Investing

Investing Idea - Dividend Growth

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Dec 14, 2010
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treva84 wrote: Speaking about WFC and TD, what are your thoughts about toxic management practices / toxic corporate culture?

The reason I bring this up is some interesting stuff I was reading in Pre-Suasion by Robert Cialidini - he states:

I think HCG is a real life example of this, where fear over fraud caused a run on the bank.

I don't think TD or WFC will face a run anytime soon, but I must admit based on the most recent allegations facing TD I really do think twice about adding.
First, I think we need to diferentiate toxic culture from fraud and dishonesty. I don't think the first impacts earnings, but the second does.

Toxic corporate culture is hard to avoid on many large organizations, and it will be highlighted from time to time on the news. While unfortunate for the staff, it plays little role for an investor - a lot has to do with perception, since true toxic environments affects the company overall and earnings - look at Sears. For many well run companies, toxic culture are in certain pockets, and if it's becomes highlighted as a component to bring earnings, it's either ignored (Sears) or addressed (TD, WFC), and that sort of puts the ethics back in control and aligned with the company's culture. People will try to sneak and pressure from time to time but you can tell when it's ok for the culture of the company or not.

Most of financial banks run ok regardless of the CEO, and the board will change it if he/she doesn't deliver. I believe Buffett words explains it best: "buy a company that is so well structured that even an idiot could run it, because one eventually will". WFC was a great example of that, and the visibility is proportional to how poorly they handle it - hence TD didn't get much attention. Same think when comparing United or Jetblue overbooking - both kicked people out of their flights, but JetBlue handled it much better, so it barely made the news or social media. To me, since these specific events don't impact earnings permanently, it presents with an opportunity to add more - provided that other quality and value criteria are in place. Only when ethics are ignored then it breaches a fudamental quality criteria. Which then enters on dishonesty and fraud, which should be unforgiven, provided the business was a victim of it, and not the mastermind.

HCG never intended to do defraud people, only a handful of independent brokers got caught, fired and since it represented less than 2% bookings for HCG, it didn't have the attention / follow up required (which is a different issue), but by no means it justified the overkill reaction that was put in place. HCG has institutional shorts for the Canadian Real Estate market, and that contributed to the blow when compared to similar allegations that MFC had in 2009, for example. HCG case was extreme and unfortunate (and since that could happen to any company at anytime, it's why diversificiation is important). MIC carries way more risk than HCG and yet it never made the news, so people didn't panic. The media influences perception a lot, and many times it doesn't reflect the criteria that matters from an investment perspective.

The way I approach these news is by revisiting why I own them in first place. Quality criteria is the first step to make my watchlist, which then only gets removed if fundamentals or earnings / cash flow deteriorates more than I'm comfortable with. TD (and WFC) meets my criteria from a quality perspective, with growing earnings, dividends, cash flow and consistent decent ROE in place. I tend to ignore news as many times it carries emotions and it's too subjective when it comes to criteria making an investing decision. If the whole environment is toxic to the point that it affects the business engagement, I will wait that to be reflected on their numbers. But I would never make a decision because I company made the papers on a bad news. I believe that follows on the "fear" category, and if I made a commitment with management (to invest in their business), I'll give them a chance to prove that they can react and address it.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

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rodbarc wrote: The way I approach these news is by revisiting why I own them in first place. Quality criteria is the first step to make my watchlist, which then only gets removed if fundamentals or earnings / cash flow deteriorates more than I'm comfortable with. TD (and WFC) meets my criteria from a quality perspective, with growing earnings, dividends, cash flow and consistent decent ROE in place. I tend to ignore news as many times it carries emotions and it's too subjective when it comes to criteria making an investing decision. If the whole environment is toxic to the point that it affects the business engagement, I will wait that to be reflected on their numbers. But I would never make a decision because I company made the papers on a bad news. I believe that follows on the "fear" category, and if I made a commitment with management (to invest in their business), I'll give them a chance to prove that they can react and address it.


