Investment Q&A

Q: In his recent shareholders letter, Warren Buffett gave this advice: "My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit. (I have to use cash for individual bequests, because all of my Berkshire shares will be fully distributed to certain philanthropic organizations over the ten years following the closing of my estate.) My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers." He doesn't suggest putting the money in BRK.
As a portfolio manager what would your thoughts be. I understand his wife is 66-67yrs old.
Thanks
Mike

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: Hello Peter,
We are new members on your site and are appreciating it very much. It is extremely generous of you to share your knowledge and judgement so graciously.
My question has to do with the amount of fixed income in a portfolio. We are both recently retired and have a one hundred percent equity portfolio. We have been considering getting some exposure to fixed income.
Our situation is such that we don’t really need our invested funds to live on. We do well enough with pensions and dividends. There are also many today who say that it is not a very good time to hold bonds. In fact, it is a bad time. One could actually lose money taking into account inflation and taxes. But, we keep circling around the fixed income issue, none the less.
Just to give you some background: we have been through the crash in 2008 and bought ( even if lightly) rather than sold at that time. So, we do have some experience of seeing our money go down and have been able to live with that.
So, we were interested in hearing your take on this issue. I know that in one of the interviews that you gave you said that even in today’s environment, most people would be more comfortable having a portion of fixed income. And if there was a fixed income component, what percentage of the portfolio should it be? I have heard people saying thirty percent might be a good level. But, even at that level, I am not sure how happy I would be that only thirty per cent was sheltered at a crash. What I mean by this is that I wouldn’t get the growth benefit of all equities and wouldn’t get a heck of a lot of comfort that only a relatively small portion is sheltered in a fall.
You did mention in another response about, I am not sure of the terminology, but possibly ‘variable rate’ fixed income, if one thinks that interest rates go up. I didn’t really know what these instruments were and how the work. Related to this is that some say that if you really must buy bonds, buy only government bonds, as they are totally secure and security is what you are after. But, I believe I noticed that you mentioned buying corporate bonds. We would appreciate any suggestions about what we might buy, if we did buy fixed income.
Hope this is not too long and convoluted,
Thanks Joe

Q: Hello Peter & Co.
I'm 70 years old and manage my RRIF portfolio. I need to withdraw 10% of its value annually; yield provides 3% and the remaining 7% is raised by selling stocks where "the story" has changed and by selling stocks that I have identified (with your input) as "not as good as the rest". Is this OK?
This exercise is hard enough that; it gets to be quite exasperating when people suggest to raise some cash in view of an "eventual" pull-back.
Would it make sense to raise 10% for income and another 5-10% for redeployment?
Keep up the good work,
Tony

Q: I was stopped out of AVO today; I set my stop loss at 94% of my purchase price. Please comment on stop losses and how to properly set them. How much of a loss is reasonable before it is time to get out before it is too late? Is the greater volatility part of the package for a stock that has run up quickly? Thank you.

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: Hello 5i,
I’m looking to raise some cash and diversify my holding, as it stands right now, which two companies in the list below would you sell.
Enterprise Group (PEG), PPL Corp ( PPL), Duke Energy Corp (DUK), Emera Inc (EMA), Fortis Inc (FTS), Southern Co (SO), Hawaiian Electric Industries Inc (HE), Consolidated Edison Inc (ED), TransAlta Corp (TA), FirstEnergy Corp (FE)
Currently I’m a little overweight with Utilities and am looking for good companies in other sectors with the exception of telecom with a dividend around 5%, any ideas?
Thanks for your help!!

Q: Hi Team, I have heard more than one commentary about a coming market correction. I own a wide spectrum of sectors, about 65% large cap, and 25% in mid-cap. and 10% small cap I have gains in all sectors (not all stocks) and I'm thinking about taking some gains to move into some cash for the next couple of months. What are your thoughts about the following sectors in small, mid and large cap , and how they might be affected if the market corrects. (all Canadian stocks)
Oil and gas
Pipelines
Financial
Industrial (eg. BGI.UN, WEF)
REITS
Tech
Consumer (DH)
Thanks so much.

