks at market price.

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Nov 202015
 

Investing in Energy Infrastructure – TransCanada Corporation

Pipe dreams can come true. We just have to find the right pipeline company to make it happen. :) In today’s post I’ll explain how to earn a tangible profit in the stock market with minimal effort and risk. And the best part is we don’t need any savings to do this. 😉 I actually use this strategy a lot for my retirement planning. It’s known as the Stable Leveraging technique.

The purpose of stable leveraging is to use credit in a low-interest rate environment to harness the high yielding potential and long term stability of energy infrastructure companies in order to make some easy money. And it only takes a few minutes to set up if we already have a discount brokerage account.

 

How does Stable Leveraging work?

We simply use borrowed money to invest in common shares of pipeline companies. Then we use the earned dividends from the investment to pay off the interest incurred from the loan until the economic situation changes.

This investment philosophy is very different than “I have $X. What should I invest it in?” because Stable Leveraging assumes we have no money to begin with and therefore puts the risk of investing on both the borrower, and the lender.

What do we need to make the stable leveraging strategy work?

  1. A publicly traded, large-cap, blue-chip, dividend growth stock in the pipeline sector that’s been operating for at least 50 yrs.
  2. This stock must also be trading at a discount relative to its peers, and its own historic P/E ratio.
  3. A reliable source to borrow cheap money from, that costs at least 1 percentage point less than the pipeline stock’s yield.
  4. A 10 year investment horizon minimum, and the stomach to deal with market fluctuations.
  5. An exit strategy.

These 5 criteria are the essential ingredients to pulling off this maneuver successfully with minimal risk. 😉 One company that foots the bill is TransCanada Corporation.

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Earlier this week I purchased 100 shares of TransCanada Corp (TRP) using 100% borrowed money. I will use my example to demonstrate the advantages of implementing stable leveraging. TransCanada is publicly traded on both Canadian and U.S. stock exchanges. 😉

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I paid commission of $9.99 to make this trade, so the total cost is $4,209.99. For the purpose of this post I’ll use $4,200 to make the calculations look cleaner and to make the strategy simpler to explain and understand.

I used my margin account at TD to borrow about $4,200 to buy 100 shares of TRP at $42 per share. The rate of interest I incur on this borrowed money is 4.25%, which would be the same as anyone else using TD’s services. But since I borrowed the money to invest, my 4.25% annual interest rate is tax deductible which makes my effective after-tax cost 3.0% per year on the $4,200 loan.

I used the loan to purchase 100 shares (for $4,200) of TransCanada Corp, which at the time, had a dividend yield of 5.0%. Since these dividends are eligible for the Federal Dividend Tax Credit, my after-tax dividend yield is 4.8% per year.

Since my effective cost of borrowing is currently 3.0%, and I’m earning 4.8% on my TRP investment, the difference between the two (1.8%) is how much I take home each year. 1.8% of $4,200 is about $75. It’s not much, but it’s $75 of passive income nonetheless. The balance of my loan will remain at $4,200. The principal does not get repaid. Dividends are deposited into my account, and interest payments are withdrawn automatically. :)

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Nov 052015
 

The Marijuana Industry

More and more investors are noticing the high market potential of cannabis. 😀 It’s easy to see why. Data suggests that the budding marijuana industry is one of the fastest-growing in North America. In 2013, the total revenue of the legal pot industry in the U.S. totaled $1.5 billion. By 2014, revenue jumped to $2.7 billion. It’s expected to reach $3.5 billion this year, and then up to $4.5 billion in 2016.

Those aren’t particularly large numbers. By comparison, the beer industry in the U.S. is about $100 billion a year. But the weed industry has a lot more potential for growth. Nearly half of the states in America have already legalized marijuana for medical use. And a handful of them even approved it for recreational use. :)

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The problem with investing in pot companies in the past was simply that the market wasn’t big enough, and the industry’s future was too uncertain. Banks and venture capitalists were reluctant to financially back cannabis companies due to legal issues and the high-risk nature of a largely unregulated substance. :(

However, ever since Colorado and Washington legalized the recreational use of pot in 2012, there has been a great amount of pressure for more states to do the same. Next year voters in at least 7 more states will consider the decriminalization of marijuana.

Funding for marijuana start-ups now is more abundant compared to a few years ago. Dooma Wendschuh is an entrepreneur who makes distilled marijuana extracts. At an investor summit in Denver earlier this year, Wendschuh says he was “besieged by millions of dollars” worth of unsolicited offers to invest in his company. A quick look at his profit margins will explain why. He produces the extracts for only $2, and sells them for $35. 😮 “If you make it, it will sell. It’s unreal,” Wendschuh explains. The industry is slowly losing its stigma and is becoming a more legitimate market for a wider range of investors and financiers. :)

Investing in Pot

What got me interested in this market was Justin Trudeau’s victory last month in the election. I’m not just blowing smoke here.😆 His Liberal Party campaigned on the promise to legalize cannabis on a federal level. Since he has a majority government I’m expecting policy changes to get passed through parliament relatively quickly. The federal and provincial governments will have to work together on new marijuana legislation, so I guess you can call it a joint venture. 😜

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