Back in my deep value days, I bought a big position in Reitmans (TSX:RET.A), the women’s clothing retailer. It’s been five years of a lackluster performance and I still own my 2,000 shares.
I liked Reitmans because of the solid balance sheet, its cost cutting program, the turnaround potential, and the two crusty old Reitman brothers in charge. I used to be a big fan of management that stayed with the same company for about five decades.
The stock has bounced around a bit, including reaching a high of above $8 in 2015 and briefly surpassing $7 in 2016. But for the most part it’s been a long, slow decline. Shares are currently a little below $3.50, which represents just over a 40% loss for your favorite reformed deep value investor. At least dividends have helped bring that loss up a little.
I’ve tried being patient with the stock and it just hasn’t worked. But you know what my biggest frustration is?
Reitmans just doesn’t care
It’s clear Reitmans’ management team just doesn’t care about bringing the stock price up. There’s an easy path the company can take to create value, yet management just doesn’t bother. This suggests to me that either a) they don’t care or b) they think the company is ultimately doomed.
That easy path is stock buybacks, of course, and they make all sorts of sense at today’s price. The company trades for 40% under its stated book value, a metric that doesn’t include very many intangible assets. In fact, most of its market cap is actually cash in the bank.
Why wouldn’t management be buying back these shares as fast as they can get their hands on them? It makes zero sense to me. They’d immediately be generating value while putting non-productive cash to work.
It’s not like Reitmans needs $166 million (or a little over $3 per share) in cash, either. The company generates a little free cash flow each year, basically enough to pay the dividend. I’d immediately cut the dividend and use a big bunch of the cash to do a share buyback. Or, if I’m the Reitman family, I offer a small premium and take the company private.
I want to sell my shares because Reitmans is a trash company in an even worse industry. But something like a share buyback or taking the company private makes too much sense to ignore. I envision selling my shares and then next week waking up to some big news that sends the stock 20% higher.
On the one hand, it’s silly to wait for an acquisition or other big event, since those things aren’t that likely to happen. Especially with a family-controlled company like Reitmans. My part-time grocery store gig is for a family-owned company, and these folks are typically a little crazy. Their whole identity is wrapped up in the company. So I doubt the brothers are going to sell.
But on the other it’s obvious some such move will create shareholder value. And the Reitman brothers own a shitload of shares. What exactly are these guys waiting for?
Value investing 101 is being patient and waiting for the catalyst, so I’m more inclined to hold today and collect my dividend while I wait for good news. But I promise you guys this: if shares move up 15-20%, I’d take my loss and get the hell out. I just don’t have confidence in the management team any longer.
I try to read between 30 and 50 books a year, but I’m not super religious about it. Reading is supposed to be a pleasurable experience, and I think it’s pretty dumb to set pleasure goals. If you like to read and are feeling it, great. And if you’d rather watch TV or something instead then what the hell do I care? You do you, Sparky.
I also strictly read non-fiction, because one of the main reasons why I read is to learn stuff. There are nuggets of information in fiction books, but nobody reading Love on the High Seas is doing so to learn about 18th century pirate culture. They’re flipping those pages to get to the BONIN’, BABY.
(Things are getting hot and heavy in the captain’s quarters)
“Oh, Blackbeard! The rumors were right. You really are a savage!”
(There’s a knock on the door)
“Captain! We’ve spotted a merchant ship! Should we attack?”
“Aaaarrrrrrrr, baby. I gotta go get some booty.”
“Don’t you have all the booty you could ever want right here?”
Well, that’s it, kids. That’s the greatest joke in Financial Uproar history. It’s all downhill from here.
My book problem
One of the added benefits to following so many finance folks on Twitter is there’s a constant stream of book recommendations crossing my path. Many of these books sound interesting, so I make a note to check them out later.
Aside: how I don’t pay a nickel for my reading habit
Once I crack into these books, I find the same thing over and over again. An interesting sounding book quickly becomes bogged down with too many examples, pointless stories only vaguely related to the overall point, and other strategies designed to stretch an good topic into a whole book.
Basically what happens is a book with 100 pages of good, interesting material gets stretched out to 250 pages. I’m told this is because book stores insist upon it. They want to charge $20 for a paperback, and you ain’t getting that much for something that looks like a second-grader’s first chapter book.
(There’s probably a business idea here. Take the average 300 page book and condense it down to 80-100 pages. Call it Books for Busy People. People would love it because it wouldn’t be hard for the average person to finish 50 of these a year and then they could say they’ve read 50 books this year.)
