BlueNote's Journal

Where are you and where are you going?
workathome
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Re: BlueNote's Journal

Post by workathome »

I liked your idea about looking at UK stocks. As a whole, the US market currently sits at a Shiller P/E of 25.4, making it the most expensive developed nation in the world currently.

Contrast that with the UK market which only has a Shiller P/E of 13.61 - almost half that of the US! It looks cheaper on a dividend basis too, with a 2.76% yield on the EWU ETF versus 1.88% for the SPY ETF.

BlueNote
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Location: Toronto, Canada

Re: BlueNote's Journal

Post by BlueNote »

workathome wrote:I liked your idea about looking at UK stocks. As a whole, the US market currently sits at a Shiller P/E of 25.4, making it the most expensive developed nation in the world currently.

Contrast that with the UK market which only has a Shiller P/E of 13.61 - almost half that of the US! It looks cheaper on a dividend basis too, with a 2.76% yield on the EWU ETF versus 1.88% for the SPY ETF.
In order to avoid UK dividend witholding taxes (~30%) I have to invest in the ADR's of UK firms. For some reason there is no dividend witholding tax on the dividends paid to my Canadian tax deferred accounts when I hold the ADR for a UK firm (complicated UK-US-CDN tax treaty reasons I suppose). This limits me to a small pool of UK firms for my preferred investment style. I own BP and BBL right now but I have Unilever, RDS.B, and Reckit Benckiser on my radar as well.

I think the UK market is somewhat shunned because of the closeness to the European market and their difficult monetary situation. There is definitely some fear of investing there, so I am trying to be greedy while others are fearful.

However the vast majority of great dividend growth stocks are to be found in the USA which as you pointed out is going through a raging hot bull market right now. I am accumulating cash right now while I re-calibrate my investing methodology. I will post about it soon once it's all finalized but it's definitely a level up from how I did things in the past.

BlueNote
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Re: BlueNote's Journal

Post by BlueNote »

Norbert's Gambit

Note: USD = US Dollars, CDN = Canadian dollars

Norbert's Gambit is an easy to execute financial transaction that allows one to exchange USD and CDN dollars with very very low frictional costs (fee's, spreads etc.).

I bought about 256 shares (~$3K CDN) of DLR.TO an ETF that holds USD but is denominated in CDN. I then asked my broker to "journal" all my DLR.TO to DLR.U.TO (the same thing as DLR.TO only denominated in USD). They do the switch for free and when I sell the ETF the trade is settled in USD. My broker only charges me $4.95 for the buy and sell trades combined. There is currently about a 1 cent CDN spread between the two ETF's. so that's another $2.56. That's a total transaction charge of about 0.25% (maybe a little more if you include bid ask spreads on the stock itself). To get the broker to do this the traditonal way they almost all charge a conversion fee that is 5-8x times higher (1.95% in my case) and god only knows how terrible the currency spread is compared to the market. I will probably save 200-300 dollars a year during my accumulation phase from this, I highly recommend all Canadian stock investors of all stripes become totally practical on this technique. Even if you just index into a Vanguard S&P 500 ETF it behooves you to know how this works because you are probably bleeding money to your broker every time you get them to switch your currency back and forth.

Here is a link that explains exactly how I did it (it's dead simple): http://www.moneygeek.ca/weblog/2013/10/ ... questrade/

BlueNote
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Location: Toronto, Canada

Re: BlueNote's Journal

Post by BlueNote »

Poem: The Smell of Spring in Toronto by BlueNote


Roses are Red
Violets are blue
The smell of spring in Toronto..
is that of thawed out dog poo


I should have opted for an English major in University, totally wasted my talents!

I have a feeling that my bike commute to work will resume tomorrow as the glaciers are receding enough to get access to the bike trail. :x :P

BlueNote
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Re: BlueNote's Journal

Post by BlueNote »

I am investigating the “Warrior Diet” and Intermittent Fasting to help me lose weight and get healthier.

Pro’s

- You save time by eating less often
- Unlike most diets you don't have to constantly analyze everything you eat all the time.
- I have seen a lot of people online who have lost weight and gained muscle on this type of diet
- Apparently fasting can help extend life in mice. However I don’t know if this is technically fasting or if the effects on mice translate to humans.
- There is some cause and effect type evidence to suppose claims or fat loss and greater insulin sensitivtyhttp://www.nerdfitness.com/blog/2013/08/06/a-b ... t-fasting/


Cons:

- Some of the some of the articles I have read are negative towards the Warrior Diet. One of the main criticisms is that there is a lack of scientific evidence to support the claims made. Therefore most of the evidence is anecdotal and experiential in nature.
- Also there was one article I read that said that the Warrior Diet would increase a person's chance of getting diabetes because the one large daily meal could cause a vast increase in the amount of insulin in the blood stream which could cause insulin resistance.

