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March 27, 2014, 5:04 am

Index Investing; Is It Always Better Than Mutual Funds?

by: The Financial Blogger    Category: Investment, Market and Risk



Sometimes, I have the feeling that people think that managing their investments is as easy as making a peanut butter sandwich in the morning…


From what I’ve read in the financial industry for the past ten years, high management fees (called MERs) charged on mutual funds hurt a small investor’s portfolio. In fact, if we look at the Canadian industry, most investors pay about 2% (and sometimes more!) to invest in mutual funds. In other words, if you invest $1,000 and your fund make 5%, you only earn $30. The other $20 is paid to the mutual fund company to cover their management fees (and the advisor selling the fund). When you think about it, this is a 40% commission based your investment return.


It gets worst: imagine if the fund you invest in dropped -5% during a bad market. Your statement shows -7% or a loss of $70. Mutual fund companies will get their 2% no matter what, the rest goes in (or out!) of your pocket.


Unfortunately, mutual funds were, for a long time, the only way one can diversify in multiple products (company shares or bonds) managed by professional in a single trade. An investor could buy one mutual fund including a part of safer investments (like bonds), Canadian companies along with American and international company shares. For someone who doesn’t know how to invest, mutual funds are expensive but do the job.



As is the case in any industry; when a product is overpriced or shows high profit margins, other players come to the market to offer an alternative. The first player to come with an alternative to mutual funds was probably Vanguard, one of the first ETF firms in the US. ETFs (exchange traded funds) are another way to buy multiple stocks (or bonds) with one trade.


Explained simply, an ETF is a group of investment products (mostly company shares or bonds) representing a “basket”. For example, the ETF iShares S&P/TSX 60 (XIU on the stock market) represents the 60 biggest companies traded on the Canadian market (the TSX). Someone buying 1 unit of XIU is buying a basket containing the 60 biggest companies traded on the Canadian market. He doesn’t have to know them, he doesn’t even have to manage them in his portfolio, the ETF does it all for him.


What’s the difference between buying a Canadian stock mutual fund or the XIU? About 2% in management fees! While most Canadian stock mutual funds will charge over 2% in management fees, the XIU fees are set at 0.18% (source Therefore, the portfolio manager taking care of the mutual fund must outperform the ETF by 2% before generating $1 for the investor. Here’s a quick example:

Investment Fees Investment Return Net Return $1000 Invested
Mutual Fund











As you can see, there is a big discrepancy between the mutual fund and the ETF even if they show the same investment return (before fees).




Here’s my answer: because it’s harder to manage your portfolio than it is to make peanut butter sandwiches!


Then, some people will suggest a “coach potato” investing style. The coach potato approach is to select a few ETF indexes that reflects your risk tolerance. Let’s say you want a balanced portfolio (roughly 50% in the stock market and 50% in bonds). You could build a portfolio with only 4 ETFS:

50% in a bond ETF replicating the DEX universe (Canadian bonds in general)

25% in an ETF tracking Canadian stocks

15% in an ETF tracking US stocks

10% in an ETF tracking International stocks


I agree that pretty much anybody with a calculator, a sheet of paper and a pen can build such portfolio. Then, you rebalance your portfolio twice a year to make sure you always show the same % (sell high, buy low). That’s a pretty effective method to manage your portfolio and track your investment return to the markets (95% of portfolio managers don’t beat their benchmark on the 5 year return). On top of this, your management fee is under 0.50%… this is at least 1.50% cheaper than the same investment in a mutual fund. If you invest $100K in this portfolio, you save $1,500 per year just in fees!


But it’s not that easy. Nope: managing your portfolio is not that easy.




Last years, bonds were paying a ridiculously low interest rate and bonds started to lose value upon the rise in interest rates. This is why XBB (a Canadian ETF tracking bonds) shows a negative return of -2.37% over the past 12 months. Add the bond interest rate paid by this ETF (3.26%), you get a small investment return of 0.89%.


How can you explain that most mutual funds did better with their fixed income (bond) portion? After a good talk with a friend of mine who’s a super fan of ETF investing, I noticed that his bond performance weren’t that great over the past 3 years. This was mainly explained by the poor Canadian bond returns.


