FFJ Portfolio – September 2017 Dividend Income Report

(Last Updated On: October 14, 2017)

It is that time again for a status report on the FFJ Portfolio.

In September I borrowed $5000.00 from the Canadian portion of Investment Account #1 as we had some major expenses; our daughter’s tuition/books and various annual insurance premiums had to be paid.

In order to reduce the balance owing I decided to suspend the automatic dividend reinvestment feature on the Canadian investments in Account #1. Dividends received in all the other accounts continue to be automatically reinvested.

I used  most of the US cash in Investment Account #4 to acquire 12 additional Johnson & Johnson (NYSE: JNJ) shares at USD$132.95/share (there was a commission of $9.99 for this purchase).

I analyzed Microsoft Corporation (NASDAQ: MSFT) on September 20, 2017 and promptly acquired 240 shares at USD$75.61 (there was a commission of $9.99 for this purchase).

If you look at our FFJ Portfolio Dividend Income report where I track the dividends we receive monthly you will see that we have received CDN$8,823.07 CDN and USD$9,362.75 in dividend income as at the end of September 2017. I am confident we will generate in excess of CDN$12,200 and in excess of USD$13,000 for all of 2017.

I will need to sit down in December 2017 and determine what goals I want to set for 2018.

How has your portfolio performed for you lately?

Note: I sincerely appreciate the time you took to read this post. As always, please leave any feedback and questions you may have in the “Contact Me Here” section to the right. I also invite you to join the Financial Freedom is a Journey Community if you have not already done so.

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2 thoughts on “FFJ Portfolio – September 2017 Dividend Income Report”

  1. Hi Chuck,

    I wanted to respond to your question, “How has your portfolio performed for you lately?” The simple answer would be very good and felt a need to provide a rather long and not entirely explanatory answer but I suspect it may generate if nothing else some discussion..

    I think one of the dangers all independent investors face is to assume that they have found “a system” of investing that works based on some formula or precedent. I know you put a very impressive effort into your research of specific companies and you are obviously comfortable doing so and have been investing successfully.

    Still, a couple of comments for you to consider, given my view that we are living in an age of unprecedented technological change and in unique financial circumstances after the financial crises.

    I liked your analysis of MSFT, since like most people, it reinforced my own investment in the company. As a natural contrarian, I might have appreciated an opposing view point. We all have a tendency to look only at opinions that match and reinforce our own which can be dangerous.

    Given my own investments, I was struck by your statement that MSFT is only your second investment in a technology company, the other one being Cisco.

    Firstly, I take issue with you that you only have two tech companies in your holdings, since many others would be in that category. More importantly, there is not a company in the world today that does not rely to varying degrees on technology and/or is not susceptible to disruption, ie look at the effect of Amazon has had on bricks and mortar retailers, or its impact on what seemed like a stable sector, grocery chains.

    One might think of Nike, another one of your holdings, as a shoe and clothing retailer with a pretty simple easy to understand operation. However, the actual cost of making their shoes, as a percentage of the selling price is tiny, and the rest goes into market research, design and marketing. As such, Nike is really a tech company dressed largely in a famous logo and subject to intense competition and a need for constant innovation. This view was reinforced for me by the following comment :

    a decade ago the company started focusing on sport-specific products. Now it will focus not just on the sport, but taking it down even further by focusing on the particular metropolitan area in which the company’s products are sold. This level of granularity is a massive move, but is made possible by ‘big data’ analytics, which will help the company move forward.

    I noticed that you own both Visa and Mastercard, both with great histories of investment success. Still, are they not subject to fintech disruption as other digital financial payment systems are being developed and becoming widely used starting in Africa, and soon in India and Europe etc?

    Similarly, there is an article in yesterday’s Globe and Mail “A New Lease on Manulife” that has a new incoming CEO, who is quoted as saying that insurance and wealth-management companies are “stuck in the stone ages” and that technology is the way forward.

    My own view when it comes to investing is that we are in a period of rapid globalization and technological change, and that change is accelerating and every investment decision must be considered in that light. What worked a few years ago, a decade ago or even yesterday, is subject to disruption, and our assumptions need to be reviewed very frequently.

    It also behooves us to try to understand technology and to participate directly in the disruptors. The FANG and similar stocks have created immense wealth in a very short period of time and have established dominant positions that they are likely to retain, for some time to come. Tech companies of today are not unlike the railways, oil companies, car manufacturers, steel makers of the early years of the previous century.

