FFJ Portfolio - September 2022 Report

To say that September 2022 has been eventful is an understatement! The plunge in equity prices has decimated the value of many portfolios. Looking at the month-end FFJ Portfolio values in 2022 (see below), we see the extent to which share prices have declined.

The FFJ Portfolio, however, consists of holdings in high-quality profitable companies that generate strong free cash flow. These companies should be able to withstand the headwinds they face. Eventually, the share prices and valuations should retrace to more reasonable levels. The timing, however, is unknown. Therefore, it is important to remember that:

'In the short run, the market is a voting machine but in the long run, it is a weighing machine.' - Benjamin Graham

Investors who have the financial wherewithal and the intestinal fortitude to ride out challenging market conditions would do well to invest in great companies while most other investors are panicking. It is imperative, however, to focus solely on great companies.

Investors who invested in the likes of CVNA, PTON, AFRM, W, SNAP, RNG, TDOC, COIN, WE, RIVN, TWLO, CLOV, NKLA, LOOP, DOCU, DASH, LYFT, HOOD, SMG, AMC, APE, UAA, ZM, ZG, and PLTR have undoubtedly suffered permanent losses. None of these companies are remotely close to consistently generating a profit and free cash flow.

Expect The Unexpected

My ability to time the arrival of the unexpected is terrible. I purposely retained liquidity to take advantage of a significant broad market pullback. However, I did not anticipate how quickly a significant unexpected event would derail my plans.

With housing prices rising at a significantly faster pace than wages, home ownership has become increasingly unaffordable for Canadians. According to a report by Mustel Group and Sotheby's International Realty, more than 80% of 1502 respondents (aged 18 - 28) to a survey conducted in the Fall of 2021 said they are worried they will be unable to purchase a home in the community of their choice due to rising house prices. Furthermore, half of these respondents who live in urban centres indicated they had completely given up on the dream of owning a single-family home.

Given these discouraging statistics, my wife and I had often discussed the need for us to financially help our daughter and fiance.

On September 22, we submitted an offer to purchase a house on our Crescent; the house is almost identical to the home in which we have lived since 1990. The primary difference between the 2 houses is that the new house sits on a slightly larger lot.

Had we purchased this house in late 2021 or early 2022, we would have undoubtedly had to shell out a few additional hundred thousand dollars. Fortunately, real estate market conditions have softened considerably in the last few months!

Several other houses in our area have been on the market for a few months despite list prices often being lowered by a few hundred thousand dollars. The house we purchased, however, was reasonably priced and several offers were made on the day after it came on the market.

Our offer was the only offer not conditional upon financing and was accepted. Who in their right mind makes an offer that is conditional upon financing?

Upon closing, my wife and I will once again become landlords. A lease is in place wherein our daughter's and fiance's monthly rental payment is well below market rates. This should enable them to continue to save money.

The long-term plan is for ownership of both properties to be transferred to our daughter.

With a November 2 closing date, I have had to refocus my attention. My most recent post is dated September 10, 2022 and I do not expect any other company analysis to occur until at least mid-November.

Purchases

My last outright purchase was 100 Copart shares earlier in September. I, however, continue to automatically reinvest some of my dividend income. During the month, I received additional shares in the following:

  • Becton Dickinson (BDX)
  • Chevron (CVX)
  • Church & Dwight (CHD)
  • CME Group (CME)
  • Emerson Electric (EMR)
  • Exxon Mobil (XOM)
  • Goldman Sachs (GS)
  • Home Depot (HD)
  • Intercontinental Exchange (ICE)
  • Johnson & Johnson (JNJ)
  • Lockheed Martin (LMT)
  • McDonald's (MCD)
  • Pepsico (PEP)
  • Raytheon (RTX)
  • Rollins (ROL)
  • Tyson Foods (TSN)
  • United Parcel Service (UPS)
  • Visa (V)
  • Walmart (WMT)
  • Alimentation Couche-Tard (ATD.to)
  • Brookfield Asset Management (BAM-a.to)
  • Brookfield Infrastructure Corp (BIPC.to)
  • Brookfield Infrastructure Partners (BIP-UN.to)
  • Brookfield Renewable Corp (BEPC.to)
  • Brookfield Renewable Partners LP (BEP-UN.to)
  • Canadian National Railway (CNR.to)
  • Enbridge (ENB.to)
  • Intact Financial (IFC.to)
  • SMART Centres Real Estate Investment Trust (SRU-UN.to)

Divestitures

None

New Positions

I initiated no new positions.