At first, I assumed it was the same environment for everybody… until I checked a few mutual funds performance records. Most mutual funds show better returns during the same period… how can this be possible? It’s not because portfolio managers were better. It’s because they included other classes in their fixed income portfolio such as high yield bonds, international bonds and US bonds. This is how, for the past 3 years, mutual funds are able to beat a classic coach potato portfolio: because they include several other investment classes.




It is true that if you had replicated the exact same model with 8 or 10 ETFs, you would probably have beaten the mutual fund. But here’s the thing: who is going to tell you how to make such a portfolio if you adopt a coach potato investment style? Not your online broker, he simply performs the trades. Not your advisor because you don’t have any. Your neighbor? Maybe.


I guess now you can see where the problem with ETF investing lies: you still need a good financial background to build and manage your portfolio. If you do it only after reading a few books, chances are that your investment returns will be lower than mutual funds even after their huge fees.


I wouldn’t risk opening the hood of my car to start working on the engine to solve a problem, I wonder why people think it’s that easy to invest money…

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July 9, 2012, 5:30 am

Stock Picking Contest Q2

by: The Financial Blogger    Category: Investing Ideas,Investment, Market and Risk



Wow…. Q2 was far from looking as good as Q1 on the market, huh? It’s interesting to see how fast the market can move based on a few bad news. I know… bad news coming from Europe are pretty bad. But still, most companies are making good money right now. Their value is still going down for no specific reason…


I’m getting dragged down by one of my pick after a disastrous first quarter; VNP continues its plunge to Neverland (as I’m never taking another gamble on the stock market!). Here’s the resume of my four picks:


National Bank – NA

National Bank is, once again, posting strong results during their last quarter. They also announced a dividend increase along with a repurchase program. In addition to that, they have been ranked 5th world most secured bank by Bloomberg. It’s definitely I truly feel that NA will be a good stock to hold for many years. It’s not doing much lately as the market is pretty bad. However, the dividend helps to be patient while the fundamentals are definitely there. National Bank is also showing the smaller P/E ratio among other Canadian banks :-D.


5N Plus – VNP

Argh! After a bad quarter, the management thought it would be a good idea to dilute shares with a new issuing. It had a catastrophic impact on the stock and we are now down by more than 50%! At least, their first Quarter of 2012 was showing positive earnings. They went from losing $0.54 per share to making $0.07 per share. Let’s hope that the next financial reports will be positive!


Intel – INTC

Another solid pick to go through the stock market storm as INTC is reporting strong results and steady dividend growth. I also like the fact that they are gradually entering into more partnership linked to tablets and Smartphone. This was their Achilles’ Heel as they are very strong in the computer environment. However, the growth is now coming from smaller gadgets J.

Chevron – CVX

Chevron is suffering from the oil barrel roller coaster value. Nonetheless, they continue to post strong financial results and dividend raise too. Can you the pattern with my 3 picks that are keeping their heads over the water? they all pay strong dividend. In a highly volatile market such as this one, it’s definitely the best place to invest!


And the results are….


Just click on the blogger’s name to read his article:


Where All Does My Money Go 13.34%

Intelligent Speculator                    12.25%

Dividend Mantra                             6.78%

Dividend Growth Investor          4.89%

Million Dollar Journey                   0.69%

My Traders Journal                        -1.37%

Passive Income Earner                 -5.65%

Wild Investor                                    -7.73%

The Financial Blogger                    -13.15%

Beating The Index                          -26.55%


Disclaimer: I’m long NA, VNP, INTC & CVX.

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April 2, 2012, 5:00 am

Best Stock Picks 2012 Contest Q1 Update

by: The Financial Blogger    Category: Investment, Market and Risk

2012 Best Stock Pick: Last Place is All Mine!


Each year, a few bloggers including myself participate in a friendly stock picking competition. The goal is to pick 4 stocks for the year and hope that our little portfolio will do better than everyone else’s. We can pick stocks from both the Canadian and US markets and ETFs are accepted as well. On the other hand, during the year no trades are allowed.


