Norbert's gambit - Can$ to US$ or vice versa

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Hammerer
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by Hammerer » 09 Jan 2017 21:22

DenisD wrote: Sometime later, after everything had sorted itself out, a $20 interest charge popped up. My friend called RBCDI. The rep said he couldn't see why there was an interest charge and he cancelled it.
I find this works with most bank "SERVICE CHARGE $XYZ" line items. First level CSR is similarly uninformed about what the heck it's about, but is sufficiently empowered to reverse and does so.

Always call in on these items.

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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by pmj » 09 Feb 2017 12:54

RRSP at BMOIL (friend's account).
Several reports up-thread of varying processes at BMOIL. We did this, today:

Already own BCE on the Canadian side.
Not journalled.
Sell ##BCE on US mkt, requested proceeds in US$. Successful.
Bought ##BCE on CA mkt (cash available in HISA). Successful.
Bought a US stock. Successful.
(To do later - sell HISA to cover BCE buy).

Positions show:
BCE US: minus ## shares
BCE CA: orig position + ## shares
Do we need to call to journal BCE? Up-thread it was suggested this should be automatic. That was also the advice from BMOIL when we called _before_ an earlier NG.

Gripe - The current cash positions don't (yet) include the fees on each transaction. Annoying.
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brucecohen
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by brucecohen » 28 Feb 2017 16:13

FWIW here's a way to get a little extra from NG. I've now done it twice. Last month I decided to do NG in my RRSP using RY. I timed it so that I held the shares on the ex-div date in order to receive the quarterly dividend even though the shares had been sold. The dividend, paid this past Friday, reduced my cost of each US dollar by 1.12 cents.

-- Retail forex rate I would have paid without NG: 1.3163
-- NG rate: 1.3047
-- NG rate with dividend: 1.2935

Note that this was in my RRSP so no tax diluted the extra gain -- might not be worth the bother in a taxable account.

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adrian2
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by adrian2 » 28 Feb 2017 16:58

brucecohen wrote:FWIW here's a way to get a little extra from NG. I've now done it twice. Last month I decided to do NG in my RRSP using RY. I timed it so that I held the shares on the ex-div date in order to receive the quarterly dividend even though the shares had been sold. The dividend, paid this past Friday, reduced my cost of each US dollar by 1.12 cents.

-- Retail forex rate I would have paid without NG: 1.3163
-- NG rate: 1.3047
-- NG rate with dividend: 1.2935

Note that this was in my RRSP so no tax diluted the extra gain -- might not be worth the bother in a taxable account.
Bruce, I don't think that's a fair calculation.
Assuming that you bought and sold RY on the ex-div date, the fact that you still received the dividend has nothing to do with the NG rate.

Simplified example:
- you had CAD100k of RY shares, paying CAD1,000 dividend quarterly
- you do a NG on the ex-div date, ending up with USD77k worth of shares
The dividends have nothing to with the rate. Think of it as if you had an asset worth CAD101k (= $100k + $1k accounts receivable). At the end of the day, you exchanged CAD100k for USD77k, the AR stayed in CAD.
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by brucecohen » 28 Feb 2017 17:09

I determined the NG rate by dividing the C$ cost of RY on the TSE divided by the US$ that wound up in the RRSP's US$ subaccount. The dividend received last week increased the amount of US$ resulting from the gambit. IOW I got more US$ for my C$ outlay.

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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by Thegipper » 28 Feb 2017 18:20

brucecohen wrote:I determined the NG rate by dividing the C$ cost of RY on the TSE divided by the US$ that wound up in the RRSP's US$ subaccount. The dividend received last week increased the amount of US$ resulting from the gambit. IOW I got more US$ for my C$ outlay.
I was thinking a person might make a little on the gambit if the buy was before the ex-dividend date and the sell took place after the ex-dividend date?

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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by pmj » 28 Feb 2017 19:07

The same effect would (might) occur when buying and selling any stock across its ex-dividend date. Efficient market theory says it's a zero net-sum game, with a profit potential if the price of the stock drops by less than the dividend, but a loss if it drops by more.
Peter

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adrian2
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by adrian2 » 28 Feb 2017 19:12

brucecohen wrote:I determined the NG rate by dividing the C$ cost of RY on the TSE divided by the US$ that wound up in the RRSP's US$ subaccount. The dividend received last week increased the amount of US$ resulting from the gambit. IOW I got more US$ for my C$ outlay.
Please re-read my answer. You had RY shares which, on the ex-dividend date, came with an Accounts Receivable in C$ (i.e., the upcoming dividend). You've exchanged the stock for US$, you did not exchange the AR.

