what will you do (or would you do) when the margin loan rate = the distribution return rate, or when the stock drops in price more than what is being topped up by the distribution income?
I'd like to know how a 8% withdrawal rate is "sustainable". I'd like to see Monte-Carlo simulation results if you have them because you are making a truly astonishing claim here.
what will you do (or would you do) when the margin loan rate = the distribution return rate, or when the stock drops in price more than what is being topped up by the distribution income?Should I mention that some of my recent Feb/09 Riocan $12.15 purchase was funded by a 5.5% margin loan, thereby increasing my actual cash return on equity from 11.4% to almost 20 % ? What will be my final return on all of this when Riocan goes back to $27 in 3 - 5 years from now ?
I'm astonished that you're astonished with a 8% sustainable return !
Better investment research does exist.
Bob Novoselac B.Admin., C.A.
www.cfrca.com
So, what you are telling us is that you have a perfect crystal ball that lets you pick stocks at the precise bottom, whether it is Royal Bank or RioCan. Sorry Bob, nobody's that good, not even Buffett. And BTW, care to share some of your bad calls? I somehow get the feeling there are none.Or, lets consider the stock of the Royal Bank, trading a year ago at $50 with a $2 dividend, ie 4% yield. However, recently during Feb/09, with investors acting on exaggerated fears, Royal Bank shares hit a low of approx $25, ie now 8% yield on the same $2 dividend. Using very simple common sense, my clients and I were buying during Feb/09. Would you consider buying Royal Bank at $25 risky ? Or, was buying it at $50 risky when the stock market was at a high and investors had warm/fuzzy feelings ?
LOL. I'd say it's a bad idea for a financial adviser to look for business in any financial forums. You will just get knocked around left and right.what is Bob recommending to his clients this week?
Would Bob be buying Riocan today as well as advising his clients to buy it on margin?
What is Bob buying today?
It assumes Bob charges for his advice, therefore CC he will not be giving any on here, only discussing historical scenario's in which he or his clients may or may not have invested in
I could say that I bought Ford, BMO & YLO.UN at rock bottom - how would anyone know
Bob are you looking for new business
Not that I'll be investing based on his advice. He's lost me as soon as he mentioned a 8% withdrawal rate. I mean why stop there? At a 20% withdrawal rate, all of us could retire in a few short years.what is Bob recommending to his clients this week?
Would Bob be buying Riocan today as well as advising his clients to buy it on margin?
What is Bob buying today?
It assumes Bob charges for his advice, therefore CC he will not be giving any on here, only discussing historical scenario's in which he or his clients may or may not have invested in
what will you do (or would you do) when the margin loan rate = the distribution return rate, or when the stock drops in price more than what is being topped up by the distribution income?
The problem with just concentrating on investments in a vacuum, is that these other entities... paying off a loan, bridging between retirement and age 65, planning for a large lump sum cash call, selling the family cottage in 15 years.... the cash flows these elements engender (both plus and minus) severely interrupt your investment and subsequant withdrawal strategy over time. Severely.However, my feeling is that if you put too many variables into the equation, the conclusion become useless since there are too many assumptions
not so fast BobHi Ethos1
Congratulations on what I consider the best question so far.
Let's consider some debt/margin points :
we wouldn't do that would we
Bob has gone awfully quiet
Hey Bob are you there, what about it, answer some of my posts to you
screaming out loudEven throwing out a great Riocan detailed margin buying tip/strategy for FREE !
For me, you have not got anything new to offer in investment advice & probably way too expensive & way too risky an advisor for a frugal guy like meDon't turn quiet on me now !
Bob please answer these one-by-one - each point, short & sweetwhat is Bob recommending to his clients this week?
Would Bob be buying Riocan today as well as advising his clients to buy it on margin?
What is Bob buying today?
What has Bob put his clients into in the last 3-days
What exit or change strategy has Bob in place for his clients
And people actually pay this guy? Anybody with half a brain knows a big part of the payout by income trusts were return of capitals. Take riocan for example, last year it distributed $1.36. Out of which $0.70 was ROC.Hi Ethos1
Congratulations on what I consider the best question so far.
Let's consider some debt/margin points :
1) Limit Margin
-although my broker allows me 70% margin, I work with a self imposed 40% limit
-Buffett advises to have either little or no margin, in order to avoid a forced sale at a temporary low price
-investors that are retired with no working income should have zero margin (which is NOT what I have seen in some retired clients who came to me from pedlars !)
