FFJ Portfolio – September 2020 Report

This is my September 2020 FFJ Portfolio report. The 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 my August 2020 report I indicated I have significantly reduced the number of articles I write as a growing percentage of my time is being devoted toward taking care of an aging father-in-law and an aging mother. The frequency of my father-in-law's medical appointments should, hopefully, start to become more manageable. On my mother's front, the workload should increase somewhat as I must now wind up an Estate given her passing the second week of September. The fact my mother resided and passed away in the province of Quebec where the tax system and laws are very different from the province of Ontario will add a few wrinkles to the equation. This has become immediately apparent in that I have been informed that it typically takes upwards of 6 - 8 weeks just to obtain a Death Certificate. Secondly, French is the default language and one must specifically request all correspondence be in English.

I have also recently devoted time to the sale of our last residential rental property by taking advantage of the dramatic increase in real estate valuations. In the first week of September we listed our last residential rental property located near Western University in London, Ontario. London has experienced a surge in real estate values as buyers from the Greater Toronto Area (GTA) are looking to acquire more affordable properties outside the GTA; real estate values in the GTA risk a pullback which has had a 'spillover' effect outside the GTA.

In speaking with our real estate broker in London, Ontario, buyers from the GTA are distorting real estate values in London. Multiple offers and properties selling for above list are not uncommon. In some cases, buyers from outside London are acquiring properties for rental purposes. The real estate brokers/agents in London are noticing that the out-of-town buyers are listing some of these properties for rent levels that are more representative of rent levels which could be obtained in the GTA. Our broker has noticed that in some instances, properties acquired by out-of-town buyers for rental purposes have been vacant for 2 -3 months and the properties, once having had curb appeal, are less appealling as the lanws and shrubs are not being maintained.

When we acquired our rental properties we took into consideration their proximity to shopping, public transit, and one of Canada's premier universities.

Over the past ~14 years our experiences as landlords have been mostly positive since we had good tenants who always paid on time! We focused on renting to graduate students or to students completing their undergraduate degree who had the intention of remaining at the university to complete post-graduate studies. As a result, turnover was low and some of our tenants were with us for 4 years. In one instance we had twin sisters who were both enrolled in the Family Medicine program; they were our tenants for 4 years. People talk about the cost of education? Imagine the cost of having children (not child) living away from home in university for 8 years (undergrad and grad) at the same time!

We also had medical professionals from outside Canada who came to work at University Hospital - London Health Sciences Centre for a couple years.

Although tenants are less likely to care for the property the same way an owner may, we had no major issues in all the time we owned our rental properties. We never had to chase our tenants for their rent and we never had a dishonoured rent payment.

While our rental properties were profitable, in hindsight, we would have generated far, far superior returns had we just invested our money in the high quality companies in which I am accustomed to investing.

Given the market conditions I described earlier, my wife/I decided that we would list our last rental property immediately after our tenants moved out at the end of August. Within days of listing the property we received a firm and unconditional offer for our asking pricing with a September 30th closing date. On September 30th we received the sale proceeds and are now completely out of the residential rental business.

Where was the buyer from?....the GTA.

Share Purchases in September 2020

Although I continue to firmly believe many stocks are overvalued, I approach investing with the viewpoint that this is a market of stocks. As a result, the application of common sense is required to recognize that not all stock investments are the same. A few pockets of value do exist.

The likes of Nikola Corporation (NKLA), GrowGeneration Corp. (GRWG), Facedrive Inc. (FD.V), or Sorrento Therapeutics, Inc. (SRNE) strike me as being outright FRAUDS or far too risky to be considered 'investments'. Purchasing shares in such companies is very similar to playing games of chance at a casino. These are not the types of companies where you should have any degree of confidence in management. In my opinion, I think there is a very strong probability that retail investors who have invested in the aforementioned companies will never recoup their 'investment'.

Investing in the companies such as those reflected here and here is far more likely to result in a positive outcome over the long-term...and with far less stress. Investing should be tantamount to 'watching paint dry'!

On that note, I decided to acquire additional shares in Raytheon Technologies Corporation (RTX) and BCE Inc. ( last week for one of the accounts in which I do not disclose details.

