Monday, November 21, 2016

Strategy for Cashing In on the Next Stock Crisis Blip

Stock investors as a whole are a curious group. There is the general tendency for investors to panic with each financial, economic, or socio-political event that causes uncertainty either nationally or internationally, resulting in a temporary drop in stock prices.  Sometimes even just the anticipation of a situation can trigger a sell-off.  Be it the falling price of oil, the American fiscal cliff, the threat of Grexit, the economic slowdown in China, or the vote for Brexit, news of each of these events have induced an adverse reaction from the stock market.  Often an across-the-board dip does not last more than a few days and sometimes recovery happens even within the same stock trading day.  There seems to be no shortage of candidates for the next crisis including the long-term fallout from the Trump presidential win in November, the upcoming Italian referendum on Senate reform in December and the proposed Brexit trigger of Article 50 in March. 

With so many potential opportunities to pick up stocks on a temporary decline, it is a good time to build up excess cash in order to take advantage of the next mini-dip.  Unfortunately since we are retired and only earn income through our investment portfolio, there is limited opportunity for us to accumulate cash.  Our options are either to save up excess dividends or to sell stock shares in order to general a cash pool.  With this in mind, a while ago I decided to stop reinvesting my excess stock dividends via the Dividend Reinvestment Program (DRIP).  I also sold the shares of a stock in a registered account that hadn't increased much in value since purchase and didn't regularly increase its dividend.  This provided me with a modest sum of cash to play with.

Yet predicting exactly when the next stock dip will occur is not as easy as it sounds, given that we are not monitoring the stock market every day, let alone every hour of each day.  As well, stock prices do not always react as expected. After Donald Trump won the US Presidential election, we expected a fire sale in the worldwide stock markets.  A temporary panic did occur overseas while the North American markets were closed, but stock prices rallied and even rose by the time the Canadian and US markets opened. It was not until several days later that the TSX experienced a mini decline.

In order not to totally miss the chance to "buy low" on the next stock decline, my husband and I use the following strategy when we have some extra cash to invest.  First we decide which stocks we might be interested in buying, using target price, analyst recommendations, and other factors to guide us.  In many cases, we look to just add more shares to stocks we already hold.  Next we guess at a "low" price relative to the current share price and the predicted target price. I usually look at the performance of the stock over the last 3-6 months and pick a lower price somewhere along that spectrum.  Finally I submit a "limit buy" order for the stock at my selected price, choosing the longest allowable term (up to 90 days for my discount broker, Scotia iTrade).  Then we sit back and wait to see if the price hits.  Note that my chosen price is a total guess and the stock may never fall that far, or may fall significantly more.  But at very least, if the buy order executes, I will have purchased stock at a price much lower than when I placed the order and if all goes well, the price will eventually revert to that original level once the market re-stabilizes.

This strategy worked extremely well recently. I put a $60 limit buy order for Premium Brand Holdings (PBH-T) when the share price was just over $64.  I did not fully expect my price to hit but one day for no reason that I could ascertain, it did.  The dip only lasted for a couple of hours and by the end of the day, the price had risen back to its original level and beyond.  To this day, I still don't know what caused the stock to fall so dramatically for such a short period of time without any predictable event to point to as the cause.  I'm glad that I had my bid in to take advantage of it or I would have missed it.

In preparation for the results of the US election, I put in a couple of limit bids in the various accounts were I was able to accumulate cash.  When the stock prices surprisingly rose after the election, I just left my bids in place awaiting the next event.  A few days later, my $40.40 limit buy order for Fortis (FTS-T) executed.  The stock had fallen from almost $44 down to $39.58 before recovering a few days later at just over $40. As a result of the Trump victory and his intended inflationary policies, bond prices have fallen, driving up bond yields relative to stock yields.  The Fortis stock succumbed to this pressure, falling over 5%.  This time I did not successfully predict the "low", but I still picked up the stock at a relatively good price since the long term target price remains over $46.

My limit buy bids in a couple of other stocks have not executed so far because these stocks have not fallen to my desired price.  I will just leave the buy orders in play until they expire, in hopes of catching a price drop with the next event, or unless I happen notice a better opportunity.  It is too bad that Scotia iTrade does not provide the term option to leave my order open until I decide to cancel it.  So if I want my bid to continue beyond the 90 days, I need to remember to update my order to extend the date before it expires.

The other issue I need to worry about on a limit buy bid is the partial fill of an order that is not completed by the end of the trading day. This occurs when there are not enough shares offered at my limit price to complete my order.  For example, I recently tried to buy 102 shares of a stock but only 100 shares were available, leaving two shares unfilled.  The next day, the final 2 shares were filled but because the trades occurred on two separate business days, I was charged the $9.99 commission on each day!  This was pure carelessness on my part. I usually remember to cancel the remaining part of the order at the end of the day in order to avoid paying an extra commission on such a small purchase. This was a reminder to me to be more careful next time.

Thursday, November 10, 2016

EQ Bank and free Interac Email Transfers

As part of our banking strategy, we use President's Choice Financial (PCF) as our primary bank, since there are no service charges for deposits, withdrawals, writing or cashing cheques, bill payments and most other regular banking transactions, as well as no requirement to maintain a minimum balance in order to have fees waived.  My one beef with PCF is that it still charges $1.50 for each Interac Email transfer, even though many other banks have reduced their fees to $1.00 or less.

But looking closer at the chequing account offerings at each major bank, it became obvious that the lower (or free) Interac fees were more than offset by monthly fees or the need to maintain minimum balances.  For example, Royal Bank advertised unlimited free Interac e-transfers on chequing accounts, but the cheapest account that I could find had monthly fees of $4.95 per month without any option to have the fees waived with a minimum balance.  This fee negates the whole advantage of having free e-Transfers (which I don't use that often).  It was a similar story with the other major banks.

I noticed the advertising blitz for EQ Bank in the subway system and decided to check it out. EQ Bank is a CDIC-protected online bank with no physical branches that offers a Savings Plus account that provides free deposits, bill payments and electronic transfer to linked chequing accounts at other banks.  In addition, the first five Interac e-Transfers per month are free ($1.50 after that).  This more than satisfies my Interac needs.  To sweeten the deal, the currently offered savings interest rate is 2%, calculated daily and paid monthly, one of the highest rates offered by any financial institution.  Now I am not naive enough to think that this rate will be available forever.  It is obviously a teaser rate meant to attract new members.  But as long as EQ Bank maintains this rate, or at least one that is comparable to other institutions offering "high interest savings accounts", then I would be more than happy to use it as my new emergency fund savings repository.  I have since opened an EQ Bank Savings Plus account and linked it to my PCF chequing account.  I moved most of our emergency fund savings from my previous high interest savings account at Canadian Tire Bank (currently paying 1.3%) to EQ Bank.  If EQ Bank eventually does significantly lower its interest rate, I can transfer surplus money back to Canadian Tire Bank, but I would still keep some in EQ Bank to take advantage of the 5 free Interac transactions per month.