I have a weird feeling that history is repeating itself again this year: I’m last because of a single bad pick… Should I say “bad”? not yet. But I can’t say that it was a good move for Q1! Let’s take a look at what went well and what sucked in Q1 for my 2012 best stock picking contest:


National Bank – NA (TSE) +11.05%


The National stock has been good to me for the past 3 years. In fact, since December 2008 (when the stock was at $25), it has never stopped surging. We are now over $80 and the dividend keeps on increasing. The best part is that I think the best is yet to come for this small bank from Quebec. They have made several important moves over the last 2 years while investing massively in technology improvements.  Disclaimer: I am long NA.


5N Plus – VNP (TSE) –29.04%

During my stock picking session, I mentioned that VNP could be one of the best 2012 Canadian Stocks. The company is solid and evolves as a leader in its niche. The problem is that they might have taken a bite into something they can’t swallow. For the first time this Quarter, they have reported losses. Very poor timing is behind these losses: important acquisitions last year, economic problems in Europe and a slowdown in the solar industry due to the potential threat of a recession. I hope that the next quarter will be better, if not, I will most likely drop this stock upon their 2nd financial report. Disclaimer: I’m long VNP too.


Intel – INTC (NASDAQ) + 16.85%

INTC has been a rising star in my portfolio since I bought it back in August 2011. They show great innovative power and dominate their market like no other. Their Achilles Heel is related to their difficulties in entering the smart phone and tablet markets with their chips. The good news is that they recently gained market share in this niche as well. I’m expecting INTC to continue to soar until the end of 2012. Disclaimer: I’m long INTC as well.


Chevron – CVX (NYSE) +1.54%


CVX was my “defensive play” for this year’s contest. I’m not expecting CVX to grow like crazy but I think that a strong dividend combined with a hiking price of oil is never a bad idea in a portfolio! You can’t expect much from a big boat like CVX if not to expect a steady growth. This is exactly what I expect CVX to do. So far, if I include CVX dividend yield, the stock is doing okay but it’s lagging as compared to the stock market. Let’s hope they will post strong profits throughout the year! Disclaimer: I’m long CVX.


2012 Best Stock Pick Ranking:


I know… I’m in last place… but still, I’m in positive territory. Look at the return of the other bloggers, it’s quite impressive (click on their name to read their article):


Where Does All My Money Go?: 35.91%

Intelligent Speculator: 16.37%

Dividend Mantra: 13.71%

Wild Investor: 11.78%

My Traders Journal: 11.17%

Beating the Index: 10.87%

Million Dollar Journey: 7.84%

The Passive Income Earner: 4.77%

Dividend Growth Investor: 4.43%

The Financial Blogger: 0.10%

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March 6, 2012, 5:00 am

Investing Sucks, Blogging Rules

by: The Financial Blogger    Category: Alternative Income,Investing Ideas,Investment, Market and Risk



A few weeks earlier, my partner sent me an email telling me how interesting it would be to write an article about the difference between dividend investing and making money online. He thought it would be fun as I’m a big fan of both dividend stocks and making money blogging. But there is a law out there that says that great minds think alike. Well if I’d do my post today ignoring this law, I would have to ignore Dividend Ninja’s guest article on Young & Thrifty: Website Income Vs Dividend Stocks: Which One Come Out On Top?


I was stunned that someone had the same idea but was 10 times faster than me to write an excellent article ;-). My comments on the site were that I thought it would be easier to make money through dividend investing than through a website. But this is for Mr and Mrs anybody. But what I didn’t say is:

If you know what you are doing; you will make a LOT more money through websites than through investing!


You want to know why? Here are a few reasons:


#1 Growth Potential is Bigger With a Website

The growth potential with a company is usually pretty limited compared to the growth coming from a website. The main reason is that the company being listed on the stock market has already grown for several years before issuing its first IPO. Therefore, you are buying a company that has already gone through its most beautiful growth years. For example, private investors that were able to invest in Google in Year 1 or 2 would have made 100000% on their investment as compared to those who got into the stock after its first IPO. The same story is about to repeat with Facebook in a few months. I doubt that FB will see such incredible growth in the upcoming years. Now, you can expect a double digit growth (that is still interesting) but you’ll never see triple, 4 or 5 digit growth as it has in the past.


The potential growth is usually even worse for dividend stocks. In order to be able to pay dividends, a company must be stable and also willing to sacrifice a part of its growth potential since it is distributing cash flow to its investors instead of using this money to grow even faster.


