Mar 162020
 

Opportunity for the well prepared

Well it’s finally happened. The record breaking 11 year long bull market has come to a screeching halt as stocks tumbled more than 30% in the fastest pace ever recorded. Last Thursday the TSX dropped 12% in a single day, the most in recorded history. But this should come as no surprise if you’re an avid reader of this blog. We saw this coming miles away. πŸ˜€

I began warning fellow investors two years ago explaining the early signs of an economic downturn. But since there were no red flags I didn’t expect an immediate market correction. Here’s an excerpt from that 2018 post.

Playing a strong defense game

So how did I prepare? Well last summer in 2019 I shared my thoughts on which asset classes would likely perform relatively well in a low interest rate environment. I wrote that adding defensive investments would make a lot of sense going into 2020.

So I had called out bonds, real estate, and precious metalsΒ as good assets to have, at least in the short to medium term. This is partly why I started to look for a rental apartment to purchase last fall.

Finally I warned readers several months ago of 10 signs that an economic downturn was just around the corner. My suggestion was not to sell everything and wait for the crash to happen, but instead to rebalance and reduce market risk. Here’s the final paragraph from that post.

planning ahead can protect the downside

Which brings us to the present. Both Canadian and U.S. stock markets are down about 20% year to date. Oof. πŸ™

It’s a good thing we had time to prepare for this downturn since the signs were plenty and hard to miss.

So let’s see how my prediction and planning paid off so far. πŸ™‚

  • As of writing this post gold is up 7.5% so far this year in $CAD.
  • Bonds have done well. The iShares Canadian Universe Bond ETF (XBB.TO) has returned +2% year to date.
  • Real estate is on the rise. We can use the Canadian Apartment Properties REIT (CAR.UN) as a proxy for residential real estate in Canada. This REIT has gone up 4% year to date. Personally, my new real estate purchase is earning me 6.25% a year in net rental income, after all expenses. Furthermore, the median rent price in the city of my new condo is up 15% this year. πŸ™‚

As I said last year, governments will go deeper into debt, print more money, and all of this will benefit holders of bonds, precious metals, and real estate. Owning these types of assets – which I have about $500K in right now – will add stability to a portfolio during a major stock market correction. The key is to use economic data to align my investments in order to limit downside risks. πŸ™‚

 

My recent purchases

Of course I also hold about $500K of dividend growth stocks like energy companies, utilities, and banks. Unfortunately this part of my portfolio got hit pretty hard, as did most things, by the recent bear market. But that’s okay. As a net saver I was looking to buy more of these stocks at cheaper prices anyway. And due to the current market turmoil, we could be looking at the investment opportunity of the decade. πŸ˜€

Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble. ~Warren Buffett

And put out the bucket I did. On March 2nd I bought 500 shares of Telus (T.TO) at $49.32/share for about $24,700.

Usually Telus trades at 13x price/earnings. But when it dropped to just 11x the deal was too good to pass up. πŸ™‚ But I may have bought it too soon. A week later something better caught my eye.

Last week I bought 450 shares of TD Bank at $52.30/share for about $23,500.Β  πŸ™‚

You probably saw my tweet that day if you follow me on Twitter.

TD was trading at its lowest P/E ratio in a very long time. So cheap. πŸ™‚

Keep in mind what I’ve described here is market timing which is speculative in nature. But life is short. Sometimes I need a little excitement. πŸ™‚

 

Where to go from here?

Everyone knows that nudity is the best investment during a bare market. πŸ˜€ Actually, I’m not legally allowed to give financial advice. But I can write about what I’m personally doing to navigate these volatile times. But first you’ll have to subscribe to my newsletter in order to get the inside scoop on my best stock ideas. πŸ™‚

Haha, just kidding. I don’t have a newsletter. Anyway, I’m looking at buying some energy stocks in the near future. Major oil and gas producers like Suncor (SU.TO) and Canadian Natural Resources (CNQ.TO) are trading at less than their book values, which is historically very cheap. Their stock prices have dropped to their 2008/2009 lows.

I still have about $50k of cash from the proceeds of selling my farmland. Before buying energy stocks I’m waiting for the price of oil to rise. I will also be using technical indicators to time an appropriate entry point for these stocks. I should say that I already own both of these stocks, but I’m looking to add more at discounted prices.

Other names I’m looking at is Fortis (FTS) a dividend growth achiever with a current yield of 4%, and Canadian National Railway (CNR). Both of these names have strong balance sheets and have wide economic moats. I also want to buy BCE inc (BCE), the largest telecom provider in Canada. It’s currently paying a juicy 6.5% dividend yield. There are so many bargains out there right now. I wish I had more money to buy them all, lol. Happy deal hunting, everyone. πŸ™‚

 

____________________
Random Useless Fact:

Both Canadian and New Zealand bank notes feature similar designs, but the Canadian notes are longer measuring 6 inches.

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Maple
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I love it! I tell everyone “do you like discounts?” lol it’s so frustrating that people do not see the positive impact of a bear market, similar to you liquid, I, too, have seen my portfolio take a hit but people need to understand whether you sell or buy is completely UP TO YOUR OWN DECISION! Keep up this awesome blog bud, I’ll try to reach FI and join you in beautiful BC!

jukka
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jukka

You have to consider that this could end up being worse than the financial crisis and it might take more than a decade to recover from this. Lots of countries are in full quarantine and things could get much worse before they get better.

My guess is that quarantines continue in Europe until May. In US it could go all the way to next fall. And what about South America and India if there is an outbreak? There could be chaos.

I am actually really terrified because in my country there are already a bunch of layoffs and lots of corporations are already feeling the cash flow crunch and are about to go under… Service sector is getting killed!

Majority of stocks I follow are still overvalued. Only CRM looks cheapish with a decent margin of safety.

Tim
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Tim

This pandemic is going to crater the world economy… There are deals but tread lightly!!

Tawcan
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Very lovely purchases. Wish I have that much cash sitting around right now. πŸ™‚

GYM
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Hah I like that you created a Meme for it (Telus and TD). I have some orders for TD waiting. I want it at $50. I bought some BMO with a 7% yield. I’ll likely buy some more Telus and Fortis too. The 4+% yield of Fortis doesn’t seem as tempting as these ridiculously cheap bank yield.

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[…] Independence seems to have made a number of fine purchases of late amidst the COVID-19 market crisis. And he’s looking for more including Fortis (FTS), Canadian […]

Tyler
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Tyler

There were 500,000 EI applications last week. The average is usually around 27,000. The average Canadian’s debt/income ratio is 1.76/1.0 and most can’t even tolerate a $200 unexpected expense as our savings rate is (as Liquid stated in a previous post) only 3%. As a Respiratory Therapist on the front lines I can tell you that it hasn’t even started yet. I live in a very old demographic and the docs are as scared as I am that we will look, quote, “exactly like Italy” over the next few weeks and months. I am sitting in cash and I have my watchlist ready but I think there’s still a significant way to go in terms of price drop. Good luck to everyone and for the love of God stay home unless absolutely necessary!

MK
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MK

5000$ up on those TD stocks, that’s what I call easy money… I’m so excited for you, are you holding or selling ? lol

Cheers

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[…] couple of weeks ago I shared the transactions of my TD and Telus purchases. […]