Dividend Income

The income from the holdings within the FFJ Portfolio is accessible here.

During September, the holdings within the FFJ Portfolio generated the following dividend income:

  • 'Core' accounts: ~$1,925 CDN and ~$5,610 USD
  • 'Side' accounts: ~$2,133 CDN and ~$3,613 USD.

YTD dividend income is:

  • 'Core' accounts: ~$15,836 CDN and ~$27,834 USD
  • 'Side' accounts: ~$17,567 CDN and ~$15,612 USD
  • YTD total: ~$33,403 CDN and ~$43,446 USD

I continue to expect the holdings within the FFJ Portfolio to generate dividend income of ~$44,500 CDN and ~$58,500 USD in 2022.

Holdings

The January - September 2022 FFJ Portfolios are accessible here. The following is a recap of the monthly portfolio totals:

January 2022

Core Accounts: ~$773,000 CDN and ~$1,858,000 USD

Side Accounts: ~$666,000 CDN and ~$1,475,000 USD

Total: ~$1,439,000 CDN and ~$3,333,000 USD

February 2022

Core Accounts: ~$778,000 CDN and ~$2,014,000 USD

Side Accounts: ~$672,000 CDN and ~$1,465,000 USD

Total: ~$1,450,000 CDN and ~$3,479,000 USD

March 2022

Core Accounts: ~$810,000 CDN and ~$2,118,000 USD

Side Accounts: ~$696,000 CDN and ~$1,554,000 USD

Total: ~$1,506,000 CDN and ~$3,672,000 USD

April 2022

Core Accounts: ~$770,332 CDN and ~$2,026,487 USD

Side Accounts: ~$658,363 CDN and ~$1,514,137 USD

Total: ~$1,428,695 CDN and ~$3,540,624 USD

May 2022

Core Accounts: ~$784,833 CDN and ~$2,133,728 USD

Side Accounts: ~$661,080 CDN and ~$1,499,998 USD

Total: ~$1,445,913 CDN and ~$3,633,726 USD

June 2022

Core Accounts:  ~$742,473 CDN and ~$2,006,645 USD

Side Accounts:  ~$595,911 CDN and ~$1,401,823 USD

Total:  ~$1,338,384 CDN and  ~$3,408,468 USD

July 2022

Core Accounts:  ~$794,405 CDN and ~$2,230,466 USD

Side Accounts:  ~$644,255 CDN and ~$1,539,292 USD

Total:  ~$1,438,660 CDN and  ~$3,769,758 USD

August 2022

Core Accounts:  ~$740,560 CDN and ~$2,064,323 USD

Side Accounts:  ~$637,547 CDN and ~$1,478,073 USD

Total:  ~$1,378,107 CDN and  ~$3,542,396 USD

September 2022

Core Accounts:  ~$707,781 CDN and ~$1,894,989 USD

Side Accounts:  ~$612,394 CDN and ~$1,311,542 USD

Total:  ~$1,320,175 CDN and  ~$3,206,531 USD

NOTE: The values reflected above exclude investments in several tax-efficient accounts for which I do not disclose details.

Final Thoughts

I anticipate equity prices in the remainder of 2022 and most of 2023 will remain under pressure. Toward the end of 2023, I envision companies will begin to provide their FY2024 outlook at which time earnings guidance may be encouraging. Until such time, investors would be wise to take advantage of weak investor sentiment to acquire shares in great companies.

I do not have any concerns about the plunge in the values of my holdings. I do, however, regret no longer having the liquidity to take advantage of the current market weakness.

My priority over the next several weeks will be in relocating and settling into our new house. As a result, I do not expect to analyze any companies until at least mid-November.

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

Note: Please send any feedback, corrections, or questions to [email protected].

Disclaimer: I do not know your circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decisions without conducting your 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.