Well, hey there, Financial Uproar. I haven’t seen you in a while. Hold on, let me clean up the dust. You’re looking worse than that time the media caught Hillary Clinton without her Spanx. OH, HE’S STILL GOT IT, BABY!
Should I do an update on my financial life? Or would you kids rather see me hit some dingers? I can totally hit dingers.
Let’s start the update.
As a reminder, the loan was originally $190,000 when we bought the place in July, 2016. We owed approximately $107,000 when I posted the last update, back in March.
We’ve still been aggressively shoveling wheelbarrows full of cash towards
buying loaves of bread in 1921 Germany our mortgage, getting the balance down to approximately $78,000. I don’t know what’s more exciting — knowing we’re easily on pace to erase the debt by the beginning of 2019 or a Weimar Germany hyperinflation joke finally appearing on Financial Uproar. Let’s go with the latter.
With markets bumping up against new highs seemingly daily, I think this continues to be a prudent use of my excess cash. There are some interesting stocks out there, but nothing that terribly excites me.
Remember when I posted that financial independence made me lose my ambition? Fortunately for me, those feelings quickly went away. Imagine doing the same thing for 20 years without ever getting promoted or doing anything more exciting. I can’t think of a worse version of hell. Okay, maybe I can. I’ve watched a cirque du soleil play, after all.
Anyhoo, I’ve made it clear to my company’s management that I’d like to get promoted. This would likely involve a move to a different store in a new community, which I’m quite okay with. I like small towns, but I’m kinda over the one I’m in.
We’d likely rent if my job took us anywhere else, for a few reasons. While the risk doesn’t really bother me, my wife doesn’t like the idea of being responsible for a new furnace or shingling a roof. Real estate prices are not as reasonable in other parts of the province, which makes the rent vs. buy debate lean towards renting. And the places where we’d like to go have a much greater supply of nice rentals than where we are currently. And hopefully a Wendy’s. God I love Wendy’s.
While I continue to hold and like most of my portfolio positions, I have sold a few things into strength.
In the latter part of 2015, the Canadian preferred share market got whacked. Taking advantage of the carnage, I picked up a medium-sized position in Shaw Communications’ preferred shares (among others), paying approximately $13 each. I exited last week at $17 per share. Including dividends, the total return was about 20% a year.
To minimize the tax impact of that sale, I finally punted Winnipeg Free Press from the portfolio and took the tax loss. Let that be a lesson to you kids. Never look at anything associated with Winnipeg in a positive light.
I also tendered my Dream Office REIT shares at $21 per share, netting a succulent return of 40% (plus dividends of approximately 12%) in just over 18 months. That position was in my TFSA, so there’s no tax implications there.
I invested some spare cash into an ETF, specifically the BMO Canadian Dividend ETF (TSX:ZDV). While the MER is a little high at 0.39%, I like the fact the ETF gives me access to an index of dividend payers that isn’t dominated by Canada’s five largest banks. I’d also be reluctant to buy an ETF that tracks the TSX Composite because of the large energy/materials weighting. And with a beta of 0.57 (according to Google Finance), I sort of view it as a way to participate in some of the market’s upside while minimizing the downside.
Will I invest more in ETFs in the future? I dunno, but I kinda like the hands-off approach ZDV offers, and the 4.4% yield ain’t bad either.
We’ll probably buy a second (used) car in the next few weeks, since sharing a vehicle has become hella annoying now that both of us have jobs. That’ll temporarily delay the ol’ mortgage payoff plan, but that’s okay. What’s the point of money if you can’t use it to make your life easier?
One of my Lending Loop loans is currently delinquent, and LL has employed a collection agency to help get the maximum amount of principal back. The rest of the portfolio is performing well, however. This is why something like peer-to-peer lending should only be a small portion of your portfolio, kids.
And that’s about it. Maybe I’ll write about actual stuff next time.
Back in that magical year of 2016, I revealed to y’all that Dream Office REIT was, the largest holding in my TFSA. It alone made up approximately 31% of all assets in my special tax-free fund, or about an 8% total weighting in my portfolio.