    We must also be mindful of where we are in the post financial crisis period, a near decade of continues declines of interest rates and QE. With zero or very cheap borrowing costs, it has created a bubble in bond prices, equities, in almost every asset class from real estate to stock values, increased debt to unprecedented levels by governments, corporations and households. I am of the view that we are at or near the bottom of this cycle, and we are facing QT, quantitative tightening, higher interest rates which will affect every sector of the economy, and especially those seemingly stable companies with attractive dividend yields, manufactured through cost cutting, borrowings, share buybacks etc. They will behave like bonds, and also face the risk of being left behind by more technologically savvy competitors. They will benefit banks, as the rates rise and the yield curve steepens.

    As for my personal investments, with a background in real estate, I did very well buying REITs and real estate equities as rates declined and selling them as their values become too high. I still hold a few with unique attributes.

    Over the last several years I have taken large positions in Facebook, starting at the end of 2013 at an average price of $50 in my margin account, and at $70 a year later in my registered account. I also own a number of other tech names, including Chinese, believing that they serve large and rapidly growing markets.

    I also own FDN an ETF in the sector and TXF.TO, hedged to the Canadian $ that writes covered calls on about a third of its holdings, generating a “dividend” from option premiums of about 5.5%.

    In addition to anticipating broad “themes” I also use options to enhance the returns from my holdings. I know options are deemed speculative, and that it is a topic very few people can get their heads around. Still, I would feel remiss, if I did not use at least one example to illustrate how one can make significant returns, with zero money with known risks. I do this by establishing a synthetic long position in companies I am highly confident will increase in value slowly over time. Using options I buy long dated calls and sold naked puts, both at the same price. A synthetic long has the exactly the same consequences as owning the equity, without buying the stock for cash or on margin.

    As illustrated below, I did this starting in December 2016 with MSFT, believing that with its legacy business generating a steady stream of cash, and with new management the company will be successful in the cloud by marketing to its huge client base.

    (I had intended to reproduce my purchases of MSFT over the 9 last months, but the formatting got all messed up as I tried to copy it here)

    By way of explanation, I started by buying 5 calls and selling 5 puts, at $62.50, with an exercise date of January 2018 in December 2016. The calls cost 3,141.24 and the puts gave me a credit of -3,008.69 for a net cash investment of $132.55. As of today, my gain is $ 2,913.76 for the calls plus $2,783.69 for the puts for a total of $5697.45, on just these two positions.

    As the statement shows, as the price of MSFT moved up, I bought more at $67.50, $70.00 and $72.50 and extended the date to 2019..

    Hope you find these comments of some interest.


    1. Andrew,

      While I say I only own 2 companies in the tech space, you can certainly imagine that many of the companies in the list of stocks we own use tech to a HUGE extent; you need to these days if you want to stay at the forefront of your industry. One could argue that I don’t just own 2 tech stocks (CSCO and MSFT) given that I also own V and MA.

      I strongly suspect other companies entering V’s and MA’s space will not displace them. These 2 companies are spending significant amounts in new product development. Not sure if you have looked at their websites recently but I would get a real chuckle if someone was reincarnated and came back to find that the old “Chargex” and MasterCharge” are no longer recognizable. I strongly suspect these two companies will have services in 5 – 10 years’ time that we can’t even begin to comprehend.

      Coincidentally I attended WordCamp Toronto 2017 this weekend. The technology out there is mind boggling. These days, you can get a website up and running in no time flat and start generating a following from people scattered across the globe. They even held a WordCamp for kids! Imagine being raised in an environment where you don’t know what it is like to use a rotary phone, there were no cell phones, not have a GPS, etc..

      Having said all this, while I am impressed with companies in the FANG space, my rationale for not investing in this space is that valuation levels don’t give me a “warm and fuzzy”. Some may argue this time its different. I am not in that camp.

      As for the use of options, you know what you’re doing. I know we touched upon this in previous correspondence. One thing people need to consider when employing options as part of their overall investment strategy is what happens if contracts are open and they encounter a health issue that makes it no longer possible for them to monitor their open positions. YOU might have a backup plan but I strongly suspect there are people who there who have not given this any consideration.

      “We must also be mindful of where we are in the post financial crisis period…..They will benefit banks, as the rates rise and the yield curve steepens.”

      AMEN! There are a lot of investors out there who entered the world of investing long after the high interest rate environment. I suspect some of the investments they have made will come back to bite them as interest rates rise.

      Thanks for your insightful comment! I hope other readers will chime in with their opinion.


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