October 8, 2007, 6:12 am

Smith Manoeuvre October Updates

by: The Financial Blogger    Category: Smith Manoeuvre
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First things first, Happy Turkey Day!… I Mean Thanksgiving 😀I also decided to change my intro for this post after reading Million Dollar Journey’s contest. Last week, he did a great review of “An American Hedge Fund”. Then, he conducted an interview with the author (and the great trader) Timothy Sykes. Since then, this book was part of my Xmas list (I tried to ask the book for Thanksgiving, but wife disaprove the manoeuvre).

smithman

To my great surprise, Million Dollar Journey offers not 1, not 2 but 5 copies of “an American Hedge Fun” ! So I hope that one of my reader (or maybe myself!) could have a chance to win this book. This would make Xmas comes faster this year 😉

I already explained that I had to wait eight minutes to get my Smith Manoeuvre investment dropped from $600 to $400. I temporarily have to reduce my investment amount in order to compensate for my wife’s income drop. Maternity leave do not have only advantages!

So this month I invested another $400 into the National Bank Dividend fund. My portfolio is about to make a big switch as I am approaching the $5,000 bar. Once I reach it, I will sell all my shares to buy the Sprott Canadian Equity Fund. It was reopen for investment about two years ago and I did not check if it was still available. I might have to change my plan if it’s not the case… darn!

Eric Sprott is the fund manager and he seems on top of his game. He aimed right when the oil price started to climb, he also avoided the subprime lender crisis and his next target is gold. As the USD is skiing down the hill, the price of gold could reach $1,000 within the next twelve months. If everything keeps the way it goes, Sprott would not be surprised to find gold near $3,000 in three to five years. While it seems impressive and not likely to happen, I would never thought I would have to put $60 of gas in my Mazda a couple years ago neither!

So far this year, I invested the sum of $4,500 into my Smith Manoeuvre strategy. My portfolio is still in the red but not by that much. I am showing a negative return of -1.35%. The National Bank dividend fund might not be the most efficient dividend fund on earth but it surely compensate by its low volatility on the market. I may have to sell my shares at loss to buy the Sprott fund but the money I will lose is minimal. On top of that, I can use it against previous capital gains.

The interest charge keeps growing as months go one by one. Last month, I had to pay $13.55 of interest. The thing I like about the Smith Manoeuvre is that it is a constantly growing leverage strategy. You do not have to contract a big 100K investment loan up front. You learn a little bit over time and you always have the choice of changing your monthly investment.

At the end of this year, I will have about $5,300 invested through the Smith Manoeuvre. This corresponds to a very small investment loan. As my investment is done on a periodic basis, I can see things coming and change my investment strategy by changing my purchase approach.

If you have any questions regarding my strategy, do not hesitate to post your comment or to contact me on thefinancialblogger@gmail.com.

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Comments

Interesting summary.

The Sprott fund is very risky in my opinion. When you eventually have a larger leveraged position ie $25k+ will you still have all of it in that fund? Any thoughts as to what type of securities you would like to own in the leveraged account?

Mike

Thanks for the link love FB! The odds are pretty good since there are 5 books available. Best of luck.

by: The Financial Blogger | October 8th, 2007 (11:33 am)

FP,
I will continue to put my money into the Dividend Fund and only transfer 5K in the Sprott fund. I am aware that it is risky, however, as my SM is done over a 30 years + investment horizon, I am not really concern about the fluctuation.

You need stuff that is more risky if you are leveraging. It is not with bonds that you will outbeat your interest rate 😉

I’ll probably write more about my asset allocation to make it clear… thx for the idea!

FB – I made a mistake – I looked up the Sprott fund on globefund.com and it appears to be a normal Cdn equity fund. I was thinking of some other fund that apparently went up 100% last year – probably some sort of energy fund.

So having all your leverage in there is just fine.

You might want to look into individual stocks at some point as well since then you can control the dividends which helps pay for things ie BMO pays 4%+.

Mike

by: The Financial Blogger | October 8th, 2007 (1:05 pm)

FP- Even if Sprott is categorized into the Cdn equity fund, it is still riskier than a normal equity fund. They have a tendency to invest massively into specific markets. For example, five years ago, they were investing a good part of the portfolio into oil and gas. However, over the long run, they show a great potential return.