I’ve been very busy over the past few weeks. Since my last post I’ve bought a condo and sold off a large portion of my portfolio. I plan to utilize the Smith Maneuver (Million Dollar Journey has some good articles on the topic here). Part of this process means selling all of my investments and using the proceeds to come up with a large down payment. I expect the whole process to take around 2 months as I have some DRIPs that have to be transferred and make selling quickly difficult. I started this process by selling the following shares on June 20, 2014.
- Aflac [ALF Trend]
- Altagas [ALA.TO Trend]
- AT&T [T Trend]
- Blackberry [BB.TO Trend]
- CH Robinson Worldwide [CHRW Trend]
- Intel [INTC Trend]
- Medtronic [MDT Trend]
- Pepsi [PEP Trend]
- Potash Corporation of Saskatchewan [POT.TO Trend]
- Royal Bank [RY.TO Trend]
- SNC Lavalin [SNC.TO Trend]
- Suncor [SU.TO Trend]
- Sysco [SYY Trend]
I thought you were a buy and hold investor?
I am, but in order to come up with a sizeable down payment I had to sell my stocks. I purchased the condo for $420,000. In order to avoid the CHMC insurance ($12,569 if I only put 5% down) you need 20% down. This meant coming up with at least $84,000 to avoid the insurance. I haven’t been investing much recently as prices were too high, so I’d been saving up some cash, but I still didn’t have that kind of cash. This meant selling some investments.
Another reason I’m selling my shares is that I plan on using the Smith Maneuver. This strategy shifts a portion of the mortgage debt on the condo which isn’t tax deductible to a line of credit that is used to invest with. In general if you invest in income producing assets like dividend paying stocks in a taxable account with borrowed money the interest is tax deductible. The process is meant to pay down your mortgage faster while also growing your wealth.
I don’t really want this article to turn into a post about the Smith Maneuver, so I’ll just say that because I chose this strategy I have to sell all my stocks, and then when the condo purchase closes in August I can start investing again with the line of credit. After the condo purchase closes, I plan to get back to my regular strategy of investing in high quality dividend growth stocks and holding them for their increasing stream of dividend income.
Side note: I don’t recommend borrowing to invest unless you have at least two years of experience investing in the stock market. Borrowing to invest is risky!
One of the reasons that it was easier to start selling off my portfolio is that both the Canadian and US markets have reached all-time highs. Psychologically it is easier to sell when your investments are reaching all-time highs. I don’t really compare my results to an index, but in the back of my mind I usually have an idea of where I am compared to the overall market.
I mostly focus on growing dividends, but I was pleasantly surprised with my results. Of the shares I sold on June 20th I’ve managed about 23-24% CAGR excluding dividends. I figure my average yield was around 3%, so my total return CAGR is actually higher, say around the 25% mark. I’m very happy with these gains. Below are the individual results for each stock. In some cases I had to estimate the purchase date, but I was conservative with my estimates, so in reality my CAGR returns are likely a bit higher than shown.
I have been fortunate with my timing, as when I needed the money the market happened to be very high. Because of this I expect my results are skewed. I don’t expect average annual returns in excess of 20%, but I was lucky in this case. I think a more reasonable expectation for a long term investor in stocks is average annual returns around 6-10%.
My worst performing stock (no surprise here) is Blackberry with a 64.7% loss … ouch. Thankfully I only invested a small portion of my portfolio in this stock. My best overall gain was with Medtronic, where I was able to double my money. From a CAGR perspective though, Suncor was my best investment with 44% CAGR. Potash Corporation of Saskatchewan came in a close second place with 42.6% CAGR. The Altagas returns didn’t really have anything to do with me, as this was Ms. DGI&R’s investment (Thanks babe!).
I still haven’t sold all of my investments, so over the next 2 months expect a few more portfolio updates as I offload the remainder of my DRIPs. I still have Bank of Nova Scotia [BNS.TO Trend], Telus [T.TO Trend], TransCanada [TRP.TO Trend], Fortis [FTS.TO Trend], Enbridge [ENB.TO Trend], Johnson & Johnson [JNJ Trend], and Procter & Gamble [PG Trend] to sell.
Had I not just bought a place I would likely be buying shares of Target [TGT Trend]. Target increased there dividend some weeks ago by about 20%. When I first analysed Target I decided I’d buy at $50 or less, but with the dividend increase my target buy price is likely closer to $60 now. Hopefully the price stays down and I’m able to pick up some shares after I move into the condo.
I’ve updated my portfolio and you can see it here.
Photo credit: kevin dooley / Foter / Creative Commons Attribution 2.0 Generic (CC BY 2.0)