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Wednesday, December 7, 2011

On how to deal with the market volatility without going nuts: a study case with Just Energy Group Inc. (JE)

There’s something I have in mind as post idea that I wanted to share for quite some time and I think that now than ever than before, this is the perfect time to write about it.

I am a HUGE Just Energy Group Inc. (JE) fan. I don’t know if someone can really be “fan” of a specific business, but I am a fan of Just Energy.

You really have to read about Rebecca MacDonald here and there on the Web because her business story is closely related to the journey that all began when she left her country for Canada decades ago. Now, new players had been added to Just Energy management, but it’s always the same company. On her first operational year, Rebecca MacDonald had recorded a profit of 35 000$.

Years later, it’s now millions and millions of dollars that this woman worth. More than just a personal story, Just Energy is a successful business story. I had been holding Just Energy for quite a while. Months after months, the dividend payments are steady and reliable. Even recently, the company announced their decision to keep their 1.24$ annual distribution intact. Nothing is guarantee, but base on my past experience with JE, the company is reliable.

More than one time, I had received special dividend payments of Just Energy. MORE THAN ONCE.

For strategic reasons, Just Energy had decided to extend its successful business in the USA. That move was quite brilliant coming from Just Energy because once the US economy will rebounded, Just Energy title will also rebound. Simple is that. This is my view of JE situation at this time.

You need to decide now if you are a believer or not.

The past couple months had been rough for Just Energy Group Inc. (JE). The company had fall from a 13$+ value to 10$. Other good stocks from my portfolio had been through the same rough time. They are Pengrowth Energy Corporation (PGF) and EnCana Corporation (ECA), among other. For a reason or another, because of a mix of factors and circumstances, stocks like Just Energy go through a hard time when the economy is unstable.

Is it because Just Energy had fall from 13$ to 10$ that it mean that JE had lost all of its value and security? Is it because EnCana Corporation (ECA) had fall from 30$ to 20$ that we need to sell the stock in a rush? Is it because Pengrowth Energy Corporation (PGF) had fall from 13$ to 10-11$ that you need to sell the stock?

COME ON! JE has debt like I have debt. Does it necessarily mean that I am not financially wealthy? I don't think so. It's all a matter of point of view.

What I really wanted to share is this: Your immediate reactions while facing the market volatility will determine if you are going to be a successful investor or not.

I don’t have many years of experience as a stock investor, but overall, I now been investing for the past 7 years. For stocks, it’s been 4 years. The past 4 years had been full of experience. Imagine: I started investing in stocks in 2008! Do you remember what happen in 2008? In 2008, the world economy collapse and I wasn’t ready.

Just before the stock crash of 2008, I had invested 5 000$ of my hard earned money in Sprott Inc. (SII), 10$ per stock. I had pitched 5k of my very own money in one single stock! Why? Because I was and I am still am a Sprott Inc. (SII) believer. Following the stock crash of 2008, Sprott Inc. (SII) valued went down under 5$! If I remember well, it even went, at a point, under the 4$ per stock! While facing this enormous capital loss in my portfolio, what have I done? I HOLD. I hold because for me, it was very cleared that SII was being a victim of the crash.

So here come the main point, to be a successful investor, you need to be able to deal with the market volatility. If I would have sell my SII stocks during the 2008 stock crash, I would have lost thousands of dollars! You need to be able to tell the difference between a stock being victim of the worldwide economic situation and a trouble stock.

A stock that is simply a victim of what’s going on around it has the ability to rebound when the stock market will gain points again. This is what stocks like JE, PGF and ECA just to name a few are in at this time. Don’t ever sell a stock that has the capacity to rebound. It will be a huge mistake and you could not be able to ever recover from your capital loss because if you sell, the capital loss isn’t going to be just paper stuff related, it will be a real registered capital loss, the real big deal.

In the other hand, a trouble stock is a stock that cannot handle itself. The best example of a trouble stock would be Yellow Media Inc. (YLO). I had some YLO stocks that I sold a couple of months ago at something like 5$ per stock. Following what, YLO had become a penny stocks. Yellow Media Inc. (YLO) now trade at less than 30 cents per stock. This is what I call, ladies and gentlemen, a TROUBLE STOCK.

Now, it’s not always easy to get if a stock is just being a victim of a situation or if it’s a trouble stock. I admit that of course.

From my experience, I haven’t got too much trouble finding out, especially following my learning disastrous experience with Timminco (TIM) that I wrote many many times about. You can do a search in the search engine located at your right if you are willing to learn more about my experience with Timminco (TIM).