Q: Hello Peter and Co,
A few advisors are suggesting that it is timely to raise some cash because a serious pull back is expected (my RRIF portfolio has only 3% cash); in my opinion, this suggestion flies in the face of the principle of investing for the long term (time in the market vs timing the market)
Your opinion is most valuable; in the meantime, I'm trying to identify my "lowest conviction" holdings.
Thanks,
Tony S.

Q: Hi Peter and Team,

In previous answers to questions you've said that 1) earnings, 2) interest rates, and 3) flows of capital (e.g., from bonds to stocks) tend to be the main drivers of market activity.

What is your take please on these drivers so far this year in Canada? Are any trends emerging?

Many thanks.

Michael

Q: Do you anticipate a substantial pullback in the market in the next while?
How would you recommend to prepare for the possibility and
Would things would you recommend to do if it should come more suddenly than rxpected?

Thanks

Q: it is quite often suggested that so called allternatives can be benefical to diversify. could you advise? and also what would your opinion as to the weight and could you please comment on xal for this purpose? thank you kindly Larry

Q: I was wondering what you thought of Prem Watsa's statement about a 'monstrous' real estate bubble set to burst in China. If it does, would there be a major impact on CDN markets? And if it would, which sectors would be hit worst or least?

Q: For a young new investor just starting a RRSP, in which product would you accumulate initial savings? Would something like XWD be an appropriate starting point, and how much would you accumulate before diversifying to a typical portfolio approach.

Q: Hi 5i,
Given the recent announcement regarding Peladeau (sp.?) joining the PQ and the impending election, one might reasonably anticipate increased uncertainty re: the "Sovereignty Issue". In the event that this issue percolates to the forefront of Canada/Quebec politics over the next few years what, if any, stocks/sectors in the TSX would you see being the most impacted? The least (i.e. a defensive play on the issue)? Also, the dollar? I believe Peladeau's entry into the equation to be a potential game-changer for the sovereigntists and could cause some market turmoil. Just speculation; would love your insights on this issue from an investment perspective. Issue or non-issue?
Thanks,
Cheers,
Mike

Q: The objective of this question is to find out if I can further refine my stock selection process and enhance my win/loss record.

Specifically: given that several stocks have similar p/e ratios and similar financial strength, would looking at the Sharpe Ratio and Momentum (as in average monthly return numbers) help with the final decision?

For example, would you be more likely to select a stock with a Sharpe Ratio of 2.1 and a growth rate of 7.8% over a stock with a SR of 1.4 and a GR of 4%? If so I would assume that you consider these to be reliable (but knowing that nothing is perfect) indicators of likely future stock prices.

On the other hand, if I am wandering off into the "wilderness" with this approach, would you please let me know; and then also why these metrics would not be suitable for this purpose.

Thanks again for all your insightful observations and suggestions.

Q: Hi - In the event that the PQ wins a majority in the Quebec election and starts another referendum process, what sectors / companies in Canada (especially amongst the companies you follow) do you think would benefit the most or be hurt the worst?

Q: Hi Peter + Group do you have any thoughts on Ballard Power (BLD) + Plug in (PLUG) both are jumping over the last few mths. Do you like any others in the space and what is your Outlook / Risk for this sector going fwd...Thanks

Q: Hi,
I bought a couple of stocks (BB and MU)a few days ago that were highly recommended on Seeking Alpha. They do not seem to be doing too much. What is your opinion?
Momentum Stocks like TKM, HYG and ARWR-US just keep going up forever. Would this be a better way to invest?
Watching the financial news which I do regularly due to the fact I am retired, everyone is talking (waiting) for a 5% pull back - it has been a long wait - will it be coming by July, 2014?

Q: My husband and I have self directed RRSP's with 10 years to go until the RRSP's become self directed RRIF's. The annual minimum RRIF withdrawal starts at 5% at age 70, and increases each year. At age 85 the withdrawal rate is 10.33%. My question is - would the investments in the RRSP's be best as an income portfolio to preserve capital but also allow for the required cash withdrawals? Or do you think a portfolio combination of growth and income is more advantageous given the 10 year time frame? Thanks!