Monthly Archives: June 2017

My ideal portfolio: 1/3 Canada, 1/3 US, 1/3 International. No bonds.

Skating in the old port.

Risk Tolerance

Big disclaimer. This is my personal view of the the financial world. This portfolio is ideal for someone with a VERY high risk tolerance. It has happened during the past few years that  I have shared my portfolio with people who don’t have the same risk tolerance and then start calling me when the market goes down a few points or sell their holdings at a lost.

Stocks/bonds portfolio

Most financial advisers advocate a mix portfolio of stocks and bonds. The main reason for this recommendation is to reduce volatility. To deal with the human factor. Our reptilian brain goes into panic mode when we see our holding decreasing in value and do a panic sale.  Researchers claim that the pain from losing one dollar is twice as big as the pleasure of gaining one dollar, thus it become very difficult to stay in the market as equity prices are declining and to alleviate some of that pain we add bonds to our portfolio.

It has been demonstrated over and over again that stocks outperform bonds by a wide margin. Also, it has been demonstrated that on long periods of time (20+ years) stock are as a safe (if not safer) than bonds. But it takes years (if not decades) of  character building to take the downturns of the market as they inevitable happen.

I have to say it, I don’t have bonds in my portfolio, I have built a tolerance for high volatility. I know that the market doesn’t go straight up, there are peaks and there are troughs and I have learned to live with it. I know that over the long term, I am better off holding stocks than bonds.

Fighting the Home bias

Numerous studies have demonstrated that most investors have a home bias. They like to invest in their home territory. Canada is only 2% of the global market. It doesn’t make sense for a Canadian to keep all his money at home. Canada economy is a natural resources economy, greatly influenced by the prices of oil or gold. By investing in the economies of other countries we can reduce risk and reduce the volatility of our portfolio.

Index investing makes global diversification easy.

I believe that index investing is an excellent way to diversify. When you invest in an index, you eliminate the risk of failure of any one company. At times, companies like Nortel and Blackberry were the darlings of most Canadians. Those who had direct ownership of those stocks suffered great losses however; however, Canadians who owned the index, they recuperated completely. Today, almost everyone is in love with Apple inc. Just keep in mind, that Apple is a phone seller, at any given moment, consumers can turn their backs on their overpriced Apple products and many Apple investors will suffer. By owning the index you can eliminate the risk of owning a single stock.

My ideal portfolio

As a Canadian, I like to divide my portfolio in three equal parts, ⅓ Canadian holdings, ⅓ US holdings and ⅓ the rest of the world holdings. My favorite vehicle to achieve this is through ETFs (Exchange Traded Funds) and the leader in the industry, due to its low price is the company Vanguard.

Here are the ticker symbols which best represent Canada, the US, and the rest of the world:

VCN. FTSE Canada All Cap Index ETF. It represents all the big, medium and small companies is in Canada. Its expense ratio is 0.06%. One year return as of June 29, 2017: 9.54%.

VUN. U.S. Total Market Index ETF. It represents the whole US market. Its expense ratio is 0.16%. One year return as of June 29, 2017: 18.15%

VIU. FTSE Developed All Cap ex North America Index. It represents developed markets except US and Canada. One year return as of June 29, 2017: 20.84%.

The average rate of return of these three holdings was 16.17%.

Here is a graph which represents the three different holdings.

Canada, US, and the rest of the world.


Most advisers suggest re-balancing at least once a year. That means, selling some of the big winners and buying some of the big losers. I don’t bother with that. What I do is this. If I have some extra money to invest, I invest it in the one that is lagging. If want to take money out, I do it by selling some shares of the biggest gainer. I do this re-balancing not at particular per-scheduled moment but as the needs of my life changes. Sometimes, if I need money and I don’t want to disturb the balance of my portfolio, I take money out of my line of credit and then I pay it back either by a stock sale further into the future or by making more money in my other activities.


These are my investment principles unique to my circumstances. Your risk tolerance might be totally different. Don’t consider this article as investment advice, consider it as me sharing a snippet of my investment life.

Why investing in gold is a dumb idea

Gold is a dumb metal who sits there and do nothing. Gold bars don’t have sex and create more gold bars.

Ever since I have I have been interested in finance, I have met people who predict the end of the monetary system as we know it. In such a horrific scenario, gold would be the only valid currency. I believe, if the world ever came to that scenario, the things of real value would be guns, ammo, canned food and a fishing pole.