I liked Dream because it was stuffed with what I thought was undervalued assets. When the shares dipped below $15 and net asset value was close to $30, I backed up the proverbial truck. NAV was subsequently wrote down to $22, which I thought was a little aggressive. I figured the trust’s true NAV was closer to $25.
Management has been busy in the last year and a half. They ended up selling much of the company’s portfolio, raising a tonne of cash in the process. The proceeds will be used to pay down debt, purchase other assets, and, most importantly for the purposes of this blog post, the company will do a big share buyback.
The rules of this share buyback are relatively simple. Dream has offered to buy 24.444444 million shares from current shareholders for $440 million. It will pay anywhere from $18 to $21 a share. What investors who are interested in selling have to do is tell their broker they’d like to tender their shares to Dream’s offer.
Here’s how you do that.
The Tender Process
I’m not even sure why I’m writing this blog post, to be honest. Tendering your shares is really easy.
First of all, any company who is going through the tender process will send you the full offer. Spend a little time and read it, but most of the important information will be on the very first page. It’ll tell you the price offered, the total number of shares that’ll be purchased, and so on.
Most tenders are pretty straightforward. The company offers to buy x number of shares for y price. Y is often a range, like with Dream, but it can also be a single amount. If too many shareholders say yes to the offer, then you’ll only sell a pro-rated amount. If it’s a range of values and the company buys the whole allotment at a level below your asking price, you’ll get nothing.
Odd Lot Tenders
One thing of note are odd-lot tenders. If you own an odd number of shares (anything not in equal increments of 100), then you’ll often get first dibs. A provision will be put in the offer saying that all odd-lot tenders will be filled first.
In certain situations, this is an easy way to make some guaranteed money. A couple of years ago, a company called Tier REIT did a tender offer. Shares were trading at $17.50 each. The offer was between $19 and $21 per share, with the guarantee odd-lot tenders would be processed first. So I did what any rational person would do — I bought 99 shares in both my accounts, tendered at $19, and pocketed the guaranteed $300.
The Dream Office tender also guarantees all odd-lot purchases will be filled first. The problem is setting your price. Shares trade hands at $19.40 as I type this. It’s likely people aren’t going to tender for anything under $19.50. But still, where do you set your price? Do you go for the full $21 and maximize your profit? Or do you take the conservative route and go for $20? Or even $19.75? Is such a trade even worth it for $50?
Why am I Tendering?
It’s pretty simple, really. The strategy is to lock in $21 per share today and then buy back at $19.50 or so. I may also decide to move on from Dream, since the dividend going forward is only going to be $1 a share annually. Remember, it was $2.25 annually a couple of years ago. $2.25 was too high, and $1 is probably too low.
$21 will also be a nice ~50% gain on my investment, not including the dividend. I’ve done well on it.
How to Tender
I can only speak of how to tender your shares using Questrade and Qtrade, the two brokers I use. Although the process is likely very similar with every other broker.
Questrade has a really easy system. First you go to My Questrade, and then click on requests. Then you hit corporate actions and fill out the form. Mine looks like this:
That’s some high quality account number removin!
It’s a tad bit more difficult if you’re doing this using QTrade. You have to physically call in and talk to someone. I can attest that at least once I’ve talked to someone who had no idea the tender offer existed, which is hella annoying. It’s usually a pretty painless process though.
And that’s it. You’re done. The tender process is easy.
I’m kind of tired of doing these, so this will be short and sweet. If you’d like to see what each competitor picked, go to the 2017 entry page. And here’s everyone’s Q1 results.
If you’d like to view the spreadsheet that tabulates everyone’s results, too damn bad. THAT’S PROPRIETARY, YO.
|1. Boomer and Echo
|2. Dividend Growth Investor
|4. Roadmap 2 Retirement
|7. Ian Bezek
|9. JT McGee
|10. Financial Canadian
|11. Vanessa’s Money
|13. Canadian Value Investing
|14. Asset-Based Life
|16. Janine Rogan
|17. Freedom 35 Blog
|18. My Own Advisor
|19. Marty Guthrie
|20. Holy Potato
|22. Don’t Quit Your Day Job
|23. Financial Uproar
Overall, we averaged a 5.15% return. That beat the S&P/TSX Composite Index (which is up a little less than 1% thus far in 2017, including dividends), while trailing the S&P 500, which is up close to 10%. We’re lagging the Russell 2000 ever so slightly; it returned approximately 5.2% thus far in 2017.
