November 2, 2012 Comments

At the bottom of the stock list above, I have listed, courtesy of a Globe and Mail article, the fund trading symbols for several bank deposit accounts that pay 1.25%. Over the years I have generally kept my investment account cash in literally cash. This allowed me to have that money instantly available for trading. I tend not to have a high allocation to cash and with money market funds paying very little it just did not seem worth the bother. I have however used a U.S. money market fund because TD Waterhouse allows me to move money between that and U.S. stocks in an RRSP account without paying any currency conversion fee.

Today’s Globe and Mail article indicated that bank account rates of 1.25% can be accessed directly from our brokerage accounts. (A couple years ago it was 0.75% so this increase must be due to competition). At 1.25% and given taht I am currently sitting on more cash than normal at about 18%, I decided to move some money into one of these bank accounts. These actually are insured bank accounts, insured up $100,000. The banks have set these up with mutual fund trading symbols so that we can invest from our brokerage accounts. The interest rate that TD Waterhouse was paying me was precisely nothing and so 1.25% may not be much but it beats nothing. I chose the TD Bank fund TDB8150. I also put some excess U.S. dollars into TDB8152. However, I did leave about half my “cash” in cash or in the U.S. money market account since both are available instantly for buying stocks and I don’t ever want to have to wait even a day to buy a stock.

I notice that the Hudson’s Bay IP is still marked “open” on TD Waterhouse. Normally a successful IPO is sold out and marked closed within a few hours of opening. I believe this indicated the brokers are having a hard time selling the Huidson’s Bay IPO. And no wonder, I remarked on October 18 that I was inclined to avoid this and gave some reaons why.

Also on the IPO list at TD Waterhouse are two Mortgage Investment Corporations. The one I looked at briefly was only trying to raise $50 million. It had a ten year history. It would lend the money at 8 to 10% and hope to earn something close to that for investors. They pay out close to 100% of earnings and are effectively like Income Trusts, they pay no income tax as long as they pay out all the earnings. It’s interesting to note that while banks are leveraged at least 10 times and lend out depositor money, these Mortgage Investment Corporations do not take in deposits, may use little or no debt. They lend out their own equity rather than depositor money. They might not be a bad investment. But I would be cautious with these. I would worry about mortgage defaults if the economy cools off or if certain real estate projects like residential condos run into problems. They out you somewhat into the position of lending out your money on mortgages. But unlike a private mortgage lender you don’t have to find or screen the borrowers and you diversification. But the company obviously has expenses that must be paid before you. The good news is that as long as they avoid debt they seem unlikely to get into financial difficulty. (Banks, in contrast, can get into difficulty easily due to the massive leverage). There are three mortgage investment corporations looking to raise money on TD right now. This certainly indicates a hunger for money on their part.

Markets were down on Friday with Toronto and the DOW both down about 1.0%. Our stock picks seemed to fare a bit better than that assisted by Bank of America up 1.1%, RIM up 0.5%

My own account is at its high for the year (save Thursday when it was higher still) and is up 24.2%. I wondered on Friday if I should not sell something but could not seem to bring myself to do so. I do have orders in to trim Bank of America, Melcor and Wells Fargo if moderately higher prices are reached as I mentioned a week or so ago.

Berkshire Hathaway was out with earnings yesterday. As I expected, it was a good quarter, at least GAAP wise. However operating earnings adjusted for gains were down somewhat. I was surprised that the famed equity index put option position had not gained in value (it would have gained on the higher stock market values, but lower interest rates pushed up the mark to market liability under the arcane formulas that are used.). I could find no mention of any early estimate of the loss from hurricane Sandy. I will probably update our report shortly. Buffett bought a “little” Omaha-based internet mail-order company on Friday. At $500 million it’s a not enough to move the needle at Berkshire but instead I expect was a chance for Buffett to work with people he knows, likes and respects and was in a simple business that struck his fancy. And you can be assured that he thinks he can make a decent return with it. This company might be a sort of shiny new toy for Buffett, but he always makes sure his train sets, newspapers, candy shops, jewelry stores and all the other toys make money. (At least they are intended to make good returns when he buys them, but occasionally the economics turn against him).