I understand why an author wants a longer book. There’s no reward for them to present the information in a neat condensed form. A thicker book means a higher price tag, which means the author gets paid more. Nobody is going to conclude the author of some little pocket book is the master of a certain subject. And writing a book is often a vanity project. Nobody’s going to be impressed by the guy who boils down complex concepts to a manageable word count.
More books should be articles
Every now and again you stumble upon an interesting topic somebody wrote 4,000 words about and every minute of it is fascinating. You read it with gusto and maybe keep the tab open for a few weeks so you can refer to it again.
And that’s enough. That’s all you need to know about a topic because it was just the right amount. The author has done a good job hitting all the key points with just enough examples to prove their point.
It’s exactly how a book should be.
I find I’m abandoning more books than ever these days because they’re clearly stretched out to meet some arbitrary word or page count.
For example, I recently read The Confidence Game by Maria Konnikova, a book all about scams and how these folks think. I thought it was a fascinating concept that was bound to be an interesting book. And it was. There are some stories that were equally hilarious and infuriating as oblivious victims kept finding ways to separate themselves from their money. But it was also 75-100 pages too long, weighed down by sometimes 3-4 stories to illustrate one point.
It has gotten to the point where I get halfway through a book, and I fully understand what the author’s getting at. It’s time to stop because the book isn’t going anywhere. It’s just repeating itself. But I’m loathe to give up on a book halfway through, so I press on and don’t really enjoy the second half. This is why I don’t like to give myself reading challenges or pick a specific number of books to read. It creates an incentive for me to not abandon a book when I should be.
Let’s wrap this up
You should talk. This 800-word article could easily be summed up in 300 words.
Thanks, Italics Man. You’re a great guy.
Anyway, that concludes my old man yells at cloud rant for the week. Am I just losing my attention span when I get older? Probably!
No time for preamble, since I’m due somewhere in about an hour. Let’s just get to it.
After months of calling Genworth MI Canada (TSX:MIC) a terrific business and telling people I don’t see a massive U.S.-style housing crash in this country, I put my money where my mouth is and bought 100 shares. I paid a little over $43 each.
I just can’t get over what a great business mortgage default insurance is. You charge people up to 4% of the value of the house and then immediately get to put that money to work. Default rates have peaked at a hair over 1% but usually sit under 0.5%. It doesn’t take a genius to like those numbers.
Genworth has been operating long enough that it has build up massive reserves, which protect it from an inevitable correction. And even if houses fall 10-20% across the board, who cares? Most people will continue to pay their mortgages, bitching about the downturn the whole time.
I went off the board a little on this one, paying a little over $30 each for 120 Great-West Lifeco (TSX:GWO) shares.
I like a few things about the company. The valuation is compelling, with shares trading at just a hair over 10x earnings. I wanted exposure to the life insurance industry, which I didn’t really have in my portfolio before the purchase. And the yield was 5.6% with a recent history of increasing the dividend.
Management agrees with me that shares are undervalued. They recently announced a $2 billion share buyback that Power Financial (the largest shareholder with a ~65% stake) was quick to say they’d take advantage of. I’m sure Power Financial will take that capital and squander it on some more robo-advisor acquisitions.
The Great-West Life purchase added $198 to my annual dividend income, while the Genworth purchase added $204. That extra $400 will be spent on delicious Subway steak and cheese subs. Hot damn I love those things.
You can take the value investor out of the trailer park but you can’t take the trailer park out of the value investor.
Wait. That’s not how that goes. Oh well.
I went dumpster diving a little this month (last month?) by picking up 120 Kraft Heinz (NASDAQ:KHC) shares, buying for a little under $32 each after the big decline.
If anyone understands Kraft’s problems, it’s me. I do moonlight at a grocery store, and I can see we’re ordering fewer Kraft Heinz products. In fact, the whole center of the store is basically a very slowly melting ice cube. Folks are shopping the fresh departments and avoiding processed foods.
Despite this I went ahead and bought shares. Volumes can slowly shrink for a long time and Kraft Heinz will still be fine. The company has a dominant position and great brands. People are still buying Kraft Dinner and Heinz ketchup, and will continue to do so for decades. And the company has really only scratched the surface with discounting. Generic brands are the big competition these days, so look for better deals at your local store.
Oh, and the stock is trading at about 10x forward earnings, which I thought was pretty cheap.
