Recent Sell – Bank of Nova Scotia

Another sale from my portfolio. Regular readers may be aware that I have been liquidating a lot of my portfolio as this market enters the nosebleed section. Valuations are at all-time highs and the world of finance looks just as dangerous as last decade, if not worse. I am of the opinion that holding large positions of cash going into the next crisis is a better strategy than trying to stay invested and trying to squeeze out an extra 1% or 2% in dividends or capital gains.

Last week, I sold 45 shares in Bank of Nova Scotia (BNS.TO) @ C$71.00 and closed my position.

Recent Sell Decision

  • I have been selling for a variety of reasons — including market valuations, herd mentality from other investors, simplicity focus I desire and SWAN reasons. I have detailed all these thoughts in this post.
  • While the valuation of this particular stock is fine — its not overpriced by any measure, I decided to simplify my life and reducing the number of holdings. I want to follow a more concentrated approach to investing and betting big on a smaller set of companies.  So, the decision came down to whether I want to own two Canadian banks (the other one being Toronto-Dominion Bank (TD)), which have the similar exposures operating and competing with each other. After some consideration, I decided that I want to own just one. TD’s balance sheet, risk-profile and growth prospects are better in my opinion. This led me to decide to liquidate BNS and exit the position.

Total profit (including dividends during holding period of ~2 years): 12.47%

Full Disclosure: Long TD. Our full list of holdings is available here.

28 thoughts on “Recent Sell – Bank of Nova Scotia

  1. helen7777 says:

    I can relate to your selling of BNS. It has been the weaker of the 5 big banks. I have held it since 2011 in an RSP and am also considering selling it since I own the other banks.

    • Hi helen7777,
      I have held the two bank stocks for a while and have come to realize that diversification is all well and good, but if I want to generate any meaningful returns over the course of my investment horizon, I need more concentrated investing. That was the hard part. Deciding which one to pick was easy — when comparing TD and BNS…the risk-reward profile very easily tips the scale in favor of TD. Hence the BNS sale from my portfolio.

      Best wishes
      R2R

  2. Historical data proved that those who stay invested and continue investing thru thin and thick times beat the market by a landslide. Timing the market has never worked for long term investors. And you are a long term investor, not a trader. Can you predict the market? Can you predict when the next crisis comes? If Clinton wins the election I can guarantee you, there will be no crisis as those crooks and Fed will do whatever it takes to keep the ship floating. And you will deprive yourself of dividends in the mean time or you will be buying yourself back for more money as the stocks will be even more expensive.
    In my opinion you are making a big mistake.

    • Hi Martin,
      I dont know when the next financial crisis will hit us. If I knew what the future holds, I would be retired by now. I know as much about the future as you do. But I do see a lot of problems structurally in the economy and do not intend to stand there on the tracks looking to pick pennies as a train heads in my direction. I would rather watch the trainwreck standing away from the tracks.

      Sticking your head in sand is not an investment strategy. Blindly buying companies at ridiculous valuations (even though not applicable in this particular case) is what will kill your portfolio returns. Dividends are nice and all, but I am not willing to risk 50% of my capital to make 4%.

      Thanks for sharing your thoughts
      R2R

  3. While I agree with Martin above, and I have no plans to sell anything yet, I can understand why you are deciding to lighten up your portfolio holdings in exchange for a heavier cash position. This is what personal finance is all about. Do whatever makes you feel comfortable from deciding what to invest in the first place to when, if ever, to sell. Martin does have a point though about just holding tight. People have been calling a market top since 2009 when many believed the rebound in stocks was a ‘dead cat bounce.’ The point is at DOW 11k, 13k, 14k, etc. etc. with oil going to around $120 a bbl and Greece, Cyprus, Spain, Portugal, Ireland in a mess, and more people have been calling tops. If the market drops 1000 points tomorrow you’ll be that much happier you lightened your load but reality is such that no can accurately time the market in any respect. Sad to see you sell your BNS. I’m still a fan of the Canadian banks and plan to hold for the foreseeable future, come new market highs or new market lows. Thanks for sharing.

    • Keith, agree with you. A good indicator of what is happening these days on the market could be three recent selloffs. Yes, the market dropped hard – we had a sell off in October 14, August 15, January 16 and a bit during Brexit – and look what happened! Everybody was predicting end of the bull market, drop back to 1500 level. Nothing happened, the market recovered and made new highs.
      Although I strongly oppose Obama’s economy and believe it is a phony one, however it is not in a state of justifying a drop as we experienced in 2008. We are bad, but not that bad.
      And even if we drop 50% as a long term dividend investor I will be staying invested through and let my DRIP buying more shares for less.

