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Wednesday, August 3, 2011

The stock market nightmare: what to do to preserve your assets while operating on a margin account

The stock market is still losing points. My non-registered portfolio is at 107 943.85$. It’s not that bad, but if the TMX continue to lose points every single day of the trading week, well, at a point, I will have to consider my options. But the situation is not as desperate as it seems and I am going to explain my view.

First, both gold AND silver are performing well. At this time, First Majestic Silver Corp (FR), which is among one of my top performer, currently trade itself at more than 23$ per stock. Remember my US investment in Sprott Physical Silver Trust ET (PSLV)? I had first purchased some units at 22$, when silver was on top of everything, just before the silver crash. Following the silver crash, I purchased again some other units at something like 15$ or 16$ to help stabilize the whole thing. My book value for the investment is of 3 075.16$. And right now, my investment in the Sprott Physical Silver Trust ET (PSLV) worth 3 061.50$. So I am very proud of this one. I knew I was doing the right thing while investing in PSLV. Eric Sprott view on silver was correct. Very soon, my investment in PSLV will be exceeding the 3 075.16$ initial investment value. Just watch it grow.

In my TFSA, I hold Sprott Physical Silver Trust UTS (PHS.U). My book value for this one was of 3 114.60$. Currently, the same investment worth 3 818.84$. I don’t have that much invested in gold, but what I currently hold in Horizons Gold Yield Fund (HGY.UN) and Claymore Gold Bullion ETF (CGL) is performing very very well.

If the Toronto Stock Exchange continues to significantly drop in value, I will transfer what I hold in my TFSA to my non-registered portfolio. Currently, my TFSA worth 4 676.95$. It’s not that much, but transferring my TFSA holding to my non-registered portfolio will add a direct value of 4 676.95$ to my now worth 108 126.37$ non-registered portfolio. An increase of 182.52$. Ok. That would make a total of 112 803.32$. Quite good to face the market demons.

Despite the actual market condition, I do not plan to transfer my TFSA asset to my non-registered portfolio. Not at this time. But it’s something that I will consider if the market continues its plunge.

Something else that I will consider if the market condition continues to deteriorate is to sell my Sprott Physical Silver Trust ET (PSLV) and transfer the US money into my Canadian non-registered portfolio. That would probably bring in a good 3 000$ value in.

Those are options I will consider if I lose, let say, another 5k on the stock market. If not, everything will remain the way it is at this time. And I hope it does.

I face an in deep stock market correction in 2008, and at this time, I guess we can talk of a mini-crash, or another market correction or something like it. No matter what it is at this time, it’s not extremely pleasant. However, the dividend continue to kick in and I am almost at 700$ in dividend income for the month of July. I think I am now only missing my Just Energy Group Inc. (JE) dividend for the month of July.

Despite it all, I have very strong asset in my portfolio that help me to fight the, what I am now calling the “stock market demons”. It’s kind of the fight of a lifetime and I truly think that HOLDING everything is the best way to go. Especially in my condition. I am 30, single, no children to take care of. I am currently employed at 2 jobs that I have for a couple of years now, so my job situation is quite stable, that help of course. Myself, I don’t need to cash in my stock money and I don’t plan to cash any. At this point of the game, any actions taken will determinate if I will fail or succeed. Since I started investing in 2005, I mostly have been a buy and hold investor and what I have gain in value, I own it for the most part to a buy and hold strategy.

I am hoping for the best of course, but I am not under panic because most of what I hold in my non-registered portfolio is still at a good value. I was surprised to see Sprott Inc. (SII) at more than 8$ per stock because back in 2008, SII has drop to 4$-3$ following the 2008 stock crash. So this time, I am enjoying Sprott Inc. (SII) stability. Other stuff like Methanex Corporation (MX), Fortis (FTS), Pembina Pipeline Corporation (PPL), Pengrowth Energy Corporation (PGF), Enbridge Income Fund Holdings Inc. (ENF), Corby Distilleries Limited (CDL.A), Exchange Income Corporation (EIF), TMX Group Inc. (X) and K-Bro Linen Inc. (KBL), for the major part, still have a strong value and seem to be able to go through this without too much problem.

I am unfortunately a small cap lover and I am now paying the price for my love. Small cap are good in a relatively stable market, the dividend are awesome. But stuff like New Flyer Industries Inc. (NFI.UN), Colabor Group Inc. (GCL) and Student Transportation (STB) among other seem to experiment some problem to go through this current very rough market condition. That’s how it goes with small cap. Rob Carrick explains that very well in an online article title Kings of Pain loaded with investment lessons. And yes, currently, I am under massive pain, but nothing I can’t handle. I will show you the drill and hopefully, I will go through this without a margin call or without any asset to be sold, at the exception of TMX Group (X). If the Maple Group deal go through, I will be cashing in more than 5 000$. That could eventually safe my margin situation and save my life ;0).

I also have a bit more than 6 000$ available on credit lines. In case of need, I will of course transfer that cash in my non-registered portfolio.

At this time, I am not taking any actions; I am not selling, buying anything. I am closely watching the disaster. My non-registered portfolio is now at 108 215.69$.


SPBrunner said...

People with deep pockets are those that survive bear markets well. In other words, people who can afford to hold on during the bad times, do well. If you are forced to sell at a loss, this can be very detrimental to your investment health.

I was into small caps before 2000 recession. I had 8 investments. I read that if you win on 2 out of 5 investments in small caps, you will come out ahead. You can only lose your investment, but the sky is the limit on ones that take off.

Unfortuately, they were all heavily damaged by the 2000 bear market. I did not make money on any of them. I got out of some and some went bankrupt. I still have two around as their value is too small to bother with selling them. These two, Organic Ressource (TSX-ORI) and Pan Terra (TSX-PNT.H)have recently shown some, but not much, live recently.

Sunny said...

Thanks for sharing your experience Susan.

I don't have that deep pockets, but I can afford to hold. Basically, my plan is to handle this the same way I did in 2008. Just to hold and do nothing else, and do some small investments from time to time whenever I can. Just the way I always did so far.

I am very curious about what's going to happen next.


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