The Kraft Heinz purchase added about $255 to my annual dividend income once converted back to Canadian Dollars. That buys a lot of Kraft Dinner, although I’ll stick with the store brand for $0.59.
Slate Retail REIT
I just bought Slate Retail REIT (TSX:SRT.UN) the other day, spending $12.68 each for 275 shares. The odd share count was to use up the remaining cash in my RRSP account. I’m not quite fully invested yet, I’ve still got some cash in my TFSA and I’ll make a new contribution to my accounts relatively soon.
I like Slate for a few different reasons. It owns grocery-anchored property in what it calls secondary U.S. markets, cities with under 1 million people. There’s plenty of growth potential there, and I like grocery in an Amazon world.
The valuation is compelling, The company figures they’ll do about US$1.30 in funds from operations per share in 2019, which converts to $1.74 per share in local currency. I bought shares at just 7.3 times FFO. It also trades a little under book value and the dividend — which is paid is U.S. Dollars — is approaching 9%.
There are a couple of red flags, including a high AFFO dividend payout ratio (which should be going down after a relatively big share repurchase, but will still exceed 90%) and the balance sheet has too much debt. Getting debt under control should be the company’s next step.
My 275 shares should provide me with approximately $312 in annual income once converted back to Canadian Dollars.
Although the calendar is about to change over to March (the month named after a Nazi rally, and no I’m not looking that up you’ll just have to trust me on it), my car is currently plugged in outside. The forecast calls for -28 when I’ll be leaving tomorrow. Brr.
For those of you lucky enough to live in warmer climates (don’t worry Canadians, the global warming will get to us soon enough), the reason why us on the prairies plug our cars in is when it gets below -20 or so the oil starts to freeze inside the car’s engine. Plugging in the car’s block heater warms up the oil, which then moves freely when the car is started. It’s a pretty ingenious little invention, actually. I’m going to start telling people I came up with it.
They’ll totally believe me, right?
The thing with plugging your car in is it gets a little expensive, or so they say. Don’t worry, we’ve come up with a solution to that, too. You can buy a timer that kicks in a few hours before you have to leave in the morning, ensuring the oil gets sufficiently heated without driving up the ol’ electric bill. Timers cost about $20, depending on how fancy the model is.
But is it actually worth it? Or are dads everywhere right about how plugging your car in costs a fortune? Let’s take a closer look at exactly how much it’ll set you back?
Once we figure out a couple of variables it’ll be easy to figure out how much it costs to plug your car in.
Let’s start with the price of power, first. Since I live in cold, freedom loving Alberta, we’ll use the spot price here as our guide. That comes to approximately $0.05 per kilowatt. We’ll ignore all the administration fees and other such fixed costs, since we’d be shelling out for them anyway. We’re also going to ignore Alberta’s dreaded CARBON TAX.
Compare that to Ontario, which can pay up to $0.15 per kilowatt hour. Ha! Take that, Ontario. Alberta wins again. Quebec, meanwhile, pays just a little more than Alberta, at about $0.06 per kilowatt hour. Note that Alberta’s energy prices swing more wildly than Quebec’s, meaning Quebecers likely get the better long-term deal.
Wattage of the block heater
Next we have to determine how much electricity you’d use plugging your car in. I was originally told the contraption was more than 1,000 watts, which means it used a kilowatt of energy every hour. This could add up over the course of a whole night.
But that just isn’t true. A little research (read: paying some dumbass kids the change from my pocket to do a little googling) and I discovered your car’s block heater is likely using 350 to 500 watts per hour. Some larger trucks are using 1,000 watts or even more, but you probably don’t drive one of those.
Then it’s a matter of just doing the math. I pay $0.05 per kilowatt of energy. If my car uses 500 watts to run the block heater (which is high, my Buick is likely closer to 350), that means I’m at a mere $0.025 per hour to run my block heater. It turns out it doesn’t cost very much to plug my car in.
Add in the additional costs of getting your power to your house and it still doesn’t cost much to leave your car plugged in all night. We’re looking at about $0.50, max. That’s basically nothing. You still might want to get the timer though, since even saving $0.25 each night can add up to the point where it becomes a good investment over the course of a few winters.
How this has affected my behavior
I figure I plug my car in between 10 and 15 times each winter. This means I would be spending anywhere from $5 to $10 each year on it. I could get a timer and reduce my expenditures by a few bucks, but now that I’ve done the math it isn’t a priority.
