Reviewing the RRSP Portfolio, Part I

by dj on January 4, 2005

I have a self-directed RRSP that I review about twice a year. I should examine it more frequently but oh my, is it ever boring to read quarterly financial reports of publicly listed companies.

I stopped buying mutual funds years ago, as 75% of them regularly do worse than the TSE benchmark index. This means that a monkey throwing darts at the Globe & Mail financial section can do better than most mutual fund money managers. Hey, I thought to myself, I'm smarter than any darn monkey (this was before the dot-com bust, but let's not go off on that tangent).

More importantly, the management fees of most Canadian RRSP funds are completely outrageous, ranging anywhere from 2-4 percent. For a conservative portfolio, 4 percent is really, really a lot. And let's not talk about the front load/back load fees. Holy cow, what am I doing in the project management field, I should buy a monkey, give him some darts and a newspaper, then rent him out as a financial mutual fund advisor.

Anyways, as you can guess by now, I buy my own stocks. Because I don't watch the market every waking hour of my life, I tend to buy reasonably conservative stocks. No small caps. Well, I have one small cap in my portfolio that is a left over from the dot-com era, but more on that later. Before executing one my bi-annual trades, it's good to do a review and see who was smarter this year, me or the monkey.

DJ's Annual RRSP Review for 2004



1. Fairfax Financial (ticker: FFH.SV) makes up 41% of my portfolio.

Bought at $228, currently worth $202, for an appreciation of -11.5 %

Key numbers: Price/book ratio of about point 7. P/E ratio for 2004 at 35. Future P/E ratio for 2005 is forecast to be 6. Return on equity for 2004 was 2 percent, as compared to about an average 12% return on equity for 2002 and 2003.

Comments

Fairfax is a conglomerate that owns a number of insurance and reinsurance companies in the States. It had to book some losses due to the four hurricanes hitting Florida last season. The stock is also under a heavy amount of pressure due to short selling. The downside to Fairfax is that the books are pretty opaque, due to complexity of the holdings. The upside is that the CEO of Fairfax, Prem Watsa, has a reputation for being an excellent money-manager.

2. Canadian Oil Sands (ticker: COS.UN) makes up 28% of my portfolio

Bought at $44, currently worth about $67, for an appreciation of 50%.

Key numbers: Price to earnings ratio of 13.6, with dividend paying 3.0 %. Latest forecast is that no additional equity is needed for stage 3 expansion scheduled to completed in 2006/7.

Comments

The Oil Sands Trust is a good trust for guys like me to buy. There are lots of oil trusts that pay a higher dividend but you have to keep an eye on the projected reserves in case they are "restated" (ie revised downward). There's about 30 years of oil reserves under the tar sands of Alberta so there is not much risk of the Oil Sand project running out of fields to exploit.

3. Oil Sands Split Trust (ticker: OST.UN) makes up 18% of my portfolio

Bought at $21, currently worth about $43, for an appreciation of 103%.

Key numbers: Dividend yield of .9%

Comments

This split trust is one-half of the COS.UN trust, with the other half carrying most of the dividend (OST.PR.A). I bought this trust at point in the calendar when most of the Canadian financial community was dumping on COS management for cost overruns on the Stage 3 expansion project. I had a look at the fundamentals and figured that even with incompetent management, there was no way that COS could NOT make a lot of cash in a year when oil was $30 a barrel and higher. Should have bought more of it. Heck, should have put a second mortage on the house and bought even more OST.UN.

3. Total Telecom (ticker: TTZ) makes up 4% of my portfolio Bought at 36 cents in 2004, currently worth about 35 cents, for an appreciation of -3%.

Key numbers: Price to earnings ratio of 6. Market cap is 6.4 million with a float of 17 million shares. Price to book ratio of point 6.

Comments

In 2004, I bought a little bit of TTZ at 36 cents. I bought a fair bit of TTZ at $3.oo and at $1.50 a few years back, follow the strategy of "averaging down" or "exhibiting the intelligence of a zucchini." I invested in TTZ, along with a bunch of other small caps back in dot-com era when I have made a bunch of cash in some hi-tech stocks, and I felt a weird psychological urge to throw it all away. I bought a SMALL bit of TTZ in 2004 at 36 cents because of the P/E and price to book ratios. Of course, TTZ is such a tiny small-cap that nobody cares about the numbers except for me and three drunken ranchers up in Northern Alberta, who bought the stock after too much booze at an all-night poker game during spring thaw.

4. Cold hard cash makes up the remaining 9 percent of my portfolio.

Conclusion

Overall, my portfolio showed a capital appreciation of 14% in 2004, with a dividend yield of about 1%. As I use a discount broker, and only executed about six trades in all of 2004, my transaction were less than 0.25% of my assets, which is way less than the 2-4% management fees that most mutual funds charge. The TSE benchmark showed an increase of 12% in 2004 , which means this year I proved myself to be slightly smarter than a monkey, perhaps equal in intelligence to a chimpanzee. However, I should be very cautious about playing a game of checkers for money with a dolphin.

Too bad that Fairfax sucked this year, if it had broken even, the numbers would have looked much better. But those are the breaks.

Now comes the hard part, reading all those annual/quarterly reports and deciding which stocks to sell off and which to buy.

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