The broad market pullback we are currently experiencing has presented buying opportunities. In this brief article I disclose my recent purchases.

The FFJ Portfolio was created in January 2017 for the purpose of demonstrating how investing in high quality companies with competitive advantages and with a record of consistently increasing dividends can assist investors in reaching their long-term financial goals without the need to speculate or to chase dividend yield.

In March I provided a couple of interim reports to disclose purchases made when equity values were plummeting.

Fast forward to mid-April and we see the broad North American indices have come off their mid-March lows (see here, here and here).

Following my March 2020 FFJ Portfolio update I have taken the opportunity to add to my exposure in the following companies through the automatic reinvestment of dividends or through an outright purchase of shares:

Core Accounts

• BCE Inc. (BCE.to)
• Genuine Parts Company (GPC)
• SmartCentres Real Estate Investment Trust (SRU-un.to) – this is the only REIT in which I have invested
• Walmart Inc. (WMT)

Side Accounts

• Alimentation Couche-Tard Inc. (ATD-B.to)
• BCE Inc. (BCE.to)
• Broadridge Financial Solutions, Inc. (BR)
• FedEx Corporation (FDX)
• Walmart Inc. (WMT)

Undisclosed Accounts

• Alimentation Couche-Tard Inc. (ATD-B.to)
• Automatic Data Processing, Inc. (ADP)
• BCE Inc. (BCE.to)
• Broadridge Financial Solutions, Inc. (BR)
• FedEx Corporation (FDX)
• Telus Corporation (T.to)
• The Coca-Cola Company (KO)
• Walmart Inc. (WMT)

In addition, I have received dividends from:

Ecolab Inc. (ECL) – shares are held in a Side Account and in an Undisclosed Account but the dividend income was insufficient to acquire new shares.

Diageo plc (DEO) American Deposit Receipts (ADR) which are held in an Undisclosed Account. The two self-directed brokerage firms with whom our accounts are held do NOT automatically reinvest dividends received from ADRs.

I readily admit I expected the share price of many companies which I monitor to have deteriorated to a far greater extent from their ’52 week high’. In fact, the share price of several companies has deteriorated less than 20% from their 52 week high! This does not make sense from my perspective given the gravity of the COVID19 situation. I think far too many investors are of the opinion the economy will return to normal within weeks/months. I am in complete disagreement.

Far too many individuals and corporations are over indebted. Even during good economic conditions, a significant percentage of the North American population was struggling to maintain their lifestyle. Look at some of these statistics (see here, here, here, here, and here). It doesn’t take long to realize that many consumers were in a precarious financial position BEFORE COVID19 hit Canada and the US.

It is not just consumers who are in trouble. Countless companies have taken on unmanageable debt levels in recent years. Just a few months ago, US corporate debt was fast approaching $10 TRILLION! I cannot possibly imagine how the situation has improved subsequent to that November 2019 article.

Although many companies have reported, or will be reporting, earnings which are/will be weaker relative to the same timeframe in 2019, investors should remember these results do not take into consideration an entire quarter in which we experienced the COVID19 pandemic. I do not foresee a return to ‘normal’ business conditions any time soon and fully expect the financial results to be released over (at least) the next 2 – 3 quarters will shock many.

As much as some wish to ‘reopen the US economy’, I view this as a highly risky course of action. I envision a far higher number of COVID19 cases (see here and here) if the proposed White House plans are adopted. It is all well and good to agree that the Canadian and US economies need to reopen…until you’re the one who gets stricken with COVID19 and your life hangs by a thread.

Until such time as the COVID19 statistics indicate a dramatic reduction in the number of new cases I think reopening the Canadian and US economies is far too risky. I agree we cannot possibly shut everything down but we need to be extremely cautious as to what businesses are permitted to remain operational and the degree to which they are permitted to operate. Regrettably, this will mean that many will remain unemployed. Until such time as a vaccine has been developed and properly tested, however, a return to ‘normal’ is far too risky.

I fully appreciate we have our respective goals and objectives and our tolerance for risk may differ. I think, however, that many investors truly underestimate their tolerance for risk.

Having said this, some industries are far more risky than others (eg. energy sector). Looking at recent statistics we see all is not well and many investors will very likely see their investment in energy sector participants totally wiped out. My tolerance for risk and long-term outlook of the energy industry is the reason why I have limited my exposure to Chevron Corporation (CVX), Exxon Mobil Corporation (XOM) and TOT.

In my opinion, investors would do well to avoid undue risk and/or speculation and to restrict their investments to industry leading participants which typically generate strong free cash flow or which have the financial wherewithal to withstand a significant downturn which could last several months.

Given my strong expectation that we will witness a further sizable broad market decline within the next few months, I am currently in the process of opening another investment account for our daughter who is in her early 20s; this new account is a non-registered account meaning income generated will be fully taxable.

In addition, I have also convinced her boyfriend (also in his early 20s) to open a Registered Retirement Savings Plan (RRSP) account; the opening of a Tax Free Savings Account (TFSA) is on the docket.

The plan is to invest funds held in these accounts in high quality companies if/when equity values plummet (as I expect will occur within the next few months).

Both of them will be moving into our house within the next couple of days to minimize their expenses. Since their ability to generate employment income is hampered as a result of the COVID19 situation, they both qualify for funding under the Canada Emergency Response Benefit (CERB) program. With expenses expected to be negligible, I fully anticipate they will be in a position to invest the majority of their CERB and whatever income they do generate.

Although these funds are separate and distinct from my wife’s/my investment holdings I intend to share limited information regarding investments made through these accounts.

Final Thoughts

I am cautiously optimistic we will see a further broad market plunge which will provide us with an opportunity to acquire shares in high quality companies at distress levels.

As noted in previous recent articles, I am of the opinion equity prices will remain under pressure until such time as a vaccine has been developed for COVID19. I think this will take time so I fully expect further attractive buying opportunities.

I wish you much success on your journey to financial freedom!

Note: Thanks for reading this article. Please send any feedback, corrections, or questions to [email protected].

Disclaimer: I have no knowledge of your individual circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decision without conducting your own research and due diligence. You should also consult your financial advisor about your specific situation.

I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company whose stock is mentioned in this article.