Canada – Page 28

What to do with RRSP and TFSA contributions

I notice Larry Macdonald is tackling the age-old question of where to put cash into work. This would be cash that is earmarked for an RRSP and/or TFSA contribution.

The sensible answer is that you don’t have to contribute and instead concentrate on debt reduction. Many people have a mortgage accruing interest at 4%, and assuming your marginal tax rate is 30%, it would amount to an equivalent pre-tax investment at 5.7%, not bad on what amounts to a risk-free return.

If you are fortunate enough to have no debts to pay off, then the question becomes more difficult to answer.

I would agree with the sentiment that the marketplace feels “frothy”, albeit equities are likely poised for further gains early this year.

The worst decision somebody can make is to contribute cash and put it immediately to work in an investment without regard to the valuation of the investment. For example, dumping the money into an ETF (which is what most casual investors will do) is unlikely to produce a market-beating return unless you can explicitly justify why the ETF components are undervalued.

This question is amplified for myself, mainly because I have been on a liquidation spree at the beginning of this year. It hurts to see cash earning 2%, but it would hurt even more to see that cash earn -10% on a snap decision investment. All I can do at present is pile stocks up in my research queue, and be patient for valuations to correct themselves or to wait for a volatility shock in the marketplace.

It is for this reason, high levels of cash, that I am not terribly optimistic about my 2011 performance.

Davis and Henderson fooling all sorts of investors

The award for the “most botched up trust conversion of the year” would have to go to none other than Davis + Henderson. This is ironic since they are a business service company that would presumably include assistance with such things as income trust conversions.

Previously their ticker symbol was DHF.UN (on Toronto), but they changed their ticker to “DH.TO” upon conversion.

An additional mixup is that DHF.TO traded 104,000 shares on January 4, 2011 under the wrong ticker symbol.

It is most likely that somebody botched up the paperwork because most electronic systems still have a listing for “DHF.TO”, which is not the proper symbol and is not trading. The correct symbol, “DH.TO“, is listed on the TSX but has had negligible volume because almost everybody’s electronic systems (including Interactive Brokers!) have the improper DHF.TO ticker.

Disclosure: I currently have a position in Davis + Henderson.

A Questrade failure

Questrade is still not ready for “prime time” for serious investors – I notice that with the slew of income trust conversions today that most of them are trading with new ticker symbols.

In one of my portfolios held with Questrade, I own some previous trust units that have converted into a corporation. I notice the market is moving in a favourable position and I wish to liquidate some shares. I enter in the new ticker symbol, and the following information comes up:

Date of Order: 01/04/2011
Time of Order: XX:XX:XX EDT
Status of order: Rejected
Order Id: XXXXXXXXXXX
Notes: The client does not have any positions in this stock

I note that Interactive Brokers does not have the same problem. Their system handled the transition perfectly.

Although this system issue is unlikely to cost me money, what if there had been a market event that I wanted to swiftly liquidate my positions into?

Their customer service mentioned the following:

Once we receive the new symbols from your clearinghouse, we will update your position. This process generally takes about 5-7 business days to update. If your intention is to trade this stock before that time, please contact our trade desk at 1-888-783-7866.

Although Questrade continues to be a good low cost alternative, it has lingering issues like these that cause me to be very wary of sole-sourcing them for my investments.

(Update, January 6, 2011): I actually called the 1-888 line and reached their trading desk. They said I could not sell the units/shares until the symbol change is recognized by the system. Not thrilled about this at all.

A Happy New Year

The Canadian markets are still celebrating their holidays and the TSX is closed on Monday.

Posting will resume then, along with the year-end update and predictions for 2011.

It is always good to take a refresher away from research. Keeping your mental batteries charged throughout the year is just as important as making good investment decisions – one leads to the other.

End of year decision-making

Posting will continue to be light in the final couple weeks of the year. Part of the luxury of not having to be forced to deploy capital is that I can be patient, and this time of year is usually a good time to do anything other than work-related work!

I did manage to unload a few more debentures of a very poorly performing corporation that I have written about in the recent past; this is purely about mitigating potential credit risk in 2011.

Also, I have been investigating the potential usage of cheap leverage given that it is unlikely Canada will be increasing its short term rates soon. This kind of notion is unfortunately a year too late, but there are still options available that would seemingly yield some fairly low-risk return on investment.