      What I may be lightening up is buying new positions or adding to stocks. That’s what I would agree on. But not selling my positions. Many of them have been working hard, I have bought many stocks during 2009 – 2010 when they were cheap, selling them now is craziness. For example JNJ. I was buying at 58 a share, how do I know the stock ever drops back to that level? It may never happen! When I was buying JNJ the yield was around 2.50%, today, thanks to the growth I am collecting over 9% on the original investment! Flushing all that into the toilet just because I have a feeling that the market is overvalued? Based on what metrics? How do you know it is? This market is not driven just by a value of the underlying, but also upon demand, supply, hysteria, fear, greed, expectations, future earnings, etc. Once again, you are a dividend growth investor and not a trader.
      Just to prove my point, I was holding my investments through 2008. Yes, they lost 50% or more value between the end of 2007 and beginning of 2009; yes it was scary as hell and I was doubting whether buying more shares is right thing to do; yes I was tempted to sell and save the last bit of my portfolio, but later I decided to stay the course and I was slowly buying more and more shares. Since then, my portfolio quintupled (5x bigger)! Remember your original goal and your investment horizon! If you are in the game for the next 20 or 25 years, selling now is nonsense. I recommend you reading a book “Missed Fortune”, the fist part which speaks about leveraging, stock investing for the long haul, and taking advantage of the market drops. And by selling, you are doing the right opposite of what you should do.

      • Hi Martin,
        You are proud that your portfolio has quintupled — so in essence you are counting your capital gains before you actually book them. I dont see the point of doing that. Unless you actually sell your shares and book those gains, those paper gains mean nothing and translate into nothing. All you have is stock in some companies that will hopefully still pay you some part of their profits in the future (and theres no guarantee for that). Remember that common shareholder dividends come very low on the totem pole when theres a crisis. 2008 was not that long ago — some reflection on the time period might help.

        Also, your comment on JNJ yielding 9% on the initial investment of $58 seems a bit wonky. You might want to check your math again.

        cheers
        R2R

    • Hi Keith,
      Thanks for sharing…I like you point about mentioning that this is personal finance and an personal investment decision. There is lot to like about the Canadian banks and they score really well on the global safety scale — even though they’ve slipped quite a bit in the last couple of years.

      Im not sure which media outlet you were watching, but I never heard anyone call a top in 2009 🙂 There have been a lot of problems and somehow we have scraped through without toppling the world economy….thanks to the central bankers who have unleashed a new era of cheap money. Will the market shoot up and double from here? Not unless we see hyperinflation, the likelihood of which is low. Will the market rise a bit more from here? Perhaps. Will it trade sideways and we wont have a crash for another year or two? Its possible. What am I missing by not participating? 4% in dividends. Sounds like an easy decision to get out of the way until the storm passes.

      R2R

      • During the best of times and the worst of times there is always someone painting a doom and gloom picture. Just a quick search I found several headlines not believing in the 2009 market comeback. Had you listened to any of these “experts” and stayed out of the market you would have missed buying some great names at very discounted prices. As you can see, it’s not that people were calling a top in 2009, they weren’t believing in the market rally, which continued into ’10, ’11, ’12, 13′, etc. etc.

        Roubini Says Rally Is A “Dead Cat Bounce” Mar. 16, 2009
        http://www.businessinsider.com/100-long-roubini-says-rally-is-a-dead-cat-bounce-2009-3

        2009 stock market forecast: Can the rally continue? – Jun. 2, 2009
        money.cnn.com/2009/06/02/markets/thebuzz/index.htm?…2009060213

        Investor Daily: Is this rally for real? – Sep. 10, 2009
        http://archive.fortune.com/2009/09/10/pf/market_rally_last.fortune/index.htm?postversion=2009091014

        Believe me, there were many, many, many sources not believing in the 2009 market bounce since March and back then we were at the opposite end of the spectrum as the market was at its lows. Like I mentioned before, we can be at DOW 5000 or DOW 20000, there will always be an opinion(s) that it’s not a good time to be in the market. You always have to do what you feel is right and helps you sleep at night. It’s a personal decision which I can totally understand your rationale.

        • Yeah I remember those calling that it might be a dead cat bounce…but I was surprised when you said that someone was calling the “top”.

