January 29, 2014 Comments

On Wednesday the S&P 500 was down 1.0% and Toronto was down 0.3%. The futures had been positive Tuesday night but turned negative by the opening on Wednesday. In part, this seems to be due to the FED continuing to taper its bond buying, though that was expected. Mostly it may be linked to weakness in emerging markets.

Almost all of our stock picks were down as well. Toll Brothers managed to close unchanged.

At some point it will be time to take advantage of lower prices. I have an order in for some Berkshire at $109.10. I should probably place an order for Canadian Tire as well. Since I already have a large position in it I don’t need to be aggressive and might set a price for a 100 shares several dollars below the current price. I’d like to have some Costco as well but since it still seems expensive I would start with about 100 shares which would not be a big position for me. Again, I want to move quite slowly in putting cash into the market just in case there is a larger “correction”.

A few months ago I signed up with my discount broker (TD) to receive notice of all IPOs. One problem with buying IPOS is that many of them tend to get sold out very quickly. There is almost no time for analysis.

Recently there was an IPO for some Royal Bank 5 year rate reset preferred shares at 4.0%. I noticed that one, thought it sounded decent. It sold out very quickly. It turned out that this one had a feature whereby it concerts into common shares if the bank runs into certain big trouble. Therefore it is riskier and pays a higher dividend. It may have been non-cumulative as well in terms of the dividend. Those risks seem remote to me.

Today there was a relatively similar offer for National Bank five year rate rest preferred shares at 4.1%. Now, 4.1% does not excite me much at all. But I figured it might be an alternative to holding cash. And I figure it won’t likely trade much below $25 due to the rate reset feature. I ended up buying some in a non-registered corporate account. I have a vague understanding that a corporation that earns dividend income pays little or no tax on it. In any case it was a chance to see how TD’s on-line IPO system works. I found that I had bought these shares with about two clicks of the mouse. I did not even have to enter a trading password which did surprise me. I was not sure that I would get the full amount I “expressed interest” in buying. Technically my purchase was called “an expression of interest”. However, for all practical purposes it was my firm offer to buy so many shares at the offered price. TD now shows that I was allocated the full amount of shares that i “expressed interest in”. The issue will close on February 7 and at that time TD will take the cash from my account and the shares will appear in my account and begin accruing the dividend and soon after they will begin to trade on the exchange.

The Royal Bank issue starts trading tomorrow and I expect it might well trade a little above $25 giving a quick capital gain for those who bought at the IPO.

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