-consider buying Riocan at $27 using 70% margin which is the typical investor strategy - compare that high risk to the significantly lower risk of buying at $12.15 using 40% margin
-low price combined with low margin = LOW risk
2) Monthly Cash Flow Portfolio's
-one of my primary investment criteria is to only buy investments that yield a minimum of 5%, ideally higher, ie pure growth investments such as RIM will never be found in my portfolio
-such a strategy over time, results in a portfolio throwing off significant cash every month
-during opportunities such as now, this cash is directed to low price / low margin buying
-as stock prices rise, monthy cash flow no longer goes to buying, but instead goes 100% to margin reduction
-ie by using limited margin, you are "pre-buying" stocks ahead of what you can afford today in cash, but getting today's prices
3) 8% Cutoff Point
-8%, which is my sustainable rate point that started this debate, also happens to be my cutoff point on Riocan (cut off points can vary by specific REIT)
-at $1.38 divided by 8% = $17.25, my clients and I will stop buying Riocan on margin, and instead focus 100% monthly cash flow on margin repayment
-even if my margin rate is still 5.5%, buying Riocan at less than 8% cash yield just does not provide enough "margin of safety" (key principle of Benjamin Graham who taught Buffett everything he knows)
-obviously, interest rates can rise, and even 40% margin buying involves some risk
-however, Mark Carney advised this week that short term rates are stable for more than 1 year ?
Great questions, great debate !
Bob Novoselac B.Admin., C.A.
www.cfrca.com
not so fast Bob
If I read that right & assuming your clients are at 50% margin buying at $27 a drop in the stock, even a penny they would have to top up
If they topped up fully when the stock dropped to $13.50, what would you have advised them to do & forget about cost averaging down
You posted up thread that we should have sold when the stock popped - so why did you not recommend this to your clients when there was a 40% increase in the price of Riocan?
You said earlier 5% margin rate today and an 8% return on Riocan - given what you have posted is not doable
Where is that "margin of safety" you mentioned, I did not see how you knew or would know when it hits
Understanding this is all without qualification & is free on this forum, you have failed to convince me that your investment advicer services are of any value.
Maybe its only me, but having read your posts on investing safely is poor to inadequate, besides being far too risky for my liking
You're fired Bob
Which reminds me since being one of the older forum members, I seem to forget things at times - could you tell us how many clients you have lost with the advice you have posted here and whether when people come to your office for tax related items you provide an up-sell on investing?
Do the CICA code of ethics and by-laws cover you for charging your clients when you provide investment advice that may go wrong.
What about the clients getting upset with you because they lost money based on the paid for services that you provide or have you got that covered in your disclaimer - what do you say to them?
If I may intervene Archanfel, you could leave Bob too me, you if you wish can deal with his maths related screw-up'sAnd people actually pay this guy? Anybody with half a brain knows a big part of the payout by income trusts were return of capitals. Take riocan for example, last year it distributed $1.36. Out of which $0.70 was ROC.
Not to mention high yield means the market expect the dividends to be cut. And $12.15 is less risky than $27? He must be telling everybody to buy Lehman Brothers and Citigroup last year. You want value, not cheaper price, or Nortel would be really safe with $0.1/share.
are you an expert now on how people interpet things you write?Hi Ethos 1
Similar to Sampson, I believe that you have mis-interpreted my comments
Bit of advice Bob, its not nice to tell people to go or to should do something, it may back fire on youYou should go back and carefully re-read all of my comments]
if you say so .. yawnWould you like a list of all of my upset clients who lost money following my advice ? So would I, since there are NONE.
How hard was it to convince them, what made them switch?Recently, a retired couple came to me holding BMO dividend fund, ie cash yield 6% less 2% MER = 4%. After coming to me, they sold out this BMO dividnd fund, purchased Riocan and several other investments, that now results in a 10% cash yield, ie TWO AND ONE HALF time more monthly cash flow for them. No complaints yet.
Can I please be re-hired ?
Bob Novoselac B.Admin., C.A.
www.cfrca.com[/url.[/QUOTE] no, once you're fired its over, like a divorce - no remarriage
All yours. He lost my business through the very first post and I am usually pretty gullible to begin with. The irony was that I have been actually considering riocan for my TFSA since I got no REIT exposure right now.If I may intervene Archanfel, you could leave Bob too me, you if you wish can deal with his maths related screw-up's
Oh, I forgot, I already fired him
What is Bob recommending to his clients this week?Bob please answer the following one-by-one - each point, short & sweet