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Tuesday, March 5, 2013

My 2 questions interview with Derek Foster... because time is money

The day following Monday is always better than a Monday, at the only condition to be a busy day. And I wasn’t really busy today at work. The day was very very long. It’s a rush rush rush all day.... or a long and boring one. That’s the job for which I work for during Spring-Summer 2012 without getting any vacations. Yeah you are right, you are getting the picture. Anyway, during the chitty day of today, Derek Foster, the Stop Working guy kindly answers my email (yESSS). What it is about this time? Well, you’ll have to read a bit before getting to know... ahah!

Today like almost everyday, I check out my stock portfolio. What I saw was shocking: my non-registered portfolio was only at $113 629! Yesterday, the same portfolio was exceeding the $122 000! What happen? Was this the result of my massive lost in ATP, DGI and JE? But I had it all under control and no matter what, my non-registered was at 122k+. OH MYYYYYYY!

I went through all of my holdings one by one and guess what, there’s a trading halt on Exchange Income Corp (EIF). When a trading halt continue even once the market is close, the value of the stock appears as $0... a trading halt happen when a company has a big announcement to make. And to avoid some rush sale, a halt is being apply. During a certain period of time, no stocks of the company can be sell or purchase. I had been holding EIF in my portfolio for a long time now. I only have good words for the stock. I really like EIF. I am not worrying that much. After calculation, my non-registered is close to the 123k (with EIF in, of course).

Nice, but since I am on a margin account situation, better watch out to any trading halt! While being on a trading halt, the value of the company is 0$... Which mean that the loan value of the company is also... 0$... From my calculation, I am ok, but imagine for a moment that several assets suddenly turn into a trading halt situation... OUTCH! That’s another problem to be considered while trading on margin. No no, don’t consider it. I did and I am stuck with it and I am now margin intoxicated. I LOVE MY MARGIN.

Ok, are you ready for the REAL HOT STUFF NOW?

Because time is money, and I only had 2 questions to ask Derek Foster, I ask him my 2 questions (I only had those 2 anyway – at least for now):

1. THE DIVIDEND GIRL: Why should small investors like myself invest in the stock you talked about in your last video knowing the dividend yield proposed by the company is so terribly little?

DEREK FOSTER: Yes, ABC's offers a low dividend (although they just raise their dividend by over 20%)!  But if you look at their history, although thier dividend is low, they have bought back a lot of their shares over the last few years.  Another stock I own, which is similar, is Imperial Oil.  This company only pays a 1% dividend, but they have been buying back almost 5% of their outstanding shares for years - so this is the same effect as if they paid out a 6% dividend and you reinvested the 5% in a DRIP (dividend reinvestment plan), but with DRIPping you would pay taxes on the dividends, whereas with share buybacks it's a TAX-FREE DRIP essentially, so I am content for the company to keep buying back their shares and making me wealthier over time without the tax burden reducing the compounding...

(I intentionally remove the stock name to ABC. To find out about the stock name, go buy the video series and go straight to the last video. And you’ll FINALLY get the stock name lol).

2. THE DIVIDEND GIRL: When you realize you just did one big investment mistake, how do you react? What do you do? Is selling the bad investment on which money is already been lost anyway and reinvest in a quality stock is the best way to get over it? 

DEREK FOSTER: I've made my share of stupid stock buys (and anyone who invests will at some point). If the quality of the company is not very good and I was wrong in buying it, I generally will look for a good time to sell it and reinvest in quality stocks. However, if it's just a short-term problem and the fundamentals of the company are still good long-term, you're usually better to simply hang on. 

I am going to comment on those wonderful answers in the next post.


pattirose said...

So Sunny, what company is "ABC"

Also want to know if those "CAPS!" in Dereks answer are yours or his?

Anonymous said...

well you have massive loss, while the markets are going higher and higher, go figure!

Anonymous said...

Thanks for an interesting interview, DG.

As for those quick on the trigger in blasting dividend investing - or anyone's specific choices - let them make fools of themselves.

By definition, a div stock pay out cash instead of investing in capex or paying off debt, so that tracking the stock price on its own is meaningless.

Before stating that Div Girl "made such a loss", perhaps should you take a look at total return?

I have walked out of many positions with a capital loss, but a very attractive total return. I actually chant every position as if any dividends caused an ACB just to know where the real break-even is.

The problem with pure capital appreciation plays is that they do not generate an income: To get cash you have to do a trade. And the majority of retail investors lose money on trades, overall. It's not 1980: You are competing with very bright, very fast computers, and they WILL eat your heart out.

Dividend plays are simpler: Find a solid payer with strong fundamentals, far from any secular decline, buy and hold, and profit. Every month or so your train comes in, and you don't have to feed your broker with transaction fees. With luck, by the time you sell, your actual cost base is -0-.


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