Before, I would get up early in the morning and sneak outside to plug my car a couple hours before I had to go somewhere. I don’t do this any longer. I’ll plug it in when I get home the night before and not worry about the cost.
Is it really worth saving a lousy quarter to have to go outside in -30 weather?
Hell, maybe I should take this a step further and just call a cab on those super cold winter days.
I’m an avid traveler these days, because apparently it’s much more rewarding than loading up your house with stuff. Oh, how we hate stuff. I WOULD KICK ITS ASS IF IT HAD AN ASS.
But there are a couple of really important things to consider before embracing this attitude. First of all, there are all sorts of things you can buy that really make your life better. We bought a new couch which gets sat on almost every night. It’s a comfortable spot to watch TV or just chill. It’s big enough that everyone can sit on it when guests come over. And since we don’t have kids or anything this couch should be functional for at least 20 years, probably longer.
Is this a waste of money versus spending that cash on a few days away in Las Vegas? Not every vacation is going to blow your socks off.
My new phone is another perfect example. I easily go on it two hours a day. For just over $300 I have access to all the world’s knowledge in a device that has such a good battery I can go two days without charging it. This is a fantastic bargain.
Look, I’m not saying you shouldn’t spend on experiences. I’ll remember the Great Wall of China for the rest of my life. New York City was similarly amazing. Even smaller trips like a weekend away with my wife are remembered fondly. But that doesn’t mean every vacation dollar is spent wisely and every dollar spent buying stuff is squandered.
At the end of the day it comes down to this. It doesn’t matter what you’re spending your cash on. Consuming is still consuming, Just spend less than you earn and you’ll come out ahead.
Links I liked
1. I’m going to start off this week with My Own Advisor, mostly because that’s the most easily accessible open tab out of the 27 Google Chrome tabs I have open. I wish I was kidding. Anyhoo, here’s why Mark doesn’t consistently track his net worth.
2. Up next is Money Maaster, whose stock picks are fortunately better than his spelling. He recently bought a stock I own already, so naturally I approve of this move.
3. I like reading about people’s interesting side hustles. Here’s a guest post on Million Dollar Journey from someone who hosts homestay students and gets paid pretty well to do so. I’m a big fan of stuff like this, since most of us have unused space that’s just going to waste. Myself included.
4. Canadian Value Investors took a closer look at how Warren Buffett and Jeff Bezos have changed over time by scouring old interviews. It’s no surprise Buffett stayed consistent, but Bezos was a little more interesting.
5. Let’s get my own writing out of the way. I threw the value investors a bone by talking about an insanely cheap gold stock (don’t worry, I didn’t buy any. Still not a fan of the mining industry) and I profiled a growth stock trading at approximately 8 times forward earnings expectations.
6. The Rational Walk has some thoughts on financial independence, including why a 3% withdrawal rate is best and why everyone should strive to have fuck you money. If you agree with my whole financial independence deal, you’ll enjoy this post.
7. A sweet post from Gen Y Money about her husband’s inner scorecard for Valentine’s Day. 2014 Nelson would have made a sex joke right there, but 2019 Nelson is mature. What a guy.
8. SP Brunner takes a look at a stock I think is a massive value trap, IGM Financial, and comes to pretty much the same conclusion. It’s cheap, but not enticingly so. I like their focus to more of a financial planning approach, but at the end of the day most of IGM’s core clients don’t really need complex tax advice. Remember, Investors Group is filled with retail investors. High net worth folks long ago went somewhere else.
9. A hell of a story from Mr. Free by 33 about losing two sets of parents. No jokes here. You’ll be saddened by reading that. But kudos to Jason for doing the right thing and for moving on.
10. My Money Wizard has an insanely detailed guide on how he keeps his grocery spending to $35 per week per person. I should do one of these sometime. Our grocery bill might not be $35 per week cheap, but I guarantee it’s lower than average.
11. Here’s a closer look at a stock I agree with the author about, Molson Coors. Unfortunately we just bought more right before the stock tanked on a weak outlook. Oh well.
12. And finally, yet another post from last week’s debuter (totally a word), Investment Pancake over at Seeking Alpha. He points out that a simple portfolio filled with dividend growers combined with a decent savings rate will make you rich. It doesn’t have to be more complicated than that. And, plus, the dude is funny. I LOLed a couple of times, and I laugh less than those Buckingham Palace guard guys.
And that’s about it. Have a good week, everyone.