I'm Selling Our Shares!

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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scomac
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I'm Selling Our Shares!

Post by scomac »

:shock:

No this isn't a market timing thread. If it was, I think it would have been better placed in one of the existing threads discussing that subject.

I've come to the conclusion after 7 or so years of trying to build an effectively diversified portfolio of individual stocks, both domestic and foreign, it isn't really worth the effort. My original premise was that I would select a handful of US listed securities to complement our Canadian holdings. While this has been satisfactory in terms of performance and volatility, we are losing out on RoR visa vie the total market, particularly the US component. This really should be no surprise as the pros can't get the job done either without the restrictions I had placed on myself. My best estimation by breaking our foreign securities out is that I have been falling behind by a rate of 3%-3.5% on a per annum basis in USD. It's not much of a question at all, it is just a matter of getting on with the job and there in lies the rub. There are a lot of embedded capital gains in those non market performing stocks. :x

I began the process today as I promised myself I would upon returning from vacation. I sold off a handful of underperforming US stocks that I had been dabbling in over the past year. That was the easy part as they are a wash tax wise. The more difficult part of the equation will be unloading the other long term holds over time to try to minimize taxes. I'm tempted to divide the remaining positions into thirds and sell a third of each over the next three years.

Considering that our asset allocation has gotten more than a bit equity heavy, the first order of business will be to at least partially address that by plumping up our HISA. At current rates, fixed income is a non-starter in taxable accounts IMO and our registered accounts are full. I suspect that some of these funds could be directed towards increasing the size of our CAD preferred share portfolio as a proxy for fixed income in a taxable account.

The most likely destination for the remainder of our US stock portfolio could well end up being FTSE All-World ex Canada Index ETF (VXC) sponsored by Vanguard (Canada). It's a simple, effective choice that is competitively priced and removes the FX issue. I suspect that my know nothing wife (I don't mean this in a derogatory sense, she simply has no interest in things financial) might even be comfortable holding something as straight forward and transparent as this without hand holding from a CFP should I drop dead tomorrow. How much of our current USD assets ends up in something like this or similar will depend upon how much rebalancing I do in terms of asset mix.

I have no plans to convert our Canadian stocks portfolio to a similar market portfolio. There still appears to be adequate reason, in terms of both income stream and total return to stick with a stock portfolio due to the nature of the Canadian market and its heavy emphasis on natural resources. Let's face it, with resources like NormR and David Stanley at our finger tips, it is considerably easier to pull off too!
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Re: I'm Selling Our Shares!

Post by AltaRed »

Sounds like a good plan.... Of course, it does not sound much different than what I am doing.

My ex-Canada is in ETFs except for about 4 legacy US stocks that have large cap gains that I have not had the courage to pull the trigger on. I've chosen to sell pieces of them as and when I need USD for ex-Canada vacations.... or alternatively in the next major downdraft where I would sell them and add to existing ex-Canada ETFs.

My Cdn equities are all dividend paying stocks and my FI as I mentioned in another thread is currently 11/17/72 Corp Bonds/GICs/HISAs. I will draw down my HISA whenever there is a major equity sale and/or buy more Prefs/GICs/Corp Bonds if 5 yr GoC Bond rates rise circa a full percentage point (did some of that a year ago but not enough). The (relatively) KISS principle.
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Re: I'm Selling Our Shares!

Post by ghariton »

Thanks for posting. Food for thought.

I'm pursuing my buy-and-hold philosophy for now. I honestly don't know whether we are in a bubble or not. In any event, gains over the past five years have been large enough that the equity markets could fall 50% without impacting our life style. My fixed income is still in RRBs, which takes care of the one risk that does worry me.

One thing I did learn in the 2000 debacle -- don't let the tax tail wag the investment dog. I was reluctant to sell Cisco, Ericsson, etc, etc, because I would have taken a big tax hit. I took a huge market loss instead.

But everyone has to work out their own strategy. Whatever that strategy is, may your downside be small and your upside huge.

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Re: I'm Selling Our Shares!

Post by BRIAN5000 »

But everyone has to work out their own strategy. Whatever that strategy is, may your downside be small and your upside huge.
:thumbsup:

I have a few questions.
1) You've decided you can't beat the a US benchmark of some kind, which one and is it ? Is it really a good benchmark for what you're trying to achieve?
2) Your changing from some sort of individual US stock strategy to a broad world based index and paying to do it
3) Your simplifying things for your significant other
4) Your thinking about changing your asset allocation
5) Are you tired with the time involved ?

