What is the BearMoney Investment Portfolio?
As the curtain comes down on 2020, we don’t think anybody saw that year coming! It has been a long and difficult road for most of us. Although a lot of opportunities presented themselves in the investment world, so much went wrong everywhere else. The news that we have working vaccines for COVID-19 is definitely welcome, but we’re not out of the woods just yet.
The Holiday Season gives us a chance to reflect on the year that has gone by and also to look forward to 2021. This also means building the core of our investment strategy for the coming year. If you’ve been following along with our journey so far you’ll know that we have totally different strategies for both 2020 and 2021. We won’t bore you again with the details but all the relevant information can be found here.
As mentioned before, this series is meant to be a totally upfront and honest look at a beginner’s or basic investment portfolio. For the whole of 2021 we’ll be publishing monthly updates about our investment activity and thoughts on the journey so far. In addition, for March 2021 we will be throwing in some wildcard ‘penny stock’ purchases for the sake of research and understanding.
Results so far
The first two months of the portfolio have been good if not spectacular, sitting at an approximate gain of 13%. This is great for a normal year, and decent for 2020. For 2021 we’d be expect somewhere between 1/3 and 1/2 that amount of growth. Of course the market is a fickle thing and the journey over the next 12 months could be much more difficult.
Without further delay, let’s have a look at the current strategy and then introduce the plan for 2021.
With all of the trades made and our portfolio solidified our current strategy is fairly easy to figure out. As mentioned in previous articles, we purchased a broad mix of Exchange Traded Funds or ETFs to create a stable long-term platform for growth. What this means in practice is that we bought bundled shares in many different areas to have investments across the entire economy. This was designed to cushion and growing mistakes that we would make.
In addition to picking normal ETFs we also invested in areas that we have particular expertise in, namely, Cannabis Stocks and Energy Stock (both Oil & Gas and Green Energy). We also added a gold price ETF as a ‘safety investment’. So, overall, the BearMoney portfolio is invested in everything from hemp to windmills to soda and condos.
The ‘current strategy’ is also the core of the lifetime strategy for this TFSA (Tax-Free Savings Account) which means that most of these holdings will increase year on year. Some may get sold and replaced but the intention was always to build on the current investments over time. We are trying not to make it too broad while still maintaining a healthy balance.
That was good to start off with, but how well should our investments be doing, and how close are they to that goal?
The S&P 500, the world leader in index funds is a general marker for success. As you can invest in this security and it is held as the general marker of success, your goal is to ‘beat’ the S&P 500. If you can’t beat the S&P 500 then you are probably expending more energy than you need. In addition, if you’re not a big ‘stocks’ persons you can dump all of your money into the S&P 500 and be relatively confident of solid returns of about 10%. This year the S&P 500 is up 17.46%. Currently, the BearMoney Portfolio is up 13%. So we are, effectively, doing worse than the benchmark index fund. Is this something to be upset about? Probably not.
This year has been pretty crazy in the markets, with massive cliffs and exploding stocks such as Tesla giving us a very topsy-turvy 2020. The 17% return from the S&P is over the whole year, and really will only have benefitted people who could buy or hold since March. Given that the BearMoney Strategy was only realized in October, the returns are fairly impressive. Over the same period the S&P 500 returned around 9.7%, less than the BearMoney Portfolio.
As of 31st December 2020, the current investment strategy has left us with the following in our BearMoney Portfolio:
So overall, these are pretty solid returns. In addition, the total dividends received to date amount to $39.53 CAD with some more expected in early January. It should be noted that dividends were not the point of these stocks, just an added little bonus. The will likely help us make a few key moves in 2021.
Investment Strategy 2021 – Rule of Threes
So what is our investment strategy for 2021? Just buy Tesla and Microsoft? Penny stocks for tech start ups in Brazil? If you’re a regular reader of this blog you’ll not be surprised to hear that our strategy for 2021 is about balance. We’ve taken the lessons that we’ve learned and tried to apply them to our portfolio strategy for the coming year. The core lessons learned so far are go with what you know and make the majority of your investments boring.
With these two ideals at the front of our mind we came up with a strategy that will split our investments this year into three roughly equally pots of $2,000 each. These three pots will be used to fulfill our core goals for the year: limited diversification, single stock acquisition, and building on solid foundations.
The ‘March Madness’ penny stocks will be paid for by our current cash on hand giving us a total investment space for 2021 of approximately $6,500. The overall aim is to increase the value of the portfolio by a minimum of 7% over 2021 with a stretch goal of 15%. In addition, we would like to achieve a dividend payout of approximately 2.5% or $480-$500 over the whole year.
33% Increase Holdings
This pot of money has the most obvious function. It will be used to increase most of our current ETF holdings focusing on those sitting on the TSX Toronto Stock Exchange. We will look to add to every single ETF but will likely prioritize those we believe are offering the best value in 2021.
