January 2, 2013 Comments

I don’t think too many people expected today’s big market rally. After all we already got a big rally on Monday when it looked like this fiscal deal would go through.

Today we had the DOW up 2.3%, Toronto up 0.9%. We had Berkshire up 3.9%, Toll Brothers up 3.6%, Melcor up 3.7%, Stantec up a scorching 4.9% and loads of other nice gains. Canadian Tire was among the few that managed to go down a bit today.

Our Stock Picks have done very well lately. But it’s starting to feel a bit like manna from heaven. And it seems wise to remember that stocks don’t go up in straight lines. We will have our down periods as well. And it would be nice to have some spare buying capacity when that happens.

So on that note I forced my mind to think about trimming some positions today. I have a margin account where I have been making some modest use of margin and had some Wells Fargo and Bank of America sitting there and it was bought with margin (borrowed money). I was waiting until this new tax year and with the arrival of a new tax year and with all the pleasant gains of late I decided to get rid of those stocks in the margin account (I have plenty left in the RRSP accounts and in a cash account). While I was in a selling mood I decided to reduce my Toll Brothers position as well. It’s about the highest P/E ratio stock I own and also one of the lower rated ones. But I still have some. I sold 700 and have 1050 shares left.

None of this means I have turned negative on these stocks. I added heavily to Wells Fargo and Bank of America when they fell and so I became rather over-weighted in them and it just seems prudent to trim as they rise. And more importantly it seemed prudent to find something to trim given the recent market gains. I chose Wells Fargo and Bank of America mostly because they were in that margin account and I really don’t need to be using any borrowed money.

(Before anyone emails me about this “revelation” that I had a bit of margin, it has been disclosed before and only very briefly did it ever get the the point where I was more than 100% in equities. I think I got to 102% or something very briefly. Almost always my net cash has still been positive (I was using margin in the margin account but there was more than offsetting cash in the RRSP accounts).


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