Investment Q&A

Q: On March 26th, an article appeared in my local paper written by Martin Pelletier. Martin quoted Hulbert Financial Digest as follows," Corporate Officers and Directors in recent weeks have on average sold six shares of their company stock for every one they bought. This is more than double the long term adjusted ratio since 1990 and is the most pessimistic insiders have been in more than 25 years".

The article also said that research by Bank of America showed that institutional clients have been large net sellers of stocks since mid-February despite receiving large inflows from investors.
This sounds like a pretty significant warning. Could you please provide your thoughts?

Q: Hi Peter & 5i: Just a comment on Mike’s question about diversification and allocations across various types of accounts for a given individual: One thing that people forget about sometimes is that the after-tax value of a $5k position in a taxable account or TFSA is “bigger” than an equivalent dollar position inside an RSP, because the whole of the RSP position will subject to tax at the rate equivalent to earned income or interest income upon its withdrawal from the RSP. So in some cases it may look like people are over-weight interest bearing securities in their RSPs when in fact they aren’t. Since (apart from changes in one’s tax bracket) the tax payable on the interest income is the same in a taxable account as it is on the withdrawal from an RSP, there is no loss of a favourable tax treatment by having those securities inside the RSP. Then the potential for one to be in a lower tax bracket at the time of withdrawals from RSPs or RRIFs (the “deferral effect”= growth of pre-tax investments combined with a potentially lower tax bracket and tax rate in retirement due to reduced income) creates the possibility of gaining a favourable tax result on the withdrawal of the interest bearing security. If the RSP is loaded up with dividend and capital gains securities in a bid for significant growth, what one is doing is banking on the benefit of the deferral effect being sufficient to outweigh the relatively favourable tax rates that would otherwise have applied to dividends and capital gains achieved on corresponding (but smaller) investments in a taxable account. That is some tough math to figure out though and it has some unpredictable variables in the equation. Maybe best to have some growth prospects both inside and outside the RSP account, just in case? Thanks!

Q: Hi, 5i team, This is a comment on Claire's question. I believe risk is a variable concept because of the following two reasons. (1) if you include inflation into the risk equation which is sensible if purchasing power is more important than capital preservation, then nothing is risk free. Bank notes under the mattress may still be there years later but they won't buy as much. (2)The other side of the coin from risk is opportunity. There is such a thing as missed opportunity. Based on these concepts, my risk in the portfolio varies. If, as I believe the next 3-5 years will have a slow growth and lowish inflation, I adjust my fix income portion of the portfolio downward. So, I am 72years old, an income invester with a small pension, my fixed income is down to less than 20%. Apparently, I agree with the latest theory. Thank as ever. Henry

Q: HI PETER..we have about $35,000 in our online investment account and will be out of country until end of May. Not sure weather to let it sit for opportunities after summer sell off but prefer to invest in stocks with some growth and minimal downside while away. I may continue holding on return if prospects are good. I would look at about 5 or 6 stocks.
I am looking at BAD, MG, LNR, HLF, TOU, BEP.UN, DH, HCG, L, We already hold IPL, SU, PPL, BTX and banks
Any of your suggestions? Thanks enjoy your site. Gloria

Q: Hi peter and team,

I am hoping you or one of the other members can answer. I have 4 nieces and nephews all recently graduated from university and they are all trying to figure out how to balance out paying off debts versus making investments etc. Is there one or two introductory books that would provide them with some good advice and principals as they start to move into their working careers. I read the Wealthy Barber but i am wondering if there are others out there.

Thanks again,

Q: The previously hot health/biotech and tech sectors appear to be losing momentum with money flowing away from them. Do you have any indications as to which sectors the money is flowing to or is it just going to the sidelines?
Bryon in Elira

Q: hi peter,
the membership fee can be claimed for income tax? thanks.

Q: I would like to balance my stock portfolio by sector. I notice that your model portfolio doesn't identify the sector to which each stock belongs. Would it be possible to add this information? If not what would be the best place to get this information for stocks? Finally, how many sectors should a balanced stock portfolio comprise?

Q: Hi Team... a quick question regarding Options trading. Can Puts and Calls be exercised only on their Expiration Date or can they be exercised at any time prior to expiry?

Q: Hi Peter
I have followed you since before your Sprott days and always appreciated your insight and comments. I am traditionally a mutual fund investor who is now concentrating on individual stocks. Please advise the best investment sites to find the following info to develop and maintain a dividend oriented portfolio. I need for both Canadian and US companies.
PE and average PE for last 5 years
PEG and average PEG for last 5 years
CAPE and average CAPE for last 5 years
thanks for your help.

Q: Hi 5i team

I am look to purchase a diversified portfolio of stocks soon, and I was wondering if you had any recommendations for where to allocate the stocks in my two registered accounts (RRSP and TFSA). I have about 83K in my RRSP and 32K in my TFSA. Could you recommend a strategy, if any, with regards to the following factors:
(A) Growth stocks vs. Dividend stocks (or Dividend Growth stocks)
(B) Small, medium and Large cap stocks
(C) should each account be diversified to some degree with the 10 TSX sectors, or does it even matter which account is chosen if it's all for the same investor.

