Jun 012020
 

Energy sector bounces back

The human brain can often exaggerate negative emotions in the midst of uncertainty. It’s why otherwise calm drivers are susceptible to road rage behavior. Similarly, a stock market crash can cause investors to fixate on the bad news, lose perspective, and extrapolate recent trends into a dreadful future. Here’s a business headline from mid March.

But this type of thinking, although understandable, can lead to some costly mistakes. That’s why I suggest a more rational approach to managing money. First, we should realize that this time is not different. This isn’t the first worldwide economic shock. And it won’t be the last. Given the assumption that things will go back to normal we next have to look for opportunities in financial markets – where we can find mispriced, long term assets. So when stocks fell 30% earlier this year I suggested it was a time to buy, not sell.

A couple of months ago oil fell to $20/barrel. In the past 70 years this has only happened one other time so it’s a very rare phenomenon. I blogged about investing while the price of oil was unsustainably low. And in March I disclosed buying 1300 shares of Suncor (SU), and 500 shares of Canadian Natural Rss (CNQ) – two of the largest Canadian energy companies.

Today oil has climbed back up to $35/barrel and my combined ROI on those two stocks is 37.3%. That’s a gain of roughly $12,000 in two months. Bear markets don’t happen every year. That’s why when opportunities like this arise, it’s important to pay attention and take action. 😉 I haven’t sold these oil stocks so there’s no realized profit yet. But it’s still nice to see a climbing net worth.

 

Liquid’s Financial Update May 2020

*Side Incomes: = $4,600

  • Part time job =$800
  • Freelance = $100
  • Dividends =$1300
  • Interest = $600
  • Rent = $1,800

*Discretionary Spending: = $1,800

  • Food = $300
  • Miscellaneous = $600
  • Interest expense = $900

*Net Worth: (ΔMoM)

  • Total Assets: = $1,530,200 (+$19,400) 
  • Cash = $53,300 (+5400)
  • Canadian stocks = $301,200 (+7,200)
  • U.S. stocks = $149,900 (+4300)
  • U.K. stocks = $18,900 (+200)
  • Retirement = $153,100 (+1000)
  • Mortgage Funds = $36,200 (+1100)
  • P2P Lending = $36,600 (+200)
  • Home = $331,000 (assessed land value)
  • Rental Unit = $450,000 (2020 purchase price)
  • Total Debts: = $521,800 (-4,000)
  • Home Mortgage = $181,800 (-400)
  • Rental Property Mortgage = $312,800 (-700)
  • Margin Loans = $27,200 (-2900)

*Total Net Worth = $1,008,400 ($20,400 / +2.1%)
All numbers are in $CDN at 0.73/USD

 

Getting back to normal

Unfortunately Suncor has cut its dividends by 55% since my last purchase. But both SU and CNQ are profitable long term so I will continue to hold these names in my portfolio.

We still don’t know the final outcome and repercussions of this pandemic. The economy is slowly starting to open up again. But life for average folks will lag significantly behind the financial markets. According to the CFIB, half of all small businesses cannot pay their June rent unless the government steps in with more financial aid.

Europe is starting to remove some lockdown measures. Japan lifted all of its national emergency controls last week. As the world cautiously returns to normal there will probably be more unexpected news and economic hiccups. But volatility is part of the process, and the world will get through this one way or another. All we can do as individuals is to manage our own personal finances so that we’ll have a healthy, robust investment portfolio on the other side of this. 🙂

 

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Random Useless Fact:

Dogs are often good judges of character.

Aug 242015
 

How to make money in oil regardless of market conditions

Drilling for oil can be such a boring job. ? At least it provides a good income, though. But it’s becoming harder these days to find work in the oilfields. A year ago oil was trading at $90/barrel. Today, WTI has fallen below $40/barrel. Canadian crude is selling for even less, at around $30/barrel. Ouch!

15-08-crude-oil-price2015-1-year

Many oil producers are currently operating at a loss because $40/barrel is below their break-even point. It can take many years for oil prices to turn around. The problem is we don’t know exactly when the recovery will happen. If we did, we would probably all be retired right now. 🙂

15-08-break-even-price-oil-profitable-business

Oil stocks are not doing so hot these days. However, there are other ways to still make money from the oil industry, despite the bleak market conditions. 🙂 One way is to write covered calls. But today I’d like to discuss a different approach.

