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Posts Tagged ‘Comparison’

In January 2011 I wrote about a little experiment on stock market.  Well it has been one year and so here’s the result of the experiment.  In Dec 2010, I selected 5 stocks on the Toronto Stock Exchange (S&P/TSX) using nothing but darts to see how the performance of the stocks would stack up against the index in one year’s time. I made no changes to the stocks during the year even as the stock market experienced a “correction.”  So here’s the data from Dec 21, 2011.

Security Shares Opening Price Opening Cost Ending Price Ending Value Return
Encana Corp 35 28.7800 1007.3000 18.8900 661.1500 -34.36%
Fairfax Fiancial Holdings Ltd Subordinate Voting Shares 2 407.9400 815.8800 437.0100 874.0200 7.13%
Minefinders Corp Ltd 95 10.6900 1015.5500 10.8300 1028.8500 1.31%
Royal Bank of Canada 19 51.6900 982.1100 51.9800 987.6200 0.56%
Silver Standard Resources Inc 46 24.7400 1138.0400 14.1000 648.6000 -43.01%
Dividend 87.1500
Total 4958.8800 4287.3900 -13.54%
total before Dividend 4958.8800 4200.2400 -15.30%
TSX Index 13443 11955 -11.07%
TD Dividend Growth -0.30%

So the dart test did not beat the index in my test.  Including dividends, my annual return is -13.54% while the TSX returned  -11.07%.  Considering I didn’t include the trading costs of $99.95 to buy the shares my overall return on the investment is more like -15.30% , 4.23% less than the index.

The main contributor of my negative return were my heavy weighting in Encana during a year where oversupply for natural gas depressed all stocks related to the industry and the fact that Silver Standard lost 23% of its share price in one day after announcing reduction in reserve (how much silver is available to mine) and increases in production costs.

I have also included one of my favorite Canadian mutual funds in the table to illustrate how a different weighting (heavy in financials) would have impacted your returns. In 2011, while still negative this fund did significantly better than both my darts or the index.

So what conclusion can you draw from this experiment?  As anyone knows one year’s data isn’t worth much in the grand scheme of things.  Had the darts outperformed the index in 2011, I would have to reach the same conclusion.  I think what’s illustrative in this little demonstration is that by overweighing in specific stocks, you can skew the results significantly.  However, as you add stocks in your drive to diversify you will also drive your returns to match the index which means that if you are aiming to beat the index you won’t succeed (remember that there are always fees  even with ETFs).

So what to do?

“Don’t play the stock market” has always been my conclusion.  You don’t have enough time to be looking at the stocks, doing the research that’s required to “beat the market.”  If something like that exists then why are there so many advisors and analysts around?

Go back to your financial plan and see what return you need to grant you the goals you have set for yourself.  Create a portfolio that matches your risk profile and monitor it.  If need be, add more money into the pot, because savings are the best way to reach your goals.

Now if there is only a mutual fund out there that can give me 12% return….

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I recently sat down and re-looked at all the reward credit cards on the market, so I thought I might as well share the information.  First, I did not take into consideration the bonus that’s offered for any card since that won’t last, nor did I try to calculate all of the double points and rewards process as it is just too hard to try to figure out what counts and doesn’t count, so I’ll go with the basic reward levels.  This way the cards are playing on a level field.  I compared a couple of different things – travel, which is why I get these cards and for those that have products I also compared an ipod.  The number listed is the percent of reward you get back per dollar spent on the card.  Each of the travel cards are compared based on same date and destination.  RBC is based on maximum benefit.  If any one out there is a RBC reward client and want to run actual numbers, please email me and I’ll give you the dates I used.

Card Flight from Vancouver to Toronto (Saved $466 – seat sale of one way $233 without taxes and fees) Flight from Canada to London(Saved $1372 – not a seat sale ticket) Flight from Vancouver to Hawaii(Saved $658 – traveling in February 2011) Ipod Touch (32 Gb and 8 Gb for Royal as 32 Gb is not an option) Cash/ gift card vouchers
CIBC Aerogold VISA INFINITE (what I have)

  • annual fee of $120, $50 for secondary card
  • 1 Aeroplan point (air Canada loyalty program) per $ spent
  • 1.5 Aeroplan for purchases at grocery, gas and drug stores

Travel Health Insurance 15 days

Rental Car Collision

Travel Cancellation

Travel Interruption

Best options redeem 25,000 miles equals $0.01864 reward per dollar spentOne Way 17,000 miles equals $0.01370 reward per dollar spentWorst case (when they don’t have seats at the lower end, the will provide seats with more miles redeemed) 77,000 miles equals $0.00579 reward per dollar spent 60,000 miles equals $0.022883 reward per dollar spent 80,000 miles equals $0.008225 reward per dollar spent 44,000 miles for 32 Gb equals $0.00747 reward per dollar spent30500 miles for 8 Gb equals $0.00718 reward per dollar spent Approx 6,000 miles to 7,500 for $50 gift card equals $0.0083 to $0.0066 reward per dollar spent
Scotia Momentum Card

  • $39 annual fee
  • $1 cash back for purchases and $2 cash back for purchases in grocery, gas, drug stores and recurring payments

Purchase protection and extended warranty

All equals $0.01 reward per dollar spent
Scotia Gold passport.

  • $110 annual fee
  • 1 reward pt per dollar spent

Travel Health Insurance 31 days

Rental Car Collision

Purchase protection and extended warranty

Travel Cancellation

Travel Interruption

$0.01reward per dollar spent 32 Gb 48900 points equals $0.0067 reward per dollar spent 12000 points for $100 cash for investment at Scotia equals $0.00833 reward per dollar spent
RBC Infinite Avion

  • $120 annual fee $50 additional card
  • 1 reward pt per dollar spent

Travel Health Insurance 15 days

Rental Car Collision

Purchase protection and extended warranty

Travel Cancellation

Travel Interruption

Maximum reward 35000 points for $750 of flight credit equals $0.0214 reward per dollar spentIn this case 35000 points equals $0.0133 reward per dollar spent Maximum reward 65000 points for $1300 of credit equals $0.02 reward per dollar spentIn this case will redeem 72200 points equals $0.0190 reward per dollar spent Maximum reward 45000 points for $900 flight credit equals $0.02 reward per dollar spentIn this case 45000 points equals $0.0144 reward per dollar spent 8 Gb for 30500 points equals $0.00718 reward per dollar spent 6000 pts for $50 equals $0.00833 reward per dollar spent


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