RTX's commercial aerospace segment is experiencing considerable headwinds as COVID-19 has decimated the airlines. I do, however, envision that perhaps in 1 - 2 years we should have COVID-19 vaccines and commercial air travel should return to levels approaching pre-COVID-19. This will certainly bode well for RTX but until such time as this business segment  recovers, I am comforted in that RTX's defense business segment is exposed to missiles, missile defense systems, space militarization, and IT services for the government. RTX is implicitly a play on the defense budget, which I think is fundamentally a function of a nation’s wealth and a nation’s perception of danger. In addition, I have absolutely no idea what will be the outcome of the 2020 US Presidential election (the recent first Presidential debate was a total 'gong show' and the world should be extremely concerned about the mental faculties of one of the Presidential candidates) but regardless of which party wins I certainly think the probability of materially decreasing the defense budget is highly unlikely given the world in which we live.

With respect to BCE, I have had exposure to BCE since the early 1960s when my parents purchased shares for me.

BCE has been investing heavily to upgrade its wireline network by extending fiber to the home; this process is currently occurring in our neighborhood. It also remains a leader in providing wireless services throughout Canada and it has a formidable media business.

BCE is Canada's largest broadband provider with over 3.5 million customers and coverage spanning three-quarters of the Canada's population. Rogers (in Ontario) and Videotron (in Quebec) are BCE's two largest competitors and each have closer to 2 million subscribers.

On the Canadian wireless front, BCE should remain atop with Rogers and Telus. In fact, the network BCE shares with Telus has consistently rated as Canada’s best network the last several years in multiple industry surveys.

Based on my long-term outlook of both companies I view shares to be very reasonably valued. In fact, I have just acquired another 300 RTX shares @ ~USD $58/share for one of the accounts included within the FFJ Portfolio; my intent is to write an article on RTX within the next 24 hours.

FFJ Portfolio

The list of holdings within the FFJ Portfolio’s ‘Core’ and ‘Side’ accounts can be found here and the monthly FFJ Portfolio dividend income reports can be accessed here.

I do NOT invest in companies with the exclusive intent of generating dividend income but it is one metric I closely track. Until such time as I need to liquidate investments either to cover living expenses and/or for tax planning purposes, I typically reinvest all dividends after any applicable withholding taxes are deducted on dividends received from non-Canadian listed holdings which are held in non-registered accounts.

Based on the dividend payment schedules of my holdings, September is a strong month from a dividend income perspective. The companies for which I hold shares in accounts included in the FFJ Portfolio are, with very few exceptions, also held in accounts for which I do not disclose details. The same, however, can not be said for holdings in undisclosed accounts;. I hold shares in several companies in undisclosed accounts which are not held in accounts included in the FFJ Portfolio. Examples include the following companies for which I received additional shares through the automatic reinvestment of dividends in September::

  • Visa (V)
  • Church & Dwight (CHD)
  • Intercontinental Exchange (ICE) - a company in which I recently initiatited a position and disclosed same in this article
  • Emerson Electric (EMR)
  • The Hershey Company (HSY)
  • McDonald's (MCD)
  • PepsiCo (PEP)

While shares for the above noted companies are not held in the FFJ Portfolio my plan is to acquire shares in some of these companies within the FFJ Portfolio when I deem valuation levels to be attractive.

Final Thoughts

While my exposure to existing holdings increases without any involvement on my part by way of the automatic reinvestment of dividend income, I am always on the lookout to increase my exposure through opportunistic in the case of RTX.

I am by nature an optimist but I am a also a realist. I fully expect heightened volatility over the coming months given the uncertainty surrounding the US Presidential election and the strong likelihood the current President will not willingly step aside if he loses the election. I say this because in a country with a population of 331 million it is readily apparent there are tens of millions of people with an alarming amount of stupid in their head; an escalation in violence unlike that witnessed in several decades is highly likely.

If we do experience heightened market volatility, 'investors' with a short-term 'investment' outlook may try to time market conditions which may exacerbate volatility. Should this transpire and the valuation of high quality companies retrace to reasonable levels, it would be wise for long-term investors to selectively invest in them.

Remember, the Price/Earnings metric consists of a numerator and a denominator. One or the other (or both) can temporarily go out of whack. Our job as long-term investors is to figure out what metrics are out of whack and to make well thought out investment decisions that will serve us well on our journey to financial freedom.

Stay safe. Stay focused.

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.