Did I miss any?

So I have $250,000 of Individual US dividend growth stocks with $70,000 in CG producing $6500 in dividends would I be better off selling everything and just using some portion of that to buy VXC ?
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Re: I'm Selling Our Shares!

Post by cashinstinct »

Switching from US to International Ex-US stock is an asset allocation decision.

Considering that US markets did better in the last 2 years compared to International, it cannot be called chasing recent performance...

It's still a pretty significant decision.

Do you quit US stocks because of recent high performance that might not continue in the near future ?
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Re: I'm Selling Our Shares!

Post by DenisD »

cashinstinct wrote:Switching from US to International Ex-US stock is an asset allocation decision.
I think it was from US to All-World ex Canada. So only half as significant. :wink:
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Re: I'm Selling Our Shares!

Post by scomac »

BRIAN5000 wrote: I have a few questions.
1) You've decided you can't beat the a US benchmark of some kind, which one and is it ? Is it really a good benchmark for what you're trying to achieve?
2) Your changing from some sort of individual US stock strategy to a broad world based index and paying to do it
3) Your simplifying things for your significant other
4) Your thinking about changing your asset allocation
5) Are you tired with the time involved ?
1) S&P500 Total Return. It's as an appropriate a benchmark as I can come up with for the US component as it is a realistic alternative. VIG is probably a better alternative, but it isn't a benchmark.

2) For the portion of the assets we're talking about; yes.

3) That's always in the back of my mind.

4) More like a rebalancing. We've strayed pretty far away from a 50:50 equity/fixed income mix. It's probably closer to 65:35 depending upon where you choose to allocate preferred shares.

5) Picking US stocks is tricky business. I've had some great successes but it can be awfully hard to winnow down the list due to the sheer breadth of choice. You can't be an expert at everything, so you need to pick your places. With Beta being available at no effort and next to no cost, you have to ask yourself is it worth it. My experience says that it isn't in the US and probably by extension, abroad either.
Did I miss any?
I don't know, but I'm open to further discussion if you have. :)
So I have $250,000 of Individual US dividend growth stocks with $70,000 in CG producing $6500 in dividends would I be better off selling everything and just using some portion of that to buy VXC ?
You have to decide this for yourself. Perhaps your long run rates of return have been more competitive than mine. I'm sitting on over 100% cumulative capital gains on our USD portfolio. There's far more in USD dividends than we can reasonably make use of travelling to the US (or on a cruise ship for that matter) and it isn't very tax efficient in a taxable account. I've wound down my business interests and as a result would benefit from greater cashflow in CAD instead.
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Re: I'm Selling Our Shares!

Post by scomac »

cashinstinct wrote: Do you quit US stocks because of recent high performance that might not continue in the near future ?
No. For the record VXC has a 50% allocation to the US. Also, due to embedded capital gains it will take about 18 months to divest the US stocks in order to spread it over three tax years. It's a process, not an abrupt tactical shift.
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Re: I'm Selling Our Shares!

Post by Flaccidsteele »

I'm sorry that you had a unsatisfactory experience investing in individual stocks over the last 7 years. If you ever decide to invest in individual stocks again I would highly recommend reading Common Stocks and Uncommon Profits by Phil Fisher as well as anything written by Charlie Munger. Warren Buffett isn't bad as well, but it requires more reading between the lines.

I wouldn't bother with Ben Graham. It's well publicized that Munger and Buffett have long since moved away from the cigar-butt approach outlined in "The Intelligent Investor" or "Security Analysis". Those books are a terrible bore. My opinion only.

All the best.
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Re: I'm Selling Our Shares!

Post by epson600 »

Obligatory mention that VXC and the other Vanguard Canada ETFs are wrappers that hold the US equivalents. There is an issue with losing out on the withholding without getting the tax credits.
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Re: I'm Selling Our Shares!

Post by scomac »

Flaccidsteele wrote:I'm sorry that you had a unsatisfactory experience investing in individual stocks over the last 7 years. If you ever decide to invest in individual stocks again I would highly recommend reading Common Stocks and Uncommon Profits by Phil Fisher as well as anything written by Charlie Munger. Warren Buffett isn't bad as well, but it requires more reading between the lines.

I wouldn't bother with Ben Graham. It's well publicized that Munger and Buffett have long since moved away from the cigar-butt approach outlined in "The Intelligent Investor" or "Security Analysis". Those books are a terrible bore. My opinion only.

