Nov 032016
 

Motivational speaker Tony Robbins interviewed self-made billionaire Ray Dalio for his book, Money; Master the Game. Ray heads the largest hedge fund in the world, Bridgewater Associates, which has over $150 billion in assets under management.

The All Weather Portfolio

According to Ray, “there is one thing we can see with absolute certainty: every investment has an ideal environment in which it flourishes. In other words, there’s a season for everything.” The four seasons he refers to are the following.

  1. Inflation
  2. Deflation
  3. Rising economic growth
  4. Declining economic growth

He suggests that these 4 economic environments will ultimately affect whether an asset’s price will increase or decrease. So for example, bonds should outperform in a deflationary period. Ray elaborates by saying we should have 25% of our risk spread out evenly across all 4 economic seasons. This is why he calls this investment approach “All Weather.” There are 4 seasons in the financial world and nobody knows for sure which one is coming next. So the idea is to keep a balanced portfolio that will not only make us money, but also help protect us against any surprises in the markets. Here are some assets we can allocate to each of the four categories, and keep in mind it’s possible for two of these conditions to overlap.

16-11-all-weather-ray-dalio-all-weather-quadrants

This is an interesting strategy. I’ve always had a bullish bias towards investing. In other words, my investment decisions are based on the idea that financial markets tend to increase with economic growth over the very long run, so I don’t try to short anything. But Ray’s approach suggests that it’s possible to make money even in environments of economic decline and deflation that doesn’t involve timing the markets.

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Apr 242012
 

I recently updated my Dividend Subsidizing Hedge Fund thanks to a reminder from a reader. I’m receiving more subsidies now in all categories. The biggest WIN is that my monthly electricity bill is now 100% subsidized by the utility industry and its partners. This means I don’t have to pay another dime of my hard earned money to pay for my electricity usage ever again (or at least for the foreseeable future.)

I have been slowly buying shares of energy distributors over the last few years, and now I finally have enough of their stocks to receive the dividends needed to fully fund all my electricity needs. It took 3 years and over $8,000 of my personal savings but it’s totally worth it (^o^) My most expensive electricity bill ever was $28, but for most months it’s under $25. To be safe I’m going to assume I spend $30 every month on electricity. However I also get $30 of dividends a month from companies in the business of providing electricity to people’s homes. This $30 dividend is kind of like a rebate, because I’m basically getting a 100% refund from the same group of people whom I just paid. If I became unemployed tomorrow, I don’t have to worry about not having power at home since my electricity bill will technically be paid for, by its own industry.

Here are the companies paying my hydro-electric bill right now.

Just Energy (JE.TO)
They sell electricity to residential and commercial clients. They currently have a dividend yield of a jaw dropping 9.75% and is traded on both the Canadian and US stock markets. Some of their products are sourced from renewable energy like wind, hydro, or biomass. I have $1920 worth of stocks in this company.

Enbridge (ENB.TO)
A pipeline company that mainly distributes gas but is also in the business of alternative energy and power transmission. Its dividend yield at 2.89% may not be as high as other utility companies but most of its growth comes from its appreciating stock price, which is up over 50% since I bought it in 2009. I currently have $1520 worth of Enbridge shares.

SNC Lavalin (SNC.TO)
A world class engineering company that makes dams, bridges, reservoir, power stations, etc. SNC doesn’t provide electricity to people, but they work closely with BC Hydro, and other utility companies. They are an essential part of the energy infrastructure in this country and around the world. And part of the reason our electricity bills keep going up is because companies that make electric generators like SNC are charging more to build and maintain them. There dividend is 2.41%, and I own $5265 worth of shares in this company.

My stock holdings in those 3 companies above provide me with $360 of dividend income per year. As long as everyone else in society is paying their electricity bills on time these companies will continue to make money, and continue to distribute dividends, which means I’ll continue to receive enough funds to cover my own hydroelectric usage.  Unfortunately there is no direct way to invest in the equity of BC Hydro (my actual electricity provider) otherwise I would. This is the bane of government operated services. There’s no competition and no way for investors to benefit if the company performs well. On the other hand, a crown corporation does keep electricity prices predictable, and makes society more stable, so I can’t complain too much.