Rod
I like this mindset. In the information age there are so many stories, rumors and bum steers floating around at any one time that following them is akin to gambling. Isolating that which is just conjecture, written for the benefit of the author from that which is objective and quantifiable, which are written in quarterlies is a key skill for any investor.

Just think about what happened with EFN on May 31st. One tweet caused so much amateurish trading. Such profligacy.
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Nov 9, 2013
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rodbarc wrote: First, I think we need to diferentiate toxic culture from fraud and dishonesty. I don't think the first impacts earnings, but the second does.

Toxic corporate culture is hard to avoid on many large organizations, and it will be highlighted from time to time on the news. While unfortunate for the staff, it plays little role for an investor - a lot has to do with perception, since true toxic environments affects the company overall and earnings - look at Sears. For many well run companies, toxic culture are in certain pockets, and if it's becomes highlighted as a component to bring earnings, it's either ignored (Sears) or addressed (TD, WFC), and that sort of puts the ethics back in control and aligned with the company's culture. People will try to sneak and pressure from time to time but you can tell when it's ok for the culture of the company or not.

Most of financial banks run ok regardless of the CEO, and the board will change it if he/she doesn't deliver. I believe Buffett words explains it best: "buy a company that is so well structured that even an idiot could run it, because one eventually will". WFC was a great example of that, and the visibility is proportional to how poorly they handle it - hence TD didn't get much attention. Same think when comparing United or Jetblue overbooking - both kicked people out of their flights, but JetBlue handled it much better, so it barely made the news or social media. To me, since these specific events don't impact earnings permanently, it presents with an opportunity to add more - provided that other quality and value criteria are in place. Only when ethics are ignored then it breaches a fudamental quality criteria. Which then enters on dishonesty and fraud, which should be unforgiven, provided the business was a victim of it, and not the mastermind.

HCG never intended to do defraud people, only a handful of independent brokers got caught, fired and since it represented less than 2% bookings for HCG, it didn't have the attention / follow up required (which is a different issue), but by no means it justified the overkill reaction that was put in place. HCG has institutional shorts for the Canadian Real Estate market, and that contributed to the blow when compared to similar allegations that MFC had in 2009, for example. HCG case was extreme and unfortunate (and since that could happen to any company at anytime, it's why diversificiation is important). MIC carries way more risk than HCG and yet it never made the news, so people didn't panic. The media influences perception a lot, and many times it doesn't reflect the criteria that matters from an investment perspective.

The way I approach these news is by revisiting why I own them in first place. Quality criteria is the first step to make my watchlist, which then only gets removed if fundamentals or earnings / cash flow deteriorates more than I'm comfortable with. TD (and WFC) meets my criteria from a quality perspective, with growing earnings, dividends, cash flow and consistent decent ROE in place. I tend to ignore news as many times it carries emotions and it's too subjective when it comes to criteria making an investing decision. If the whole environment is toxic to the point that it affects the business engagement, I will wait that to be reflected on their numbers. But I would never make a decision because I company made the papers on a bad news. I believe that follows on the "fear" category, and if I made a commitment with management (to invest in their business), I'll give them a chance to prove that they can react and address it.


Rod
Gungnir wrote: I like this mindset. In the information age there are so many stories, rumors and bum steers floating around at any one time that following them is akin to gambling. Isolating that which is just conjecture, written for the benefit of the author from that which is objective and quantifiable, which are written in quarterlies is a key skill for any investor.

Just think about what happened with EFN on May 31st. One tweet caused so much amateurish trading. Such profligacy.
I agree that there is more frequently noise than signal and I also agree in general it's never a good idea to act on fear.

However, the allegations that advisors at TD and CIBC were forging signatures is pretty serious - it is fraud. I actually know of an elderly gentleman who told me this happened to him in December of 2016, before the CBC news article broke.

Isn't ignoring these and investing anyways essentially greed?

Think of it this way - if you are right and this is just noise, you can make a reasonable return on your money (for the sake of argument let's say ~8% as per the FASTGraph data). If you are wrong, and it's signal, the earnings of TD will be affected and your money won't grow or worse, you'll take a capital loss. To me, this is asymmetrical risk / reward in the wrong direction.
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treva84 wrote: I agree that there is more frequently noise than signal and I also agree in general it's never a good idea to act on fear.