All the best.
My experience hasn't been unsatisfactory, rather it hasn't been competitive with the alternative, as in the do nothing market portfolio. FWIW, I've read all the great investing books of our time including the ones that you've mentioned.
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Re: I'm Selling Our Shares!

Post by InvestorNewb »

Thanks for the post. It's threads like these that remind me why I am an index investor.

Before starting my portfolio I thought about investing in individual stocks, but decided against it at the recommendation of other Bogleheads.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
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Post by ockham »

Thank you for the post.

As to #3 (simplifying for one's significant other), do you mind elaborating on that a bit?? (What I have in mind is that you remain a stock picker on the Cdn side of the portfolio. Is the methodology you follow for Canadian stock picking sufficiently "simpler" so that your SO could replicate it on the Cdn side??)
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Re: I'm Selling Our Shares!

Post by Shakespeare »

I think if you stick to large caps in stock picking on the Canadian side and be careful about sector concentration it can run on autopilot. Diversification will take care of the next TA if there is one; after all, it didn't go to zero.
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Re: I'm Selling Our Shares!

Post by Flaccidsteele »

scomac wrote:My experience hasn't been unsatisfactory, rather it hasn't been competitive with the alternative, as in the do nothing market portfolio.


My apologies. I had assumed that if everything were satisfactory then there wouldn't be a need to sell. I might have also assumed that the following were the unsatisfactory issues that resulted in your decision to sell:
scomac wrote:While this has been satisfactory in terms of performance and volatility, we are losing out on RoR visa vie the total market, particularly the US component...My best estimation by breaking our foreign securities out is that I have been falling behind by a rate of 3%-3.5% on a per annum basis in USD.
scomac wrote:FWIW, I've read all the great investing books of our time including the ones that you've mentioned.
I think we can agree that they are great books and can recognize the huge difference between reading them and successfully doing what the writers suggest with individual stocks over long periods of time.
InvestorNewb wrote:Thanks for the post. It's threads like these that remind me why I am an index investor.

Before starting my portfolio I thought about investing in individual stocks, but decided against it at the recommendation of other Bogleheads.
No offense, but I think it is unlikely that threads like these had any impact on you being an index investor. It is more likely that your personality and confirmation biases pushed you to read threads like these and become an index investor.

FWIW, outside of being able to buy and hold a small concentrated portfolio of good businesses represented by individual stocks, and being able to avoid the conventional asset allocation and re-balancing ideas sold by society, being a indexer is a sure-fire way to compound money over time. But if you think about it, I think that makes logical sense.
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Re: I'm Selling Our Shares!

Post by InvestorNewb »

Flaccidsteele wrote:
InvestorNewb wrote:Thanks for the post. It's threads like these that remind me why I am an index investor.

Before starting my portfolio I thought about investing in individual stocks, but decided against it at the recommendation of other Bogleheads.
No offense, but I think it is unlikely that threads like these had any impact on you being an index investor. It is more likely that your personality and confirmation biases pushed you to read threads like these and become an index investor.

FWIW, outside of being able to buy and hold a small concentrated portfolio of good businesses represented by individual stocks, and being able to avoid the conventional asset allocation and re-balancing ideas sold by society, being a indexer is a sure-fire way to compound money over time. But if you think about it, I think that makes logical sense.
I said that they remind me of why I am an index investor. And they do.
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Re: I'm Selling Our Shares!

Post by Flaccidsteele »

InvestorNewb wrote:I said that they remind me of why I am an index investor. And they do.
It's unlikely that your confirmation bias requires reminding, but it's good that you feel that this thread attempts to do that.
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Re: I'm Selling Our Shares!

Post by Pickles »

Flaccidsteele wrote:
InvestorNewb wrote:I said that they remind me of why I am an index investor. And they do.
It's unlikely that your confirmation bias requires reminding, but it's good that you feel that this thread attempts to do that.
Maybe it's just me, but you are sounding mighty condescending in this thread, Flaccidsteele. And argumentative. It's interfering with the flow of the questions and answers others have about scomac's specific decision, imho.

If you want to discuss individual stock picking vs indexing more generally, perhaps you could do this in one of the already existing threads on this topic. Lots of room for argument there!
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Re: I'm Selling Our Shares!