Since the start of this year, Western Energy Services Corp (WRG), has lost about 23% of its value. It could be worse, considering the price of crude oil has fallen about 27% over the same period. But who knows how much lower WRG shares can fall if the price of oil drops further? Fortunately, this company also issues bonds.

When Stocks Underperform, Look Towards Bonds

So last week I bought $5,000 face value of Western Energy Services bonds, with a 7.875% coupon interest rate, maturing in January 2019. I was able to buy it pretty much at par value, which is nice. 🙂 Even though the company is barely making a profit, it’s still obligated to pay me 7.875% every year. Interest is paid to bond holders before dividends are paid to shareholders. ?

15-08-western-energy-services-bond-buy

Related Post: What is a bond?

Thanks to the new bond investment my passive income is now $393.75 a year higher. Woohoo! ?  The yield to maturity for this high yield bond is about 8% a year. This rate of return is safe 🙂 as long as the company doesn’t file for bankruptcy protection before January, 2019. Here are some benefits of buying the bond of this company rather than its stock.

  • The bond pays 8% annual return. The stock only pays a 6.5% annual dividend.
  • Bonds are inherently less risky than stocks.
  • The stock dividend might get cut if the price of oil remains at these low levels. But the bond interest rate does not change.
  • If the company goes bankrupt the stock holders will lose all their money. But the bond holders can liquidate the company’s assets to recoup some of their losses.

Continue reading »

Dec 302014
 

Financially speaking this has been the best year for me so far. Here’s a 2014 year end review and some updates about what’s been going on in my personal life.

Braces Removed

Earlier this year I decided to get braces for financial reasons. According to my research people with very straight teeth make more money than the average person. The total cost was $2,000 but I think this will turn out to be a great investment in the long run. So here’s an update. A couple of weeks ago I got them removed!

14-12-braces-food

My teeth look great and I’m more confident about my smile 😀 which, according to science, should help me earn more money. 😉 The only issue now is I have to wear a retainer pretty much all the time which makes me sound kind of funny when I talk lol.

Stock Markets Climb

Last year in 2013 the U.S. stock markets gained 30% so many investors decided to sit out in 2014 because they thought stock prices were overvalued. But the Dow in the U.S. gained 9% this year, and up here in Canada the TSX gained about 7%. These 2014 gains are on par with average historical stock market returns. This just goes to show that we should not try to predict future market performance using information from the previous year.

Buy stocks for the profitable companies they represent. For example, I posted my analysis for Dollarama, and explained with logical reasoning why this recession-proof business should outperform going forward. I also blogged about investing in Time Warner, and 21st Century Fox and discussed why these are excellent long term investments.

Today, Dollarama shares are up 34% from when I bought them. Both Time Warner and Fox shares have also returned double digits from my purchase price. No wonder my net worth has been growing like a weed. 🙂 It’s no big deal really. I’m not a stock picking wiz or anything. 🙄 Investing simply works for anyone who follows the basic principles of buying great companies at decent valuations! 😀

Oil Price Slump

Unfortunately, not everything is up this year. The one area of my portfolio that suffered lower prices was oil companies. Luckily I’m well diversified so the impact wasn’t that bad. The important thing is to hold onto large cap energy producers like Suncor and Canadian Natural Resources. Despite the oversupply of oil in the world Suncor shares are still worth more today, $37/share, than when I purchased it last year at $28/share. Large companies don’t get hurt as much when the sector in general underperforms.

Tim Hortons Resolution

Many of you have asked me what I plan to do with my 20 shares of Tim Hortons now that Burger King is buying them. There are usually a few options for shareholders when their company is being taken over. My 3 options, specifically in this case, are:

  1. Cash Tender – To receive $88.50 CAD for each common share of Tim Horton Incorporated tendered.
  2. Stock Tender – To receive approximately 3.0879 common shares of Holdings (to be renamed later) for each common share of Tim Horton Incorporated tendered.
  3. Cash & Stock Tender (Default Option) – To receive $65.50 CAD plus approximately 0.8025 of a common share of Holdings (to be renamed later) for each common share of Tim Hortons Incorporated tendered.

