May 1, 2017

On Monday the S&P 500 was up 0.2% while Toronto was down 0.1%.

Constellation Software was up 4.0%. The CEO of Constellation writes a fairly lengthy annual letter. He is, by far, the most candid CEO I have ever come across. He is also one of the most able and honest CEOs I have come across.

Statistics Canada released GDP figures for 2016 by province and Industry. In particular it shows the declines in Alberta the past two years. Nevertheless the Alberta economy has not been totally decimated or anything close to that.

Regarding Home Capital: It seems tempting to throw a few dollars at it especially this morning when it again got to about $6.00. But my thinking is that I would not risk much on such a speculative stock. In order to (potentially) make a really worthwhile gain I would probably have to invest more than |I would want to.

So this got me thinking about risk. If someone with $100,000 was willing to put $5k into Home Capital, should someone with $1,000,000 and a similar risk tolerance be willing to put $50k into Home Capital? The mind may say yes, but emotions say no. And the reason for me is that the person with $1 million is not also likely making or spending per year 10 times what the person with $100k is. So your risk has to be related both to your total portfolio and to your annual spending or earnings. If someone with $1 million portfolio is earning or spending $100k per year then there is probably no way they would risk $50k on a very speculative stock. Our risk tolerance rightly considers both the percent of our portfolio at risk and the percent of of our annual earnings  or spending.

So Home Capital might be a worthwhile speculation. But I would tend to keep the amount quite small in relation both to my portfolio and of more relevant to my annual spending. $10k might not be much as a percentage of my portfolio but it is still a sizable chunk of money and is probably more than I would consider putting into Home Capital. I could throw $2000 or $5000 at it for the excitement factor, but I am not sure it is worth the stress.

I certainly would not be surprised if the company was bought out at something like $10 per share in the next few days. The buying company will want to get a very good deal because even if it is a good deal they will be criticized for taking the risk.

Big U.S. bank stocks apparently wobbled today after Trump hinted he might consider breaking up the big banks. So far Wall Street seems to think Trump is business friendly. Maybe so, but he is first and foremost Trump friendly. He may say America first but it’s really all about Trump first. Markets can wobble at any time on his latest tweet or whatever.

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