The only points of advice on dieting in general that I found broad consensus on are:

1. Get the recommended amount of vitamins and minerals (micronutrients)
2. Make sure your Macro nutrients are sensibly proportioned. Not too much of any one of them and a bias towards getting carbs from vegetables and fruits.
3. Eat a variety of “real” food and avoid processed food.
4. To lose weight make sure you burn more calories than you consume (assuming no malnutrition or starvation)

I have been reading on dieting and nutrition for days now and those four things seem to be the common factors that all the science and nutritional expert advice seem to have in common.

On top of that doing frequent aerobic and strength training was the most common advice, pretty obvious.

There was some discussion about physics and thermodynamics. It was mostly above my head but from what I gather you can convert mass to energy and if you don’t provide the body with enough externally sourced energy (food) it will convert its internal mass (glycogen, fat etc.) to energy thus lowering your weight.

robby152
Posts: 31
Joined: Fri Oct 04, 2013 10:07 am

Re: BlueNote's Journal

Post by robby152 »

Here is a pretty interesting synthesis of various diets by a Bob Blum (PhD from Stanford I believe) that mentions CRON - Calorie Retricted Optimal Nutrition: http://www.bobblum.com/ESSAYS/BIOMED/Food.html.

Not sure if the findings are complete on any of this, but I agree with your summarization of 4 points.

BlueNote
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Location: Toronto, Canada

Re: BlueNote's Journal

Post by BlueNote »

robby152 wrote:Here is a pretty interesting synthesis of various diets by a Bob Blum (PhD from Stanford I believe) that mentions CRON - Calorie Retricted Optimal Nutrition: http://www.bobblum.com/ESSAYS/BIOMED/Food.html.

Not sure if the findings are complete on any of this, but I agree with your summarization of 4 points.

Very informative website, thanks for the link.

slimicy
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Location: Sin City

Re: BlueNote's Journal

Post by slimicy »

If you want some science behind IF I always recommend www.leangains.com

BlueNote
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Location: Toronto, Canada

Re: BlueNote's Journal

Post by BlueNote »

Luck

I like to read investing books, it’s been a hobby for the last 2 years. The best book, IMHO, I have read so far is “The Future For Investors” by Jeremy J. Siegel. I read a library copy about a year ago and when I find a good investing book I usually buy it for personal reference. I ordered a used copy from Amazon for about $7 + S&H. I got a a signed first edition hard cover with smythe stiched binding. This tome was meant to last a long time, probably library quality. The kicker is that it is signed “To Mike Jeremy Siegel”, and as luck would have it my name is Mike, so thanks to the original Mike for getting a signed (assuming it's authentic) first edition for me :-)

Quality and Durability

I have always thoroughly enjoyed owning things that have the dual qualities of durability and high quality as long as I paid a reasonable price.

Examples:

- My Pannier/Briefcase bag is a full grain leather bag with a 100 year warranty. It looks better the older it gets because full grain leather gets a beautiful patina. $500 seems expensive until you amortize it over my life time and that of whoever inherits it. $9-$11 a year seems reasonable.

- The top three stock holdings I have that give me the least worry (DPS, KO and BRK.B) are all high quality business with strong durable competitive advantages.

- I own an ten year old reliable black and white laser printer, most people buy ink jet (razor and blade business model) and pay too much for ink.

- I wear nice leather shoes to work, been wearing the same shoes now for a couple of years. I figure I will get at least 2 more years out of them before resoling or replacement.

- My top of the line music equipment gives me much more satisfaction and use than the mediocre stuff.

I think the point here is that there are many areas where paying more gets you more per unit of activity/time then does paying less upfront.

That reminds me that I need to buy a copy of ERE, I wonder if there is a smythe stitched library quality version. The Toronto Public Library version is a perfect bound paperback that looked like crap because that format isn't really intended for heavy public circulation.

jacob
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Re: BlueNote's Journal

Post by jacob »

No, every ERE book in existence is either pixels or a POD glue job.

I did consider handbinding a few copies once. If there's sufficient interest, I can reconsider.