Some of our ETFs have already recovered to pre-pandemic levels and might have limited future prospects. Alternatively they might just be incredibly resilient and solid choices to base a portfolio on. It seems likely that our money will going in REITs, Staples, and the TSX index fund. It is unlikely that our healthcare shares will see much action until the vaccination programmes get fully underway.
The goal for this money is to increase our already solidly preforming ETFs by adding a few shares here and there when the money in available and the price is right.
33% Individual Shares
Moving into individual shares is a much riskier strategy than buying index funds. However, a few good individual shares can really prop up your investment portfolio if done properly. In order to give ourselves the best chance of finding companies that will beat their respective indexes, we are going to follow our own advice and ‘go with what we know’.
What this translates to on the stock market is simple. We will do due diligence on companies in areas that we already understand. This is to offset any lack of skill we have in understand the nuance of different company fundamentals. This will be both risky and educational. Because of this, it is likely that this $2,000 pot is going to be split among a maximum of three individual stocks.
Ideally we are looking for companies that are broadly stable with growth prospects a little bit above their respective indexes. This is much more difficult than many investment gurus will lead you to believe but it is doable. To give ourselves the best change of a successful individual stock strategy we will be focusing on two key areas.
For the energy industry we will be focusing on finding a company that is both heavily investing in renewables while also already have a profitable renewables division. We will not be investing in Oil & Gas outside of our already owned ETFs. This is to take advantage of the likely boom in renewables that the Biden administration in the USA will usher in.
The growth goal for the Energy Stocks is in the 10% range. Alternatively, lower growth with significant dividends would also be considered a success.
For the logistics industry we will be focusing on finding a company that is both heavily investing in future tech while also having a solid amount of current gen activity. Think a company that provides telematics (fleet tracking) but is also investing in self driving or ‘gig economy’ technology. We won’t be going near the big boys like an Amazon or a FedEx. Although this is risky we are looking to invest in companies that will inevitably be bought out by the big boys. Our knowledge of the logistics industry suggests that post COVID-19 there will be even further consolidation and innovation.
The growth goal for the Logistics Stocks is in the 15% range. We’re not necessarily looking for dividends here so appreciation is the main measure of success.
Note: We may sell these stocks in they appreciate much more than we expected. If that is the case we will take the surplus and invest it in index funds while recycling the initial investment into different companies.
33% Bank ETFs
Something that was missing from our 2020 investment strategy was any securities that operated specifically in the financial services or banking sectors. This was probably a mistake in hindsight but nevertheless, the securities that we would have bought did not outperform the picks we ended up making instead.
It was a difficult decision to not put ‘bank stocks’ in the individual money pot above but one factor swayed our thinking. We are looking at adding Canadian bank securities to our portfolio. In real terms this would mean an ETF of half a dozen shares or less. This is pretty much midway between your standard ETF and individual stock ownership. This will essentially work out at about $300 of investment in each of the main Canadian banks if equally weighted.
The growth goal for the Bank ETFs is about steady value growth with moderate dividends. Canadian banks stocks aren’t great growers and are usually primarily dividend vehicles. Growth of 5% with a dividend of 4% seems like a solid target.
5% Penny Stocks !?
Yes, you read that right, our total investment adds up to about 105% of the allocated funds. This is because of the cash surplus and dividends that we were holding at the end of December. This will give us a solid $500 that we can use somewhere else.
It seemed most sensible to use this money for the risky month of our investment strategy, the penny stocks month. This allows us to split our main investment into thirds and still have a bit of fun with our ‘gambling stocks’. What stocks are we going to pick though? We have no idea.
This is going to be the most interesting part of the whole experience. Figuring out what horse to bet on in such a risky environment is going to take some work. It is likely that we will ‘stick to what we know’ and target areas such as transport, logistics, energy, or medicines. However, with so many emerging technologies there might be some real opportunities to make money (or lose it all in the more likely scenario).
There is no goal for the penny stocks except as an educational portion of our investment strategy. We would consider selling all stocks if the appreciate by 50% or more but we’re not going to set any rules. It’s not ‘just a bit of fun’ but it’s not part of core strategy and therefore we won’t stress too much.
Now that we’ve outlined our beginners investment strategy from 2021 there are only a few things left to do. Firstly, we have to fund the account. Whether that is in increments or with the full $6,000 on January 1st that remains to be seen. After that the first step is identifying the individual shares as the ETFs are more straightforward and limited in scope. Once we have that we will decide on what moves to make in January and February.
Once we have set and forget our trades for one or both of those months we will look forward to March and our low cap ‘penny stocks’ for our March Madness investment article.
After that we will reassess what orders we want to fill and when during 2021. One thing we might consider is selling the Gold ETF that we hold if it can regain its value and reinvest that in an index fund for a better return.
Gains Canadian Dollars: $1,492.45
Gains US Dollars:$1,086.92
Total Portfolio Value CAD:$13,525.86
Total Portfolio Value USD:$10,607.5
How did 2020 treat your investments? Let us know in the comments!