However, the allegations that advisors at TD and CIBC were forging signatures is pretty serious - it is fraud. I actually know of an elderly gentleman who told me this happened to him in December of 2016, before the CBC news article broke.

Isn't ignoring these and investing anyways essentially greed?

Think of it this way - if you are right and this is just noise, you can make a reasonable return on your money (for the sake of argument let's say ~8% as per the FASTGraph data). If you are wrong, and it's signal, the earnings of TD will be affected and your money won't grow or worse, you'll take a capital loss. To me, this is asymmetrical risk / reward in the wrong direction.
Litigation / settlement happens all the time and these companies have a huge legal department for these reasons. I wouldn't make an investment decision based on that. Until the numbers are actually affected, it's just speculation.

I wouldn't call it greed, I'd call it a known risk. There are other risks too, they shouldn't deter us from investing if we believe the components to grow earnings and cash flow are in place - that's what drives price. Greed is when it's not logical / rational to make a purchase - usually when it's overvalued.

In other words, unless I see their provisioning for losses increasing (as a result of this lawsuit), I wouldn't consider as a relevant factor to influence my decision.

For example, it's different than the risk of GS and the current settlement going on. Results will be out soon, and that can actually impact shareholders badly - GS setup a nice sum to payout their cofounders depending on the post-retirement benefit issue, but a higher amount might be required. Hence the stock is being out of favor for a while. Beeting too much on their ability to overcome this issue is greed. I don't think that compares with TD (or CIBC) situation, until they start provisioning dollars to deal with that. At least this is my approach to mitigate risk, since we can eliminate it. We shouldn't avoid it either, we need criteria to manage it.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

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Dec 3, 2014
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treva84 wrote: I agree that there is more frequently noise than signal and I also agree in general it's never a good idea to act on fear.

However, the allegations that advisors at TD and CIBC were forging signatures is pretty serious - it is fraud. I actually know of an elderly gentleman who told me this happened to him in December of 2016, before the CBC news article broke.

Isn't ignoring these and investing anyways essentially greed?

Think of it this way - if you are right and this is just noise, you can make a reasonable return on your money (for the sake of argument let's say ~8% as per the FASTGraph data). If you are wrong, and it's signal, the earnings of TD will be affected and your money won't grow or worse, you'll take a capital loss. To me, this is asymmetrical risk / reward in the wrong direction.
Agreed. I'll also never buy a stock like Altria. There are plenty of good companies doing great things that one can make good investing decisions without needing to indirectly support something they wouldn't otherwise
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Feb 4, 2015
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llpresident wrote: Agreed. I'll also never buy a stock like Altria. There are plenty of good companies doing great things that one can make good investing decisions without needing to indirectly support something they wouldn't otherwise
Many years ago bought MO and then sold within few weeks... missed alot of upside BUT there are other companies... just do your due diligence on what exactly the company does/make and effect on society.
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Oct 21, 2014
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treva84 wrote: However, the allegations that advisors at TD and CIBC were forging signatures is pretty serious - it is fraud. I actually know of an elderly gentleman who told me this happened to him in December of 2016, before the CBC news article broke.

Isn't ignoring these and investing anyways essentially greed?
I'm sorry to say that you don't know that. The elderly gentleman asserted that this happened to him, but that is far from proven. Even if it is though, it will be litigated, TD will take it's lumps assuming that something that shouldn't have happened did and move on. I believe they will strengthen their anti-corruption practices and become stronger. I doubt the capital will be impaired permanently as I don't see the organization as systemically corrupt.

I take a much longer view as I buy stocks mainly as something to leave a legacy to my daughters, and that in time this will be remedied and what will be remembered about it is how I got a discount on the stock. I'm not too concerned about short term performance. I can guarantee you however that at any large organization that some employees are doing the wrong thing in order to make "the numbers".