          I agree — theres always people who call for doom and gloom and sell/short things while others buy at whatever price. Its what makes the market.

          cheers
          R2R

  4. Sabeel,

    It’s never easy or popular to go against the grain… I commend you for sticking to your guns and doing what you think is right! Yes, it’s true that nobody can ever perfectly time the market top or bottom, but seriously, shouldn’t it be obvious to most everyone that we are way closer to topping out than reaching any kind of bottom? What are investors expecting moving forward? For the S&P 500, Dow Jones, and Nasdaq to double from here? Seems very unlikely given that wages are flat, earnings are in decline, and overall growth across the globe is slowing down…

    You’ve had a nice run and are booking some gains, sounds like a win to me!

    Further, with the most recent news coming out from Deutsche Bank, financials are going to be a rough place to be, especially if contagion/fear spreads:

    http://www.bloomberg.com/news/articles/2016-09-29/some-deutsche-bank-clients-said-to-reduce-collateral-on-trades

    Risk vs. Reward.

    I think you have a strong grasp on that… Sacrificing 3-4% returns in hopes of preserving your principal is the prudent thing to do in times of uncertainty.

    All the best!

    • FI, I would agree with you if you were talking about a finite amount of money, already built up portfolio and 5 years to retirement. I doubt this is the case here.

    • And one more question: What if the current market behavior is just a consolidation? What if the next two to five years we will be jumping sideways and from that we will spike back up again? Who says we have to drop back to 1500 level and stay there for a long time? How do you know what will happen next year or in the next five years?

      • Martin,

        The market could very well be consolidating and who knows, maybe it will spike up even higher from here (stranger things have happened before)?

        It comes down to a question of risk vs. reward.

        Does the reward justify the risk?

        Using historical valuations, the S&P 500 and broader indices just aren’t cheap right now… Not by a long shot. Further, much of the gains being felt in the stock market, real estate market, bonds, etc. are all a consequence of easy money printing and QE bubbles… What happens if rates start to rise? Even slightly? As the Fed demonstrated earlier this year, even a 25 basis point increase caused markets across the globe to sell off…

        It’s very late stages of this aging bull market… Wage are flat, earnings are uninspiring, and global growth is slowing down. There’s very little alpha left to extract and that should be clear as day to investors, particularly anyone who remembers what it was like buying back in 2009, 2010…

        Markets are cyclical; never lose sight of that. If we get too fixated on the present, we forget that over the medium/long-term all asset classes behave like sine waves, moving both up AND down.

        I’m sitting this one out and awaiting better buying opportunities because I know the day will come again when bargains are aplenty.

        All the best!

  5. I appreciate the discussion about timing the market. And like the commenters above, I’d be curious to learn more about the main reasons behind your bearishly-inclined big picture thinking. Personally, I appreciate the need to sleep at night so I have some risk management rules of my own. I could probably be accused of market timing too, but the lack of risk management inherent in that strategy worries me. So for now I’m still long TD and RY, but don’t own any BNS and don’t plan on picking up your shares.

    • Hi Jay,
      Lots of reasons when you look at the big picture. The financial world is sick — there is much wrong with the world and none of the mistakes that were made last decade have been fixed. I wont be able to recount each and every one, but look at the news surrounding the banking world these days — the Italian, German, Japanese banks are all sick giants on the brink of collapse. Will they be bailed out? Perhaps. Will that mean BNS will collapse? No…BNS will be fine by those shocks but will be exposed to other shocks, .. such as the Canadian housing bubble and other issues with the Canadian economy.
      The central banks have blown bubbles into most assets — stocks, bonds, real estate are all in bubble territory. To understand the madness just look at how investors are thinking these days…invest in bonds for capital appreciation and in stocks for income. That is completely backwards. The stock market valuation is in nosebleed section with Schiller PE ratio hovering around 26/27. I could go on and on… Maybe I’ll save it for another day/post. But you get the picture 🙂

      cheers
      R2R

  6. JC says:

    I don’t blame you for trying to simplify your portfolio. I keep wanting to do the same but haven’t pulled the trigger much. Although I hope to get some selling done over the next week or so. I was just about to sell out of some GIS a couple weeks back but then they gave warning about a troublesome quarter and the share price took a dive. I wouldn’t mind sitting on more cash right now even if it’s just to put it to work via the options market. MO is starting to get interesting but there’s still a long ways to go before I’d be excited.

    • Hi JC,
      I dont really follow GIS and MO, so I cant comment, but I do know what the overall market valuation in most dividend stocks these days are. These are the kind of valuation levels I am not interested in participating in and couldnt wait to get out. Going to cash seems like the obvious choice — providing me with plenty of ammo when we have a market crash.