BlueNote
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Location: Toronto, Canada

Re: BlueNote's Journal

Post by BlueNote »

jacob wrote:No, every ERE book in existence is either pixels or a POD glue job.

I did consider handbinding a few copies once. If there's sufficient interest, I can reconsider.
An hand bound copy would be perfect. It would be cool to have a book written and built by the author :D . I assume you would use archival quality paper to prevent the yellowing many paperbacks suffer from after a few years?

Approx. how much per book (rough estimate) if you can get the min order quantity? I imagine they would be quite expensive, my wife sells book manufacturing (publishers pay her employer to print books) and smyth sewn hard covers with library quality materials are pretty expensive per unit compared to typical batches of perfect bound hard/soft covers with lower quality materials.

BlueNote
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Re: BlueNote's Journal

Post by BlueNote »

Bike repair

So far my bike had been a mostly hassle free, cheap and fun way to get back and forth to work. I blew a tire and fixed it rather then buying a new tube. I used to always buy tubes but this time I learned how to fix the leak and it felt good to get this skill under my belt.

I need to rotate the tires the back one is losing tread faster then the front. They are almost bald now.

Taxes

I socked away a bunch of money in my RRSP (like a 401K) in 2013, and got the biggest tax return 3.3K) of my life. I intend to reinvest the taxes back into my RRSP (like a 401K) and TFSA.

Computer

I bought myself a new computer after I had to reformat my old one and realized that MS isn't providing updates for XP any longer. I really have no excuse on this one. I bought a refurb macbook pro, did some math on the amortization and determined that the cost / benefit was good. It was expensive in retrospect and I feel guilty about it but really enjoy the product. I used to do tech support for Apple so I am already very familiar with the product but I probably should have just bought the bare essential parts for my old PC to get it upgraded to windows 7.

Investing

I have almost completed the overhaul of my investing strategy. The overhaul is intended to provide me with an investment strategy that will provide a reliable stream of income from which I can live off of after I become financially independent in the next 10 years regardless of most economic conditions. To that end the priorities of the investment strategy are:

1. Reliability of income which translates to financial safety and sustainable competitive advantage of the company.
2. A decent starting yield of cash disbursements from the company I am investing in
3. Solid dividend growth of around 5-10% per year which is driven by earnings growth. Earnings growth will be driven by a reasonably high ROE (15% or higher) . The high ROE will be driven by high margins and asset turnover , debt will be a small factor but not overiding because I would have weeded out over leveraged companies in step 1.
4. A decent buffer against very high inflation. I worry about very high inflation because of the QE efforts in the US. I think a decent consumer defensive and energy component in my portfolio will do well based on past performance.

I use David Fishes CCC list and add my own rankings to narrow down the companies I like. I was really focusing on valuations but I came to realize that hard core valuation (look up Aswath Damodaran) only seems to provide superior insight on things like small caps and hard to value companies. Companies like morningstar provide really good valuations on the big "best of breed" dividend growth stocks I like so I just use those valuations along with my own back of the envelope sense check. I know it sounds lazy but I want to save myself time and I don't have any value to add to the fair value estimates that the analysts do.


Charlie Munger says "It was far better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price".

That is the essence of what I am trying to do, buy great companies in businesses and industries that have good protection from competition. I want minimal risk from debt and I want the companies to payout out a reasonable yield and increase the dividend 5-10% every year. I would accept a slightly lower growth from REIT's and Utilities for the increased safety and yield (3-7% a year)

That leaves me with a manageable list.

This guy seems to have a similar strategy ,I like his implementation: http://seekingalpha.com/user/728729/ins ... full_index

Gilberto de Piento
Posts: 1942
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Re: BlueNote's Journal

Post by Gilberto de Piento »

So far my bike had been a mostly hassle free, cheap and fun way to get back and forth to work. I blew a tire and fixed it rather then buying a new tube. I used to always buy tubes but this time I learned how to fix the leak and it felt good to get this skill under my belt.

I need to rotate the tires the back one is losing tread faster then the front. They are almost bald now.
I'm happy the bike is working out well for you! A couple of thoughts:
- Flats are more likely when the tires get near the end because there is less material to protect the tube. Wearing tires out completely can be false economy because you end up paying for flats in time and money. There are pieces of plastic that you can add between the tube and tire that really protect against flats but are annoying to install and somewhat heavy: http://mrtuffy.com/.
- It's normal for the rear to wear out faster. I've often heard you shouldn't rotate bike tires. When the more worn out tire is on the front it is more dangerous because that tire is more likely to have a catastrophic blowout (not that that is very likely anyway) and a blowout is more controllable on the rear.
- If you want to wear out your tires completely without adding danger you could put a new tire on the front and move the old front to the rear. Then when this former front/now rear wears out you move the new front to the rear and put another new tire on the front. Hopefully this makes sense. You pay for this in tire changing time though.