There isn't a right or wrong answer really - Just don't do a $1.1 million 1 man short attack against a large Canadian bank. That didn't work that well. :)
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Mar 4, 2007
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rodbarc wrote: I'll post the details this week. The plan is to buy SJ, REF.UN and T for the Canadian Port and T and WFC for the US Port.


Rod
Hi Rod,

According to Fastgraphs, doesn't SJ look overvalued and T looks fairly valued? At least to my understanding. Can you elaborate on your purchasing decisions.

Thx
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Jan 5, 2012
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Hi Rod,

Thank you very for this thread. Great help when I am building my portfolio.

What do you think about BIP.UN? Is it fairly valued currently? Thank you very much
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Dec 14, 2010
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June 2017 purchases:

For this month, on the Canadian portfolio, I decided to add SJ as valuation gets more attractive. It's still track to evaluate it, since has long periods of undervaluation and overvaluation.

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Earnings have been at a higher rate lately, so I will use that as one of justification for the higher multiples. The other justification is the expectation of high growth for FY18. Although earnings are estimated to decline this year, the estimate for next year is promissing, and considering an earnings growth rate curve of 19%, current price is aligned with that, suggesting a fair valuation:

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Considering an earnings growth rate graph of 15%, for increased margin of safety, the investment looks less attractive, suggesting that little total return would be achieved by then; however, dividends would continue to grow, and considering that as a worst-case scenario, I think the risk is justified to me; earnings would have to decline substantially to trade at those levels - a possibility, but not a high probability at this point:

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In order to diversify my exposure to REITs, I decided to add more to REF.UN, since valuation is attractive again considering their estimates for increasing AFFO:

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Also, to improve the sector weight distribution of this portfolio, I've added more T. Still waiting for Rogers valuation to come down.

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On the US portfolio, I'm diversifying my telecom exposure by adding T:

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And also adding WFC, to continue improving the weight distribution per sector allocation:

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Below is the Canadian portfolio updated:

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And here is the US Portfolio updated:

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Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

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Hey Rod you've probably been asked this before but what do you use to track your portfolio? Is that just Excel?
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treva84 wrote: Hey Rod you've probably been asked this before but what do you use to track your portfolio? Is that just Excel?
FAST Graphs and the spreadsheet like the one I've been posting here.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

Trading strategy based on Graham principles.
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Chance7652 wrote: http://www.mydividendgrowth.com/myportfolio/

It auto pulls stock prices but the dividends column had issues for me.
I fixed those issues by replacing temporarily the problem ticker with another one (and then putting it back again). Also, clearing browser cache helps. And using Chrome too.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

Trading strategy based on Graham principles.
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HCG never intended to do defraud people, only a handful of independent brokers got caught, fired and since it represented less than 2% bookings for HCG, it didn't have the attention / follow up required (which is a different issue), but by no means it justified the overkill reaction that was put in place. HCG has institutional shorts for the Canadian Real Estate market, and that contributed to the blow when compared to similar allegations that MFC had in 2009, for example. HCG case was extreme and unfortunate (and since that could happen to any company at anytime, it's why diversificiation is important). MIC carries way more risk than HCG and yet it never made the news, so people didn't panic. The media influences perception a lot, and many times it doesn't reflect the criteria that matters from an investment perspective.

The way I approach these news is by revisiting why I own them in first place. Quality criteria is the first step to make my watchlist, which then only gets removed if fundamentals or earnings / cash flow deteriorates more than I'm comfortable with. TD (and WFC) meets my criteria from a quality perspective, with growing earnings, dividends, cash flow and consistent decent ROE in place. I tend to ignore news as many times it carries emotions and it's too subjective when it comes to criteria making an investing decision. If the whole environment is toxic to the point that it affects the business engagement, I will wait that to be reflected on their numbers. But I would never make a decision because I company made the papers on a bad news. I believe that follows on the "fear" category, and if I made a commitment with management (to invest in their business), I'll give them a chance to prove that they can react and address it.
Well it looks like with today's news of Warren Buffet taking a big stake in HCG, at a fantastic deal mind you, should show remind us of Rod's sentiments above.

So I guess my question now is what would it take for HCG to reinstate their dividend?

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