      Best
      R2R

  7. Well, except that you are not risking 50% of your portfolio for 4%. You are losing your dividend income and growth.

    If you bought 50 shares of a stock 5 years ago with initial dividend yield 2.5% with a dividend growth 3% after 5 years that stock will be yielding you 3.12%, your average return will be over 14%, your dividend income grew from $72 to $91. And that is if you do absolutely nothing and just sit on it and reinvest dividends and assuming that the stock price never changed.

    After 20 years, your total gain would be 93.56%, your yield on cost will be 8.13%, and your dividend will grow from $72 to $235.74.

    And that is only for those 50 shares you bought 20 years ago and sit on it through all lows and highs.

    And add to it that you will be adding more shares every month by DRIPping and monthly contributions. Anytime the stock drops in price you will buy more shares.

    So if you sell now, you will lose all this and you will be starting again and never reach income level for retirement. The goal is not a capital gain but dividend income. If you ruin your dividend income and will be starting over every time you liquidate your portfolio and start buying it again any time you start thinking that it is again safe to buy more shares. Your dividend yield will be always only around 4% then you would need to save $1,500,000 portfolio to get $60,000 annual dividends before taxes, while I stay invested all time, my portfolio will yield 8.13% so I only need to save $738,000 to get the same dividends as you ($60,000 annually). so, by selling now and buying back sometimes in the future, you are losing 50% of your future portfolio value). And by the way, during selloff you lose 50% only if you sell. If you keep holding, you lose nothing.

    So you choose:

    1) losing a paper value of 50% for a couple of months during crisis or
    2) losing 50% of your future savings. Do the math yourself, it is not that difficult to figure out, simple algebra.

    • Hi Martin,
      You sound hopelessly optimistic about the future of the economy and the financial health of the companies. In an ideal world — it sounds very good. Slow progress and building your income stream slowly. But when you have the current market environment where stock prices are driven so high that it translates to getting as much as a decade or two of dividends by booking gains now, I think the choice is pretty obvious. I will take my profits now instead of waiting 10 or 20 years for the same amount of dividends to roll in even after considering the dividend growth factor (not in this case — i.e., BNS, but there are some stocks that are trading at those levels these days).

      But I digress….
      You are talking about an ideal world where everything is nice and dandy. Remember that common shareholder dividends come very low on the totem pole. In the event of a crisis, theres going to be a long line of creditors who will be paid before a dividend for common shareholders is even considered by the board of directors.

      Is the next crisis/recession going to last only a couple of months? I dont know that. You dont either. I just know that I do not want to be the sad faithful dog hoping to get my money back because I ignored the warning signs and took unnecessary risk.

      cheers
      R2R

  8. I do not care what the value of my portfolio is. I used that quintupled value as a proof that I have lost absolutely nothing during 2008 slump because I didn’t sell, moreover, I was buying more shares.
    Yes, JNJ is only 5.31% today, it will be carrying 9% (actually over 9%) in the next 10 years in my investment horizon. If I sell the stock now and buy it again later hoping that maybe the stock will drop from today’s 108 a share to 60, 70 or whatever price, I will be starting the entire journey again.
    This is not how dividend growth investing works.

  9. Then you are a trader or growth investor and not a dividend growth investor.
    Historically, the markets went up and will go up. We are talking 20 or more years here. Dividend investing always outperformed the market and other investing vehicles even during bad times.

    For trading, I have a different account and it brings me income now.

    But my future retirement portfolio is in dividends and those need time, not selling or buying stocks based on my expectations, feelings, or market predictions.

    • Martin,
      I have seen such calculators in the past. Believe me, I have been following the DGI model for the better part of a decade now and am well aware of these concepts.

      You can project all you want. You are missing my point. You are treating a stock to be in a vacuum and assuming that things will progress in a straight trajectory. The reality is that no one knows what the world will look like in a decade. 10 years ago, if someone said that bond investors will be trampling each other to buy negative yielding bonds, they would be committed into an asylum.

      My take is that the risk profile has increased significantly under current circumstances and the valuations of the overall market is completely bonkers. I do not wish to risk my money in this market.

      Best
      R2R

  10. Yes, I was losing money in my trading account. Never on my dividend account, ROTH IRA and 401k accounts. You are mixing two different things together.

    I have no problem admitting that I lost money trading a market and strategy which didn’t work for me. However, this year, it already works for me very well and I am banking nice monthly income trading.

    Dividend investing is a different story and I have never changed the course on those accounts and all are up nicely. I still think I understand dividend growth investing well enough to express my opinion about it.

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