BlueNote
Posts: 501
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Location: Toronto, Canada

Re: BlueNote's Journal

Post by BlueNote »

Gilberto de Piento wrote:
I've often heard you shouldn't rotate bike tires. When the more worn out tire is on the front it is more dangerous because that tire is more likely to have a catastrophic blowout (not that that is very likely anyway) and a blowout is more controllable on the rear.
- If you want to wear out your tires completely without adding danger you could put a new tire on the front and move the old front to the rear. Then when this former front/now rear wears out you move the new front to the rear and put another new tire on the front. Hopefully this makes sense. You pay for this in tire changing time though.
That makes perfect sense, thanks for pointing it out. If I blew out the front I might lose control of steering and braking on the front tire. If the back blows out then the worst case scenario might just be damaging the wheel. I did some research and front braking seems safer and much more effective then rear braking if you do it properly:

http://sheldonbrown.com/brakturn.html

http://sheldonbrown.com/tire-rotation.html

I will rotate the front to the back and replace the front with new treads. I will also get my front braking technique down for better control.

BlueNote
Posts: 501
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Location: Toronto, Canada

Re: BlueNote's Journal

Post by BlueNote »

Amateur Bike Mechanic

My bikes flat tire is totally fixed, the new problem is a squeaky front brake. I wake the dead when I use the front brake now, but the brake still works fine. I will need to research how to fix it.

My new investing methodology

I am thinking of actually creating 2 or three part blog that explains it in more detail. It is constantly evolving but here is the basic gist of it.

1. Risk control is paramount therefore I want diversification, high financial safety, sustainable competitive advantages, reasonable inflation and deflation protectection at a fair or better price

2. I want to be able to reliably remove a small percentage of the stocks intrinsic value (cash) at regular intervals to fund my retirement while minimizing the worry about selling into an irrational market, particularly a paniced market.

Here is how I have been sifting out my stock picks:

1. I have a list based on the US dividend champions list of stocks that have historically paid an increasing dividend for at least 5 years. This list automatically takes out a lot of the rejects. I think that the 08/09 crash must have left us with a much better list of DGI stocks then prior to the crash.

2. I filter out anything that hasn't paid a dividend for at least 9 years. That leaves me with stocks that have paid an increasing dividend through at least one full business cycle.

2. Energy, consumer defensive, Utilities, REIT's, Railroads and Health Care Stocks are kept. A few other companies are kept like McDonalds and ADP but a lot of industries are left out because they have a poor long term track record (read The Future For Investors by Jeremy Siegel).

3. Stocks ranked in valueline below 3 for safety and/or rated below B++ in financial safety are filtered out. This leaves very high quality balance sheets that are likely to be able to weather an economic slowdown

4. Stocks with no moat from M* are filtered out

5. Utilities (including telecoms and REITs) with a chowder score (yield + 5 year div CAGR) below 8 are filtered out

6. Non Utility stocks with a chowder score below 12 are filtered out

7. Stocks with a div yield below 2% are filtered out

8. Stocks with a price above M* fair value are filtered out. This is an intrinsic value calculation discounting all the estimated cash flows the company is expected to make to the present value. This type of analysis is the gold standard for determining value vs price but has highly sensitive inputs which makes it prone to error.

9. Stocks that fall below the Fast Graphs blue line on a 15 and 10 year basis are filtered out. This is the ultimate "relative" valuation based on what the market generally values the business at and acts as a check against the risk of an erroneous M* intrinsic value calculation. The Fast Graphs tool is the only investing research I pay for, value line is through the library and M* is provided by my brokerage.

10. I filter out stocks with an ROIC below 10

11. I filter out stocks with an ROE below 15 ( I average out the ROE and look at historical ROE and ROIC to make sure that it is historically above minimum criteria for at least the last 5 years preferably the last 10 years)

12. Stocks that make it to the final cut get into a tie breaker

Tie breakers

1. Multiple of 10 year government bond yield

2. Moat Score ( I score the moast from 1-10 based on M* and my own ranking system)

3. % discount to M* fair value

4. Effect on diversification of existing portfolio

Here is the final cut from last week:

BHP Billiton plc
HCP Inc.
Procter & Gamble Co.
CSX Corp.
Southern Company
Wal-Mart Stores Inc. (some call this a consumer defensive, others a retailer)

I ended up buying HCP inc. because I don't own any REIT's. Seems like a great REIT to own because it makes it through my gauntlet and has a 29 year history of increasing the dividend (albeit at a low rate). I already own BHP but I don't own any of the rest of the final cut yet.

