June 27, 2013 Comments

S&P 500 was up 0.6% today and Toronto was up 0.4%.

Almost all of our Stock Picks were up. Notably, Wells Fargo up 1.3%, Toll Brothers up 2.6%, Canadian Tire up 1.1% and Shaw Communications up 3.7%. It’s surprising how the equity market has bounced back from the recent dip.

Fixed income has not recovered much. I think people with any length at all to their fixed income, such as five year bonds or longer (including in mutual funds and ETFs) are going to be surprised at the losses in June.

My own portfolio is, in theory, highly risky, far too concentrated and not at all balanced. In practice it has been relatively stable and I believe dropped less than the equity market (certainly less than the Toronto market) during the recent dip and it has recovered better than the market as well. But there is no doubt that my portfolio leaves me at risk if something nasty happens to one of my six largest holding.

I don’t hold any fixed income. I do hold cash. I am increasingly thinking about the fact that not all fixed income is created equal. Money market funds, very short term bonds and short GIC or even five year GICs behave pretty much like cash (except GICs are locked in). Longer term bonds are vastly different than cash and at this time expose investors to a lot of downside risk while offering scant returns. There are some equities such as dividend stocks and REITs and preferred shares that can behave somewhat like equities and somewhat like bonds. REITs have some potential to grow since they are businesses but they also behave a lot like long-term bonds and should be viewed with a great deal of caution right now. They WILL get clobbered if interest rates rise much. Perpetual preferred shares also get hurt with higher interest rates but at least the returns are usually better than bonds, so the risk reward tradeoff is better. Some preferred shares face almost certain redemption on their reset dates and if they are trading above the redemption price then a capital loss is baked in. Canadian Western Bank preferred shares are an example.

There was news today that Rona is closing stores and taking a $220 million “charge”, of which $195 million will be “non-cash” (non-cash how comforting!). I am pretty sure the sees of demise were plantedd by Rona years ago went it opened big box stores and tried to compete head to head with Home Depot .

In other news this week Hudson’s Bay is considering buying Saks. Apparently Saks is a beleaguered chain. As I mentioned under March 28, I visited Saks 5th Avenue in New York. A very snobbish place where they did not even seem to have prices indicated for anything on the first floor. Higher floors were less snobbish. The whole concept is probably obsolete. Who wants to pay high prices for snooty service? And why would Hudson’s Bay think they could run these places? I do applaud “The Bay” for abandoning that incredibly stupid name and going back to the Hudson’s Bay name. But nothing else about the place impresses me. The outgoing CEO of Hudson’s Bay has been lauded lately. For what I wonder? Has there been any profits of note?

 

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