Just think. If it wasn’t for Financial Uproar and his four terrible picks, our group of misfit bloggers operating out of their mothers’ basements would be beating the market.
Congratulations to Boomer and Echo for pulling into the lead. Remember, he stunk up the joint last year with picks so bad I was at least 70% convinced he was trying to lose on purpose. It just goes to show how much of a crapshoot this thing really is.
Ooh, look at you. Such restraint in the title. Would you like the Nobel Peace Prize?
Why yes, I would, Italics Man. I think I deserve it after putting up with you.
Let’s talk a little about Nelson’s sexy new job. It must have been a great opportunity, since I quit writing about stocks to do it.
That new job is…
Just building up anticipation here, don’t mind me…
(whispers) I work in a grocery store.
(ducks as tomatoes come flying from the crowd)
Why in the actual hell would you go work at a grocery store?
First off, remember that I’ve spent much of my adult life in the retail industry. My first real job was working in a grocery store (the same one as today, actually). I stayed for almost six years. After becoming a terrible real estate agent, I went back into the industry for three more years as a potato chip salesman. It’s nice to start a new job and not have a crazy learning curve.
As I’ve mentioned before, retail is clamoring for brains. Most chains have their share of long-term employees, but most of these workers have zero hope of ever advancing past entry level. They just don’t have the intelligence or work ethic needed to excel. They’re decent at being told what to do, but never level up past that stage. Grocery is competitive as all hell; it needs people who can truly drive sales.
And apparently, one of those people is me. At least, according to my new bosses. I’ve been tapped to move up the ladder. Management has put me into a sort of half-assed advanced training program and has me in charge of certain parts of the grocery department to try and prepare me for the next step.
Grocery management is a decent living. Department managers regularly earn more than $50-60k per year, with store managers pushing six figures. Hell, even as a guy who just works in a store, I feel I’m more than adequately compensated. Certain chains invest in their staff. Others don’t. One of the reasons why I work where I do is this company is squarely in the former category. And it shows; they have some damn fine grocers.
Despite the opportunity staring me in the face, I’m not entirely certain I’m going to go for it. And it’s all because of damned financial independence.
How FI is BS
Thanks to years of aggressive saving and some savvy investments, I’m fortunate enough to be in a position at 34 years old to not have to work. I continue to drag my ass in every day because I know time off only means something if you have something to measure it against. When every day is a treat, it’s no longer a novelty. Suddenly, taking every day off is like having a job.
But while I’m a big advocate of doing work, I find myself with less motivation now that I know each paychque just goes to further increase the big pile of money at my disposal. I should be working my ass off towards getting promoted. I should be telling management to send me to a new store the minute a department manager opportunity opens up.
But I’m not. Instead, much to their chagrin, I’m hemming and hawing and coming up with reasons why it’s not a good idea to accept a promotion. I don’t want to move. I’m not sure I’m ready. I want to make sure the manager is someone I can work with.
It’s all nonsense. The reason why I’m dragging my feet is because money doesn’t motivate me any longer. Sure, there are plenty of other reasons to take a promotion, but y’all gotta admit the cash is a huge motivating factor. And if the money doesn’t motivate me, then it’s all about the challenge of a new position. But why bother taking on huge potential frustrations when I don’t need the money?
This is what financial independence has done to me. Suddenly, I understand these early retirement bloggers who threw up their hands and decided work was stupid. It’s really hard to get motivated under such circumstances. Why work so hard when you don’t need to? Why not just have fun instead?
There’s a lot of good that comes with financial independence. We all know about that. But nobody ever talks about the bad. Sapping motivation is not a good thing. Early retirees are, generally, smart as hell and great with money. They’re probably people who should stay in the work force long-term. Unfortunately, there just isn’t much sense trying to talk these people out of it. As I’m finding out, the default response to “fuck you” money is “fuck it,” no matter how much I want it not to be.
Hey, it’s been almost two months now. I bet you kids are just JONESING FOR MORE NELSON.
