June 22, 2013 Comments

The composition of my own portfolio is updated.

On Friday the S&P 500 was up 0.3% and the Toronto index was up 0.2%.

Canadian Tire was down 2.4% to $77.75. Seeing this decline I bought back (at $78.12) some more of the Canadian Tire shares that I had recently sold at $86.50 and $82.23.

The market may be predicting that Canadian Tire will decide not to sell a portion of its Real Estate into a REIT after all or that the valuation will be lower given recent declines in REIT prices. Most assuredly the valuations would be lower. As far as the ability of selling a portion of the real estate into a REIT to “surface” or make apparent the value of the real estate, that is not overly important. A transaction to “surface” value does not create value. To the extent that Canadian Tire has attractive real estate the value is going to show up either more quickly in the REIT transaction, or more slowly over time in the form of a competitive advantage and higher profits over the years. The proposed REIT transaction is supposed to make more apparent the value of Canadian Tire but it is going to have minimal impact on the consolidated profit or balance sheet because they are planning to retain about 80% of the REIT and only sell 20% to outside shareholders. My thinking was that if fools were willing to pay extraordinary values for real estate, then Canadian Tire might have been wise to lock in very long term leases and sell all of it to the fools. But they wish to maintain control of the real estate. Selling 50% to 100% of the real estate at the top of the market would have locked in value rather than merely surface value.

In any event Canadian Tire looks like good value to me.

Year to date, the S&P 500 is up 11.6% and Toronto is down 3.5%. Our Three strong buys are up an average of 16.3% year to date. Our average for all 23 stocks rated (lower) Buy or higher is 9.8% year to date. My own portfolio is up 15.8% this year to date.


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