On the other hand, a website is usually a very small property. And what do all small properties have in common? They have a huge potential for growth! So this is whyUSgrowth is slower thanChina’s. This is also why my son learns more things and learns them faster than me ;-). Websites have this potential to grow by 20% each year for several years. Just take my company’s revenue since I started:

2008: $9,459

2009: $33,412 (+253%)

2010: $74,854 (I’m excluding important sales in this year) (+124%)

2011: $114,158 (+52%)


#2 ROI is Higher With a Website


I’ve recently mentioned that you can buy a major website for 36 times the monthly income. Some people told me that I was a nutcase. Fine. But when you think about it, this is some incredible return on investment! Forget the blogger’s or pity individuals’ perspectives for a moment and focus on an investor point of view: You have $50,000 to invest. Your first option is to buy a stock (or a group of stocks) paying a 4% dividend. This will generate a $2,000 dividend payout each year + the potential of seeing your portfolio grow over time. If you are a top notch investor, you will most likely get a 8% investment return over the long run (4% dividend + 4% in capital gains).


Why do I count only 4% in capital return? Because, historically, the stock market shows an investment yield of 9% (before fees and taxes). So unless you are the next Warren Buffet, you won’t be able to score over 8% after a period of 5 – 10 years. The main reason why you can’t score higher is due to the lack of information and comprehension. You are limited to your own little brain reading financial statements. You are not in the company, not managing the business and don’t have the feel of the company.


Now, consider a second investment proposition and look at a blog or a group of blogs to be bought for $50,000. At 36 times the monthly income (and you are not getting a deal at that price!), you will get a yearly dividend of $16,666. This is more than EIGHT TIMES your dividend investment. The best part is that you can expect a much higher growth from the value and income generated from the same sites due to the reasons explained in point #1.


The only thing to consider is that you need to spend time to manage the website. But technically, a minimum of 5 hours per week would be enough to keep the revenue as is. Therefore, if you “pay yourself” $25/hour, you are now down to a “dividend” of $10,166 per year. This is the same as a 20% dividend yield. Even better, if you are smart enough, you’ll find someone that you will pay $125/week to manage the site for you. I can send you a few names of good bloggers that would be glad to it ;-).


#3 You Have a Better Risk Assessment With Websites


As I previously mentioned, you don’t get hold of every single little detail about each stock you own. You can read the financial statements but you can’t get in touch with every CEO to know what is truly going on within the companies’ walls.


This is something you can do when you own your site. You get access to all the stats and can see in a heartbeat if there is any problem with it. Better knowledge leads to better risk assessment. On the other hand, if you don’t know what you do with websites, this can be highly dangerous too! Always invest in something that you understand, says Buffett!


Where would you put your next $10,000?


I’ve been telling you that investment sucks during the whole article but it doesn’t mean that I don’t invest in the stock market. In fact, I’m maximizing my RRSP account each year because I think it is good to have a great diversification across all your assets. But to be honest, my RRSP account is my “B plan” along with my company shares. So if I have another $10,000, guess where I would put it ;-). But what about you? What would you do with $10,000?



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January 3, 2012, 5:00 am

Best 2012 Stocks Contest

by: The Financial Blogger    Category: Investment, Market and Risk

1-3 TFB Best Stock Picks For 2012 Contest Or The Best Demonstration That Investing Doesn’t Rhyme With Gambling!

We are at the beginning of the year and I hope you had a great Holiday Season! It’s time for me to get back to work and start the year with our traditional Best Stock Picks For 2012 Contest. So before we get to my stock picks for this year, let’s take a look back at what happened in 2011.


The Perfect Proof that Gambling is Not Investing


Since the goal of this friendly competition is to finish first and we only have 4 stocks to pick, some of us (including me!) took some important risks. These risks were not calculated as we are not investing real money into them and there is not much to lose (besides the fact that my ego hurts!).


So if you think that you can pick any stock for your portfolio based on what you read on a few blogs (besides what is written on The Dividend Guy Blog 😉 ) and what you see on TV, you are dead wrong. Investing is far from gambling and I have a great proof; take a look at my stock picks:


HUZ – 13.02%

RIM – 74.51%

POT – 19.66%

CVX + 20.28% (including dividends)


I actually took 3 guesses in 2011; 1 with a commodity (betting on the fact that silver will follow the price of gold), 1 with a techno stock (betting on the fact that RIM had gone through the worst and was ready to kick ass in 2011) and 1 on an eventual rumor of merger or acquisition (betting on the fact that the first hostile bid for Potash was only the beginning).


