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Tuesday, March 15, 2011

The effect of the Japan tsunami on my investment portfolio

Devastation continues in Japan and my prayers go to the victims. The TSX got through a very hard time today, especially this morning. Despite all, I took the decision to move forward with my investment project. I even inject 5 000$ that was available on my line of credit over my margin, in order to avoid any sell stocks coming from TD Waterhouse.

Here's the thing: I use margin in my broker account. If my portfolio looses too much value, my margin could turn into the negative. Following what, TD Waterhouse could sell some of my most valuable assets without any warning. But even there, it was my choice to use margin and no matter how bad is the situation at this time, I do not regret my choice. I think my portfolio will go through the Japan tsunami and its consequences without too much trouble, but I could be wrong. And that’s why I had transferred a 5 000$ cash in my broker account today.

Just a couple of minutes ago, Stephen Harper announced that Japan nuclear crisis poses no radiation risks for Canadians. No risk for Canadians, but there could be a risk for the economy worldwide and I guess no one can really tell what’s going to happen next. How the Canadian stock market will react to Japan radiation? We had an example of the reaction just today: an awful and legitimate reaction. But still, I believe it’s not time to sell, it’s time to invest wisely. Good portfolio will be able to make it, and other not. I had gone through the 2008 stock market without any trouble because of 2010 awesome result. What I learn was essential: It takes bad years to have good ones. The years will pass, no years will be like 2008 and no years will be like 2011. But what matter is the long term. As long there’s human life there’s hope for a better financial future. And at this time, that’s really what I am hoping for. For life to continue, and the market to be good for me in the years to come. That’s part of the reason why I decide to trade today. Because my life goes on.

I am just hoping that things will get stabilize quickly in Japan, not much for the market, but for the human lives involve in the tragedy. How much money you can make from the stock market does not matter when human kinds suffer.

And the only reason behind is that my investment project is for the long run. I like to invest, I had been doing so since 2005 and I started investing in stocks back in 2008. Six years of investment had changed my life for the best. I couldn’t imagine myself selling all out or going a few months without investing. I would be bored.

Today had been a great day for my dividend income. Here’s what I received today in dividend:

Corby Distilleries Limited (CDL.A): 28.28$
Data Group Income Fund (DGI.UN): 32.52$
Pembina Pipeline Corporation (PPL): 56.55$
New Flyer Industries Inc. (NFI.UN): 19.49$

Total: 136.84$

That’s more in what I earn in a day of work for sure at this time. With what I currently earn in dividend so far and what I will probably earn in dividend for the next couple of months, well, I am now at the equivalent of 600$ in dividend income per month. That’s good, but I would like to double the amount by investing more of my own cash in the following months/years.

Now that the stock market is close, I transferred 5 000$ from my margin to my credit line. Will I have to pay interest on the 5 000$ transfer that I did today? I don’t know, but that would be a good question to ask TD and I think I am going to call them right now...

Tomorrow, I will transfer 5 000$ from the credit line to my margin and I guess I will be doing this scheme every working day for the next couple of weeks. Why? Well, it’s to avoid any critical situation. My stocks are my most precious possession. I won’t allow anyone to sell them. 5 000$ is not that much, but it’s all that I have available as fund to save me from an eventual disaster. That’s the price that needs to be paid while investing on margin.


Frank said...

You're such an idiot!

Sunny said...

You can treat me of idiot but at least, explain me why.

Donald said...

Did you get a margin call? As long you don't get a margin call, you are fine.

I think you better call TD to find out exactly what happens in the case of a margin call. As long you transfer the cash from your line of credit to cover the margin call the day of, you don't need to do this kind of exercise of 5,000 transfers in and out.

Most brokers will warn you at least, and then at the end of the day if you did nothing to cover your margin call, they have the right to sell off some investments to cover the margin requirement maintenance.

This is the risk with investing on margin, don't over do it.

Sunny said...

Hi Donald,

As for now, the non registered part of my portfolio is doing fine. I did not get a margin call. But I have to say, I got scared this morning! But invest anyway...

I did the transfer in prevention of a margin call. At TD Waterhouse, when you open a margin, they send you some paper information saying that at anytime, they can sell your assets without calling you first.

I also discuss with a TD Waterhouse rep and get a confirmation of that.

Reason behind is that at a point, there could be too many customers involve in a margin call, so the broker could not call them all. TD must had decided to set that rule to protect themselves.

But that's a cruel reality: my assets could be sold without me knowing at first.

Argonaut said...

Sunny, you need to get rid of all of your debt as soon as possible. Your recent attempt at trading has not worked out at all, case in point the leveraged silver play. Liquidate whatever you need to to pay off every cent of debt.

If the market crashes you could have more debt than equity. You should start over in a sense with a nice portfolio of dividend paying stocks, like you were good at previously. Sell all but your favourite dividend stocks. This is the best advice you could get.

I work for TD, so I know that the only ones winning when you are so leveraged are the banks.

Sunny said...

Hi Argonaut,

I see your point, but I don't agree with you when you say that all of my recent trades has not worked at all... I don't agree with that. And it's not because of a trader proud. CFX, CGL, NFI.UN, DGI.UN, STB, WTE.UN and EIF among other, all recent trades, well those trades were very very good.

HZU is currently down, but will go up again. As for my flop with PHS.U, I made up 40$+ a bit from what was supposed to be a 300$ profit. Nothing major. There was no money lost in there. The profit was less because of currency exchange that was not like usual.

It's hard for me to realize your actually from TD. This is more for me like your someone working for BMO or RBC. This is not a real good advice your giving me. Sell out? Imagine if all investors sell out. It will disturb the stock market even more. A real investor do not sell in crisis. I am doing more than my part to boost the stock market, don't you think so?

I am humble enough to write about my investment mistakes, but overall, I did well. I am able to make ends reach to pay for my living and pay the minimum required on my debt. All extra go for investment purposes.

And even more important: I do what I want with my money.

As long my dividend income exceed my interest on debt, as long I can make the minimum payment on debt and live currently, I won't sell.

The show must go on.

Frank said...

you don't understand margin at all. I know your portfolio is down, but it only fell by a few percent. Most of your debt is in credit cards and school loans, not on margin. Although i don't know all the details, your non registered portfolio would have to fall by at least 30% in order to get a margin call. I'm not joking. That's why i called you an idiot. No matter what you think or say, TD cannot and will not sell your stocks unless your portfolio drops severely, and even with that, you will have 3 business days to correct the situation.

Causalien said...

Sunny psychologically, you might be trying to out perform because of your portfolio online. Pretend that you don't have this blog and that there's no one to impress. Listen then Get rid of what your greed tells you. What else is your subconscious feeling about this? Run some numbers. What is the debt to asset ratio? What is the debt service ratio? How much of your income will go into servicing debt ?


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