I think investing in gold is a dumb idea for the following reasons:

  1. Gold is a non producing asset. It’s not like investing in real estate where you can rent your property, investing in land of cattle where you see your investment grow. It’s not like stocks or bonds where you will get a return for your money. No, gold is just a dumb metal which just sits there and do nothing.
  2. Jan 17. Eating with friends. We wanted to pay with gold coins but the waiter didn’t take it. 🙁

    Most people who invest in gold, they do it through an exchange. If ever, the stock market fails and all the institutions around it, the same thing will happen to gold investments. Gold holdings will evaporate just like all the stocks and bonds. When you invest through an exchange, you are only holding bits and bites in a computer screen. No one is going to come to your house and deliver bars of gold.

  3. By law, Canadians and United Staters  (misspelled on purpose) are not allowed to hold bars of gold. They can only hold gold coins (which are exchanged as collector items at a high premium) or jewelry. If ever there is no rule of law where the whole financial system has failed, there will not be rule of law to protect you from a person who can take it away from you by violence.
  4. Opportunity cost. Many gold bug pundits recommend holding about 5% of your portfolio in gold. If gold is not going to save you from financial Armageddon, if you can not convert it into tangible bars of gold, then holding any gold at all, even 1% of it will have an opportunity cost of investing that money into an asset which can provide a real return.
  5. If you hold physical gold, you have to protect it and insure it, this means that your gold will become a recurring expense. After doing you cost analysis, you will be worse off year after year.

We have to have faith in humanity, we have to believe that our social system will protect us from the chaotic scenario where gold could become a real currency. If we continue believing in the rule of law, very few investments can do better than the stock market.

When to buy individual stocks

Hanging out with friends. Jan 15

When should we buy individual stocks? Last!

Many investors feel lured by the magic of the stock market. They hear about amazing IPOs (Initial Public Offerings) and they hear stories such as: ” If you would have invested in (Insert company name) 5 years ago, you would have been a godzillionaire by now.”

Others feel enticed by penny stocks, they want to find that one stock which moves from $0.10 to $0.15 in one week and they plunge right in.

Those above mentioned scenarios are part of the learning curve. At times we are lucky and we make a nice return, other times we fall on our faces right away.  Either way, investors or speculators eventually drop out or decide to learn more.

So, here is the question again: When should we buy individual stocks?

In almost all my previous articles I have promoted investing in broad based Index funds or ETFs (Exchange Traded Funds). In particular, for a Canadian, I suggest to invest 1/3 of the Portfolio in a Canadian Index fund, 1/3 in a US Index fund and 1/3 in an international index fund. That way you have global diversification and your portfolio is less volatile than if you had just Canadian stocks.

Let’s say that you follow my recommended portfolio and you decide to invest $6,000 every year. If you invest $2,000 in each of those funds you will be on track to achieve your financial goals. Now, after meeting those goals, if you run into any additional money, then may use that money as “play money” and invest it in individual stocks.

Some ideas to buy individual stocks

The Canadian economy is divided into different sectors, for example:

Health Care

What I would do is to start with one representative of each industry. For example, in the financial sector, I would chose one of the banks, Let’s say Royal Bank.

In the Telecommunication sector I would buy one of the internet providers, let’s say Telus. So on and so forth.

Then I would look at their stock value and only buy the stocks which seem to be going up. Immediately after buying, I would put a “Stop loss” order. This means that if the stock drops more than a set money amount or percentage, the broker should sell automatically. When you put an automatic stop-loss you protect yourself from big losses and you detach yourself emotionally from your investment.

For example. As of Today, June 12, 2017, the whole energy sector is down, so I would not buy any stocks in the energy sector. But let’s say I did, let’s say I bought Enbridge, which today is trading at $52.12. Then I would put a stop loss. Many expert recommend putting a stop loss at 7%. In the case of Enbridge, if the stock drops more than $3.65, then your broker would sell automatically the stock for you.

The idea is to let  your profit run and to cut your losses short. If Endbridge goes up, you move up your stop loss. If you Enbridge goes down, then the maximum you would loose is 7%. If you do that with all the industries, then you will be diversified, you will participate in the market when it is going up and you will be in cash when the market is going down.

Good luck!

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