I still hold Timminco (TIM) in my portfolio and the current 4k capital loss that I am experiencing in my non-registered portfolio is coming from Timminco because I had lost 4 000$ in that investment. But that’s how it went for. Even following the Timminco disaster, even following the 2008 stock crash, I had been able to recover. Being able to recover mean being able to recover from capital loss, it mean being able to make it so the capital gain exceed the capital loss. It’s not something easy to do, but I did it more than once and I can certainly do it again.

It’s not easy to invest in stock, but it’s not difficult either.

Overtime, I came with a few real basics rule that really help me to build my capital.

We can discuss a few of them. It’s nothing magic, real basic.

Don’t invest in penny stocks. From what I remember, my investment in DNI was my last penny stock investment. It turn out that I did pretty well on it – but that been AFTER 2 years of holding. From my experience, penny stocks are not very healthy to hold and it’s not the kind of stock you can buy to build up your capital. Avoid penny stocks.

No no to day trading.

Day trading could seem appealing. If you like the stock market as much as I do, you’ll probably, once of these days, try day trading. I experience a capital loss of 1 000$ while day trading. I share it all on my blog. It happens this past summer. I was successful with a couple of trades, but at the end, lost a 1k and I end it there. If I would have continue, I maybe would have able to recover.

Only problem being that I find all of the day trading activities related extremely difficult and at a point, I was getting very tired. I was working at night and during the day I was in front of my laptop all day long. The market was difficult to follow. Not to forget that in the beginning of August 2011, we had another stock crash. It all really burn me and I didn’t want to continue. I felt my life was losing all meaning and I was completely drained.

The stock market will continue to be difficult, you can be sure of that. These days, nothing is stable. The market is playing the yo-yo on and off. It’s exhausting, even while being outside the day trading game. Better to play it safe while investing in stock. Day trading is out of the question.

Diversify, diversify, diversify.

Diversify in different companies, different sectors. Gold, silver. Invest in all. go baby! :)

Also, don’t invest too much of your money in one single company.

Among the way, you may like to invest in GICs and fixed income and/or left something in your banking account to have money aside in case of need. It could happen that the market is down when you need to cash out your stock. And you certainly don’t want to experiment a direct capital loss and you certainly don’t want to sell any of your stocks anyway.

Don’t over-push it. Don’t feel like investing? Well, simply don’t invest. Don’t rush anything. It's ok not to invest. Take for example Jean-François Tardif who had said, not too long ago, that he only invested 30% of what he owns in cash! I finally come to a point where I accept the fact that I may not going to invest anymore.

This is something specifically related to my own situation. I had been investing for the past 7 years, 4 of those last years in stocks. About 2 weeks ago, I had some money to invest, but for the first time ever, nothing interested me. I didn’t feel like investing. I didn’t find anything new to invest in.

Following what, I stop my search and simply decided not to invest. I am going to receive my paycheck next week. And again, so far, no new stocks ideas had tempted me, I am not falling for anything new.

Not that I have the best portfolio you can ever, but personally, I have invested in everything that I ever wanted. I don’t want to invest more in any of the stocks I hold. When I invest, I always try to get something that is not currently from my portfolio. I always try to get something new. So because I had filled my stock aspirations, I can pay off some debt of mines and stop my search. Maybe something will come among the way. Maybe I will invest in BA, POT or Canadian Tired some other time but right now, the excitement is not there. I don’t feel like it at all.

Is it a good or a bad thing? I don’t know, but at a point, the necessity to pay off some debt is there. If I can reduce my debt, the 7k in dividend income will be net no interest to be paid on debt. So that’s where I am at now. I don’t have any more stock aspirations and I am slowly getting use to the new situation.

I pretty much wrote all of what I had in mind for tonight, if not that if you feel like investing, you may want to exclusively focus on blue chips. Don't focus too much on the dividend you are earning. It's not overnight that you are going to be able to stop working anyway. Be happy at work even if you don't like your job (I know something about that!).

It's all a matter of artificial intelligence. Consider yourself lucky to be alive, to be living in a peaceful country like Canada (if you live in here of course), to actually have a job, consider yourself lucky to be able to pay your bills. go to work each morning with a big fake smile on your face and you'll see, people won't even think of the smile as being fake because don't overlook at each other. Gotcha?

I know investing can be difficult, but simple tactics can help at the end. I think investors have the responsibility to think for themselves and have to seek for answers. Remember that at the end, you have the ultimate power of decision. To hold, buy or sell. All that cash is yours after all. Show it all and make something better than any BMO Bank of Montreal (BMO) staff.

Go for the WOW factor.

Fight for your own rules and make it happen.

And now, what are you waiting for?


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