(Crickets chirp and a tumbleweed slowly goes by)
The interwebs is very much a place where you can just quietly go way and nobody gives a crap. I retired from Motley Fool about a month ago and two people cared enough to mention it. Two! I’ve never felt more disposable.
I have a real job now, and it’s great. Co-workers are fun when you’ve gone without for a few years. I like working with people towards the same goal. I really missed that.
But enough about my personal life. It’s time for a bunch of thoughts on some different subjects. ARM THE RANDOMNESS CANNON.
New portfolio position
I think Alberta is a great place to search for undervalued stocks today. The economy will eventually recover, bringing up earnings of Alberta-centric companies up with it.
Gamehost Inc. (TSX:GH) is one such company. It owns and operates three different casinos in the province, with locations in Grande Prairie, Fort McMurray, and Calgary. Earnings peaked in 2014 at $0.95 per share, falling to $0.66 per share in 2016. Keep in mind 2016’s results were temporarily low because of the Fort McMurray fire.
I paid just over $9 per share for my position, meaning I got in for less than 10x peak earnings. I believe the company grows earnings in 2017, since they’ve already come out and said both Grande Prairie and Fort McMurray are looking strong. Calgary is the weak market today, but the city will eventually recover. Oil always swings back. It’s just a matter of time.
And while I wait, the company pays a generous 7.6% yield.
Gamehost has other things going for it value investors typically like. Insiders own approximately 40% of shares outstanding. It has a solid balance sheet. Management did cut the dividend, but that was to free up capital to put to work buying back shares. And since Alberta’s economy is in the shitter, there’s little chance of any new casinos opening anytime soon.
I bought a bunch of Aimia (TSX:AIM) shares in 2016, enticed by the company’s strong free cash flow and what I thought was a no-brainer choice for Air Canada to renew the contract.
I guessed wrong, and I’m now down a cool 75% on Aimia. Yeah, that stings.
I’m not entirely convinced Aimia will end up insolvent, although I do admit that’s a very real possibility. I like the company’s other assets, including the 50% stake it has in AeroMexico’s loyalty program. I suspect that will get sold and the proceeds applied to debt.
There’s also the possibility of another company buying Aimia, whether it’s the parent company of Air Miles (Alliance Data) or one of its bank partners. There’s zero possibility of Air Canada buying the company back, at least in my opinion.
The Aimia debacle pretty much erases my big win with Canam a couple of months ago. Oh, investing. You have a special way to keep a guy humble.
Home Capital and Buffett
Anything that fucks over Marc Cododes, the short-seller who declared Home Capital was a gigantic fraud at every possible opportunity, is fine by me. Short all you want, but don’t be an asshole about it.
I don’t see what attracted Buffett to Home Cap, but the reaction on Financial Twitter (or FinTwit) was delightful. I’m 80% certain Warren did the deal just to lurk and LOL at everyone’s reaction.
You still can’t convince me to touch Home Capital, however. I’m staying far away from that turd. Genworth MI Canada (TSX:MIC) looks a little more interesting, but it’s too expensive today. I might sniff when it falls back to $30ish. Or I might nope out of anything related to Canadian housing. That seems like the safer bet.
Other interesting stocks
I like Inter Pipeline (TSX:IPL) at anywhere under $25 and Altagas (TSX:ALA) under $30. I think both are solid businesses that will succeed over the long-term. Neither are particularly cheap, but they’re the kinds of companies that never get truly inexpensive.
I once bought Inter Pipeline under $10 a share and then sold at $20 per share, collecting a sweet dividend along the way. The company has increased both cash flow and the dividend since, a trend I think continues over time.
I’m down a bit on recent portfolio additions High Liner Foods (TSX:HLF) and Information Services Corp (TSX:ISV). I think both are solid businesses you want to own over the next decade or so, and would buy more once I add a little more capital to my portfolio.
Fairfax Financial (TSX:FFH) is also looking pretty interesting at right around book value. Not having to pay a premium to have Prem Watsa in your corner is nice.
And finally, if you’re into energy stocks, I think both Cenovus (TSX:CVE) and Baytex (TSX:BTE) look interesting here. I’d be much more inclined to buy the former, but the latter comes with more upside potential.
That’s about it, kids
See y’all in a couple of months. Or sooner. Probably sooner.