I guess that was a long post so if you read to the end I salute you!

jacob
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Re: BlueNote's Journal

Post by jacob »

You need to angle the brake pads in towards the rim so the front of the pad is the first to touch and the whole pad contacts when you apply full force.

spoonman
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Re: BlueNote's Journal

Post by spoonman »

That's a very interesting analysis. I like the fact that you are using the Chowder score. It's difficult to go wrong with companies like PG and SO. CSX has always interested me, but I loaded up NSC back when it was $57 and by the time I was done with it CSX had gotten away from me.

BlueNote
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Location: Toronto, Canada

Re: BlueNote's Journal

Post by BlueNote »

jacob wrote:You need to angle the brake pads in towards the rim so the front of the pad is the first to touch and the whole pad contacts when you apply full force.
That seems to have been what did the trick. I used a nickel to shim the back of the pad and then pulled the brake tight, loosened the pad screw and retightened it in the new forward slanting position.

I also cleaned the pads and rims with a little alcohol and sanded the pads down a little which didn't do anything to help.

I am working on getting all the gears to change properly now, I still can't shift into the lowest gear which has been a problem I have avoided solving since last year.

Tons of youtube videos on how to do this are available so it should be no problem with a little education.
spoonman wrote:That's a very interesting analysis. I like the fact that you are using the Chowder score. It's difficult to go wrong with companies like PG and SO. CSX has always interested me, but I loaded up NSC back when it was $57 and by the time I was done with it CSX had gotten away from me.
CSX is interesting but my analysis only shows that it is barely (5%) undervalued, so really almost no margin of safety in the price which is almost always the best form of risk control. Also railroads are very capital intense so they are slow growers but often solid long term investments due to the network effect competitive moat they have.

In fact of all the stocks in my final list BHP Billiton appears to be the most under valued on a relative and intrinsic value basis. I am not recommending it but I think it deserves a closer look by DGI investors because it's about the only basic materials stock out there that has a competitive moat (scale) and their diversification model is good at reducing the wipeout risk and cyclicality that most basic materials companies face.

Also the discounts to fair value on the final list are minimal, it's not like a year ago when I could probably have produced a list of 10 or 20 possibilities with some prices at 70% of fair value. The market of "BlueNote" stocks appears fairly or possibly slightly over valued. I am putting at least 1/4 of my net worth into the money market and will probably put 1/2 to 3/4 in if the market keeps going up. I guess if investing didn't get difficult at some point everyone would be doing it and making money like water.

I also increased my stake in berkshire hathaway class b stock. It's the only stock I own that doesn't pay a dividend, seems a little under valued right now when I compare current book value per share to historical averages. So I think it's fairly valued if my growth estimates are too rosy or undervalued if they aren't.

BlueNote
Posts: 501
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Location: Toronto, Canada

Re: BlueNote's Journal

Post by BlueNote »

My Day in Pictures May 28, 2014




Image2014-05-28 17.41.38 by bluenote_ere, on Flickr

Beautiful day to ride the bike. The squeaky front brake has returned, I need to work on that again. I think I need to sand or file off a good amount of the brake pad based on my research. There probably a grain of sand or something that is causing the crazy screeching noise.

Image2014-05-28 19.55.56 by bluenote_ere, on Flickr

I was working on my bikes gears and thought I had failed in getting it to switch to the lowest gear. However I was working with my bike flipped over which prevented the gear switching mechanism from catching properly on the largest gear. Once the bike was wheels down the gears switched properly, which surprised and delighted me on my way home. Luckily I didn't over adjust the limit screw or I might have thrown the chain and gear changing mechanism into my back wheel inadvertently :(


ImageIMG_20140528_195452 by bluenote_ere, on Flickr

I did this coming out of my parking spot, will probably cost me a pretty penny. Some of it is right down to the metal

henrik
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Re: BlueNote's Journal

Post by henrik »

I have the same problem with my front breaks. They work fine, but the noise is annoying. Let us know when you figure it out:)

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