I am going with the default option number 3. I purchased Tim Hortons share for about $50 each back in 2013. Option 3 basically gives me an immediate 30% return on my investment, plus I’ll receive shares in the new holding company, which is a nice bonus. 🙂 I also don’t have to worry about taxes because the transition will take place in my Tax Free Savings Account.

Continue reading »

Dec 142014
 

What you can buy for a Canadian dollar these days is absolute noncents. 😀 The loonie has sunken to a multi year low, valued at only $0.86 U.S. The lower Canadian dollar rate today means it’s more difficulty for Vancouverites to pick up milk and cheese for half the price across the border.

14-12-canadian-dollar-value

This Canadian dollar trend going lower will probably continue into next year due to lower commodity prices and a stronger U.S. economy. This is excellent news. 😀 When the price of oil and other goods fall it’s known as deflation. Many economists and central bankers would tell people that deflation is bad. But don’t let them fool you. Deflationary pressures can create an excellent environment for saving money and finding undervalued investments for those who know where to look. 😉

Continue reading »

Nov 302014
 

14-11-oil-price-low

I’ve had a decent month resulting in a wealth gain of $5,800. Mostly thanks to my investment gains. I received $200 of interest payment this month from my Sherritt high yield bond, with an 8% coupon, which I blogged about how to buy earlier this year.

The price for a barrel of oil has fallen in the last 3 months from $94/barrel to just $66/barrel. This capitulation is no doubt caused by an oversupply of oil on the global market and a slowdown of demand in Europe and Asia. It looks like oil exporting countries are facing a crude predicament. 😉 Last week the Organization of the Petroleum Exporting Countries (OPEC) held a meeting to discuss its operation plans. OPEC is an oil cartel, represented by 12 countries in the middle east, Africa, and South America. Together this organization produces about 1/3rd of the oil supply in the world. Due to its large influence OPEC can single handedly change the price of oil in the world by increasing or decreasing its member’s oil output. During its recent meeting the cartel has decided to maintain its production levels at 30 million barrels a day. OPEC is trying to price North American oil producers out of the market.  

The decision was largely unexpected by investors. Keeping oil production high means more oil supply on the market so this news has caused a large drain on Canadian and U.S. oil stocks. I hear drilling for oil tends to be a boring job. 😀 But if these low energy prices continue then we could see less hiring in the oil sands and Bakken area, which will stifle economic growth. 🙁  I’m not in any rush to buy more into energy companies just yet. I think low oil price will be the norm until middle of 2015 at least. Instead I am looking at other sectors of the economy for growth opportunities. Financials and telecommunication stocks on average are both up 8% over the last month alone. That’s almost 100% annualized return. The consumer cyclical industry is doing well too, up 13% in November alone. These are companies like retail, drugs, food, beverage, etc. such as Dollarama and Tim Hortons. 🙂

*Side Income:

  • Part-Time Work = $500
  • Dividends = $400
  • Interest = $200
*Discretionary Spending:
  • Eating Out = $100
  • Others = $100

*Net Worth: (MoM)14-11-fiscal-update-net-worth

  • Assets: = $835,700 total (+3,700)
  • Cash = $2,000 (-600)
  • Stocks CDN =$87,400 (+2000)
  • Stocks US = $53,800 (+1200)
  • RRSP = $50,500 (+1100)
  • MICs = $15,000 (same)
  • Home = $254,000 (same)
  • Farms = $373,000 (same)
  • Debts: = $519,400 total (-2,100)
  • Mortgage = $196,000 (-300)
  • Farm Loans = $203,900 (-400)
  • Margin Loan CDN = $27,200 (+200)
  • Margin Loan US = $24,400 (+500)
  • TD Line of Credit = $30,400  (-300)
  • CIBC Line of Credit = $10,800 (-600)
  • HELOC = $18,200 (-200)
  • RRSP Loans = $8,500 (-1,000)

*Total Net Worth = $316,300 (+1.9%)
All numbers above are in $CDN. Conversion rate used: 1.00 USD = 1.14 CAD

My retirement fund was able to withstand the beating of oil stocks over these last few months because I maintain a diversified portfolio. I just want a large nest egg when I reach financial freedom. If one type of stock underperforms I’m sure another type will make up for it. Oils well that ends well. 🙂

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Random Useless Fact:
The Swiss are like Dwarves because they live in the mountains, collect gold, make intricate machinery, and aren’t concerned by the wars of men.