I am primarily looking for growth with a 20-year time frame

Thank you for the great service

Q: Hi 5i Team;

I cannot resist asking you this question, even though it may be controversial to request a comment on another expert's opinion.

Brian Acker, a regular participant on the BNN Market Call shows, has commented on a speech made by Bank of Canada governor Stephen S. Poloz. The speech was made to the Halifax Chamber of Commerce, and reasons a dim future for the Canadian economy.

My strategy to date, has not included US investments.

With the fall of the CDN $ have I missed the boat for US investments, considering the speech by Governor Poloz?

Your opinion on the described future is greatly appreciated.

Please publish at your discretion.

Q: Hello Peter
I bought NorthWest Healthcare Properties REIT (TSX: NWH.UN) in 2013. I now think it is structured as a Limited Partnership because they pay "distributions" and not "dividends", but their website doesn't actually say so. Are all .UN listings limited partnerships?

Their website does say : "If necessary an extra distribution will be declared on December 31 each year such that the REIT will not be liable for tax that year."

They also say : "In 2013, 100% of the distributions were tax deferred, by reason of the REIT’s ability to claim capital costs allowance. The adjusted cost base of the Units by the Unitholder will generally be reduced by the non-taxable portion of the distribution."

Their table on the website shows "Total Taxable Income Per Unit" is zero for 2013, but it says the amount is shown in Box 42 [on the presumed T-slip]. The distributions I have received are evidently a "Return of Capital".

Does that mean the distributions I received are not taxable in any way and does that mean they won't be issuing a T-slip to include in my tax return? I haven't received one yet and I have received no answer back from my enquiry to the company. I am ready to file my tax return now but don't know if I should wait till nearly the end of April in case they do send one.

Many thanks........... Paul

Q: Further to my question of March10/14, my wife owns Mawer Global Small Cap fund in her TFSA. She was advised by the company that no T3 tax slips would be issued for this fund, as mutual fund investments that are registered(RRSP & TFSA) do not receive T3 tax slips. If this is correct, does this mean that if she decides to invest in individual stocks of global companies in her TFSA instead of using the mutual fund, she will not receive a T3 tax slip either?

Q: Breaking news - BMO is now offering five-year fixed mortgages at 2.99 per cent, slashing its rate from 3.49 per cent.
Exit comment/question - "Say what?!"

Q: Hello Peter...Well, I'm better diversified by sector, now. And I'm focusing on another aspect of diversification of TSX stocks....market cap. This dividend/growth portfolio is made up of 46 companies with 25 large cap, 11 mid cap and 10 small cap. By small cap, I use an upper limit of $1.5 billion, and then mid cap, $5.0 billion....and all the company names are ones reviewed or frequently commented on/answered about. Now the question - does this diversification my market cap seem reason? Or put another way, for a right-on allocation by sector, does this market cap holds okay ? (The main reasons the number of holds is 46 are a result of purchasing matching/similar like securities, Goldcorp and then the smaller cap Primero, and in case of info tech, holding some half positions in 4 companies.)..........Continuing towards 5iR-ing it.
Thanks....Tom M

Q: Hello Peter
I have a policy that no individual security should exceed 5% of the value of my total portfolio. Normally when a stock reaches 5.5% I trim it back to 5% and invest the proceeds in the fixed income portion of my portfolio to maintain a 30% fixed income, 70% equity allocation. Over the past couple of years I have needed to trim shares of TD, RY, BNS, BCE, T, TRP and CU as they have all exceeded the 5% threshold. These stocks are held in an open account, so capital gain taxes must be paid on the dispositions. I know that the value of my portfolio would currently be higher if I did not follow this policy. Is this policy flawed? Should I just let the winners run?
Thanks David

Q: Your model portfolio in small print, for example, auto Canada p&l for 2014 -4.1. I was surprised to see that it was in a minus category since it was the best stock in the TSX. Is there a difference between a March 1st list February PDF and a March 1st 2014 Excel with no list? It has nice big print, and is easier to read. Maybe I am missing something. Please advise.

Q: Hello Peter...I'm interested in learning/improving about entering and exiting holds of stocks. And came across books by Alexander Elder....showing up on Amazon and at the local library. At first glance, the basics are easy to understand, and provide good building blocks. For me, I'll need to show more patience.

Thought I'd mention this resource reference for others.....Tom

Q: Dear Peter and fellow 5I team members, I, for one, appreciate your gentle and courteous responses to members who in the opinion of some ask too simple questions too often. We are the very people who need your conflict free investor oriented advice; I would be unhappy if you felt the need to separate out the beginners you are currently educating to a "forum" with its own agenda.
Thank you, again for your unique and valuable service.