Well, I got it wrong 3 times out of 3 and this is why my stock picks sucked in 2011!


Here are the full results:

Dividend Growth Investor +15.36%

Million Dollar Journey +3.12%

Intelligent Speculator -4.90%

Money Smarts Blog -9.55%

Where Does All My Money Go -17.04%

My Traders Journal -19.00%

The Financial Blogger -21.73% (bravo!)

Wild Investor -33.34%

Beating The Index -44.08%


And we got beaten by 3 TFB commenters!


Yup, that’s right! Last year, I’ve asked you to participate in this contest and Steve Zussino (+17.83%), Robert @ The College Investor (+20.29%) and JT McGee (+34.50%) beat all of us! Here are the results from all the readers:

Robert @ The College Investor20.29%
Steve Zussino17.83%
Passive Income Earner2.09%
101 Centavos-9.25%
Kevin @
Financial Cents-15.16%
Jaymus (RealizedReturns)-18.44%
Financial Uproar-43.07%
Stock Glory-52.77%


Congratulation to JT McGee with a +34.50% Result! I’ll send him a $100 Amazon Gift Card!!


Now back to the Best Stock Picks for 2012


We all agreed to start the very same contest again this year with the very same rules:

4 stocks picked at the beginning of the year

Could be CAN or US

No trades allowed

Dividends count in the yield calculation


This year, I’ll use a different approach as I will pick stocks that I own or that I have analyzed carefully. I’m doing this for 2 reasons:


a)      I’m not good at guessing (obviously!)

b)      In a highly volatile environment, strong companies will perform better


My Top Stocks for 2012:


National Bank – TSE: NA


I know I can’t really go wrong with any Canadian bank but I think that NA will outperform its peers in 2012. One of the main reasons is that the company is almost done spending hundreds of millions in new software for its branches. We will start seeing productivity gains that will boost both commercial and individual banking results. Their recent acquisitions (Wellington West, the brokerage segment of Montrusco Bolton & HSBC) will also bring in additional income in 2012.


5N Plus – TSE:VNP


This Montreal based company is the leader in speciality metal and chemical products found in the manufacturing of solar panel, smartphones and tablets. They also produce rare earth metals such as tellurium, cadmium and zinc. In 2011, they posted record results after acquiring MCP a company way bigger than them. The stock price hasn’t followed the great results due to global economic uncertainties. Sooner or later, investors will realize that VNP should not be trading at a P/E ratio of 9!




Intel has proven its stability by showing strong financial results in 2011. With a dividend yield of 3.50% and a low P/E ratio, INTC will certainly do well in 2012. Intel is the leader in its industry and has the biggest R&D budget to make sure they stay ahead of the competition.


Chevron – NYSE: CVX


The price of oil is not slowing down in my opinion and this is why I’m coming back to the only stock that served me well in 2011! Chevron is highly stable and will continue to generate great profits in 2012. A little push on the oil barrel and we should see the stock up by another 10% this year ;-).


Here are the other best stock pick contestants:

Wild Investor

Million Dollar Journey

Dividend Growth Investor

My Traders Journal

Intelligent Speculator

Dividend Mantra

Passive Income Earner

Where Does All My Money Go

Beating The Index


Do you want to join in?


We had to say good bye to Mike Holman from Money Smart Blog this year and we are welcoming 2 newcomers: Dividend Mantra and Passive Income Earner. I’d also like to do the same contest with TFB readers (regardless if you have a blog or not). So if you include your 4 stock picks in the comment, I will be following your picks and the best performer will win a prize in early 2013. How about that?


You don’t have enough yet?


If you are looking for more stocks to buy in 2012, I can tell you that you will find great ideas in The Dividend Growth Index, and my 29 Dividend Stock Picks for 2012 are 2 other projects I started with my Dividend Blog. Please make sure that you do additional research before trading any of these stocks. They are not recommendations.


Disclaimer: I hold NA, INTC, CVX & VNP in my RRSP portfolio.

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