[added later] The "simple calculation" of the NG rate assumes the CAD cost to be the cost to buy RY on the TSX. If the buy process has occurred on the same day as the sell, both the CAD and the USD sides would be ex-dividend. But you held the RY from before, hence you also got the CAD dividend, clouding the picture. To buy RY on the cum-dividend date would have cost you more, all things being equal.
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“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]

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adrian2
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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by adrian2 » 28 Feb 2017 19:22

Thegipper wrote:
brucecohen wrote:I determined the NG rate by dividing the C$ cost of RY on the TSE divided by the US$ that wound up in the RRSP's US$ subaccount. The dividend received last week increased the amount of US$ resulting from the gambit. IOW I got more US$ for my C$ outlay.
I was thinking a person might make a little on the gambit if the buy was before the ex-dividend date and the sell took place after the ex-dividend date?
If that was true (and some people swear it is), no NG is required. Buy the stock before going ex-dividend, and sell it after.
Money for nothing!

Peter has the same answer above.
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“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]

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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by brucecohen » 28 Feb 2017 19:53

pmj wrote:The same effect would (might) occur when buying and selling any stock across its ex-dividend date. Efficient market theory says it's a zero net-sum game, with a profit potential if the price of the stock drops by less than the dividend, but a loss if it drops by more.
That's what I thought before the first time I did this. That is of course what happens with mutual funds. But I checked a sample of stock prices and found there was no 1:1 impact on the market price. There likely would be if the dividend was huge, but it seems that normal trading absorbs the impact of the payout.

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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by brucecohen » 28 Feb 2017 20:00

adrian2 wrote:If the buy process has occurred on the same day as the sell, both the CAD and the USD sides would be ex-dividend.
Yes, but my buy and sells occurred on different days because 1) I don't trust TDDI to journal properly and 2) I don't know if TDDI or any other broker will let an RRSP sell a stock not yet in the account. I suspect the computer will view that as a short.

Bottom line: I would up with US$310.24 more than I would have had the shares not been ex-div. Either way, the C$ cost would have been the same.

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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by adrian2 » 28 Feb 2017 22:07

brucecohen wrote:Either way, the C$ cost would have been the same.
What you're missing here is that, no, the C$ cost would not always be the same.
When you buy a stock cum-dividend, the price next day reflects the AR due to you; on average, the stock price drops by the amount of the dividend.

Take out the NG hat for a moment: if what you posit is true (the C$ cost to buy a stock is the same, pre- and post-dividend), one can cycle through all the listed stocks, buy them cum-dividend, sell them the next day ex-dividend for the same price, and collect a whole bunch of dividends from every buy/sell.

On the days you did the NG, it worked right for you. You were lucky. All the power to you!
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“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]

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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by adrian2 » 28 Feb 2017 22:09

brucecohen wrote:
pmj wrote:The same effect would (might) occur when buying and selling any stock across its ex-dividend date. Efficient market theory says it's a zero net-sum game, with a profit potential if the price of the stock drops by less than the dividend, but a loss if it drops by more.
That's what I thought before the first time I did this. That is of course what happens with mutual funds. But I checked a sample of stock prices and found there was no 1:1 impact on the market price. There likely would be if the dividend was huge, but it seems that normal trading absorbs the impact of the payout.
On the sample you checked, the market direction (for the stocks that you checked at least) may have been up, masking the ex-dividend effect.
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“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]

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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by Mordko » 28 Feb 2017 22:25

It is true that random stock movements mask the drop that occurs on the ex dividend date as well as the dividend "swelling" that occurs on a daily basis.

That does not negate the effect. Here is a HISA ETF, which illustrates the dividend effect without the random share value change noise: http://www.google.ca/finance?cid=991932947193770

There is also an effect resulting from taxes and a couple of other factors but non of it means that the price doesn't drop on ex-div dates. https://businessperspectives.org/journa ... nnelly.pdf

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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by cardhu » 03 Mar 2017 15:26

The drop in stock price on ex-div day is only theoretical … stock prices are not determined by NAV in the way that mutual fund prices are.
Mordko wrote:Here is a HISA ETF, which illustrates the dividend effect without the random share value change noise: http://www.google.ca/finance?cid=991932947193770
Yabbut … RY isn’t a mutual fund ... apples and oranges.

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Re: Norbert's gambit - Can$ to US$ or vice versa

Post by GreatLaker » 19 Mar 2017 16:38

Peculiar_Investor wrote:
03 Dec 2013 14:45
The Canadian Couch Potato blog has a new entry, Norbert’s Gambit: The Complete Guide that has discount broker specific white papers for executing in a RRSP account. The blog entry has been added to the External links section of Norbert's Gambit - finiki, the Canadian financial wiki.

For those reading the finiki article for the first time, you might consider using the Article Feedback Tool at the bottom of the page to provide feedback on how to improve the article.
Justin Bender has a new series on his Canadian Portfolio Manager Blog with videos updated for Norbert's Gambit using DLR/DLR.U at the various brokers.

He also has a whole section on his YouTube page: https://www.youtube.com/channel/UC3AXuQ ... MseUu2VFHg
The first principle in speculating is never give anyone advice to buy or sell shares,
because, where perspicacity is weakened, the most benevolent advice can turn out badly.
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