Post by AltaRed »

Pickles wrote:Maybe it's just me, but you are sounding mighty condescending in this thread, Flaccidsteele. And argumentative. It's interfering with the flow of the questions and answers others have about scomac's specific decision, imho.
No, it's not just you. I would put Scomac's investing prowess up against the best on this forum. In this thread, we supposedly ARE talking about a SPECIFIC decision Scomac took and why. There are many reasons to simplify life and effort vs reward is one of them when measured against other joys of life.
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Re: I'm Selling Our Shares!

Post by scomac »

ockham wrote:Thank you for the post.

As to #3 (simplifying for one's significant other), do you mind elaborating on that a bit?? (What I have in mind is that you remain a stock picker on the Cdn side of the portfolio. Is the methodology you follow for Canadian stock picking sufficiently "simpler" so that your SO could replicate it on the Cdn side??)
The intention is to remain a stock picker on the Canadian side of the portfolio. Is it sufficiently simpler than what I have done on the US side? NO, not at all, but that is largely reflected in my very much non index Canadian stock portfolio that has a decided smaller cap bias at this time. That could and likely will to some extent change over time. At this point it is more of a value type portfolio that pays dividends than a dividend portfolio in the classic sense.

Can my wife replicate it? Not at her current level of interest, but as you say, something along the lines of a more traditional dividend growth portfolio that runs on autopilot may well be something that she could learn to feel comfortable with. We are fortunate that our oldest son has a keen interest in the subject. With his guidance, I'm sure that they could come manage it if I was incapacitated or worse. Mind you, he would be counseling her to sell the stocks and buy XIU most likely. :wink:
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Re: I'm Selling Our Shares!

Post by cashinstinct »

Sorry for typo, I meant ex Canada... not ex US.

You still have less US exposure by buying VXC instead of US individual stocks, 50% less. You want to have less equities, which is understandable, but you also decide to have International while you did not have any before.

I don't think it's a problem, simply points to consider :)

(Disclosure: My equity is 34% CAD, 33% US and 33% International more or less, with index funds /ETF).
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Re: I'm Selling Our Shares!

Post by Flaccidsteele »

AltaRed wrote:There are many reasons to simplify life and effort vs reward is one of them when measured against other joys of life.
I agree. Very true.
scomac wrote:The intention is to remain a stock picker on the Canadian side of the portfolio. Is it sufficiently simpler than what I have done on the US side? NO, not at all, but that is largely reflected in my very much non index Canadian stock portfolio that has a decided smaller cap bias at this time.
Speaking to AltaRed's comment, it appears simplifying wasn't a motivator in discontinuing stock picking on the US side.
Pickles wrote:Maybe it's just me, but you are sounding mighty condescending in this thread, Flaccidsteele. And argumentative. It's interfering with the flow of the questions and answers others have about scomac's specific decision, imho.
My apologies for derailing this thread. That was not my intent.

I just wanted to know if the reason to discontinue stock picking on the US side was due to a particular unsatisfactory event or outcome. From my perspective that this was the only reason to discontinue the practice? So I was just wondering where the dissatisfaction lay.

scomac has stated that "While this has been satisfactory in terms of performance and volatility, we are losing out on RoR visa vie the total market, particularly the US component...My best estimation by breaking our foreign securities out is that I have been falling behind by a rate of 3%-3.5% on a per annum basis in USD."

And with regards to the idea that deciding against investing in individual US stocks was for 'simplifying things', scomac just recently stated that what was done on the US side was not "sufficiently simpler" than the Canadian side.

In short, I guess scomac already answered the question in the first post. The dissatisfaction lay in "losing out on RoR visa vie the total market". My apologies again. I was just wondering if there was anything more.
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Re: I'm Selling Our Shares!

Post by Pickles »

Flaccidsteele wrote:
My apologies for derailing this thread. That was not my intent.
Thanks, Flaccidsteele.
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Post by Mike Schimek »

My best estimation by breaking our foreign securities out is that I have been falling behind by a rate of 3%-3.5% on a per annum basis in USD.
I'd be curious to see the list of stocks that were owned, and a brief paragraph of the investment approach (criteria)
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Re: I'm Selling Our Shares!

Post by scomac »

Mike Schimek wrote:
My best estimation by breaking our foreign securities out is that I have been falling behind by a rate of 3%-3.5% on a per annum basis in USD.
I'd be curious to see the list of stocks that were owned, and a brief paragraph of the investment approach (criteria)
Check out the last seven years worth of What did you buy; what might you buy threads and I'm pretty sure that many of the various picks I had over the years will be written about in reasonable detail.
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