Category Archives: Investing

How to Build a Position in Your Favorite Stocks

This article with an additional example using Tencent (OTCMKTS:TCEHY) first appeared in the Seeking Alpha Marketplace service DGI Across North America.

Have you ever missed out on high-flying winners? Have you ever been stuck in a (seemingly) losing stock for a long time? I’ll use Amazon.com (NASDAQ:AMZN) and CVS Health (NYSE:CVS) as examples for illustration.

person with a question

How to Build a Position in Your Favorite High-Flying Winner

An investment in Amazon 10 years ago has become a 24-bagger. In other words, it delivered returns of roughly 37.5% per year. That said, we’ve been in a bull market since 2009.

In a correction, it’s possible that Amazon stock could fall 30-50%. In a normal market though, one of the best ways to build a position in a high-flying stock like Amazon is buying it periodically.

Some investors wait to buy stocks on dips. However, you’ll notice that in the last few years, dips in Amazon stock didn’t occur very often.

chart showing dips of Amazon stock between 2016 and 2018

Source: Google Finance with author annotation – Potential buy points when using the “buying on dips” strategy

If you waited for a dip in Amazon stock in June 2017, you wouldn’t have gotten one until April 2018. However, by then, the stock had already appreciated +40%.

At this point in the cycle, I’m leaning more towards buying high-flying stocks on a correction, whenever it may occur. Share in the comments below if you have a different opinion.

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Should You Change Your Investing Strategy in a High Stock Market?

The market is in its nine-year bull run. I’ll use the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) and iShares S&P/TSX 60 Index Fund (TSX:XIU) as representations of the markets, respectively.

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SPY Total Return Pricedata by YCharts

The annualized market returns have been about 9.5% for the U.S. market and about 7% for the Canadian market.

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SPY Annualized All Time Total Returns (Monthly)data by YCharts

It’s not surprising that the U.S. market has outperformed the Canadian market in the long run because the U.S. market is much more diversified, while the Canadian market is usually weighed down by commodity stocks, including mining companies and oil and gas producers.

All this means is that investors need to be extra careful in picking the right prices to buy those companies or the Canadian market.

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Should You Have High Yield Stocks in Your Portfolio?

Investors have different income goals, and sometimes, they’re forced to buy high-yield stocks, such as Alaris Royalty Corp. (TSX:AD), which currently offers a whopping dividend yield of 10.3%.

Investors should ask themselves why a company is paying such a high yield. Heck, even when Alaris was trading at higher levels and offered a +7% yield in 2015, it was still considered a high-yield investment.

yellow caution signs plastered on a page

How High of a Yield is Too High?

Typically, when a stock offers a yield of 6% or higher, investors should be extra careful. In my recent article on Seeking Alpha, I discussed the risks of investing in Alaris. So, I won’t go into the details of that.

Here’s a quick summary, though. Alaris lends money to companies and gets monthly cash distributions in return. Ideally, Alaris would like to partner with these companies for the long haul to get a high income from them.

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