Author Topic: 85K in two Canadian Oil stocks. Need help to diversify.  (Read 4044 times)

K-ice

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85K in two Canadian Oil stocks. Need help to diversify.
« on: May 14, 2015, 10:34:32 AM »
Stock A 45K purchased 10K. Current price $35/share,  52 week high $66, low $33. Dividend ~$200/month
Stock B 40K purchased 7.5K. Current price $3.35/share,  52 week high 4.31, low 2.2. No Dividend

I know itís dangerous to have all your eggs in one (two) basket. You can see from the 52 week high and lows these are not stable stocks. But these have done very well for us over about 5 years. (They were doing much better for us about a year ago :( when they were at the high.)  We are basically debt free and have rental property to help diversify our portfolio but this is a big chunk of our ďcashĒ investment. 

Adding to the complexity these are both in non-registered accounts & Iím in Canada ;) .
My spouse and I each have about 20K RRSP room (like 401(k)) and 30K TFSA room (like Roth IRA).

Selling the stocks & moving into registered investments would trigger a capital gains tax so I donít think it should be done all at once.

I was thinking of moving it into Vanguard,  VAB~20% (Bonds), VCN 30%(Canadian Index), and VXC~50%(Rest of the World Index).

I know I need to diversify, I am just wondering when, where, how much, how fast?

Thanks!

forummm

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Re: 85K in two Canadian Oil stocks. Need help to diversify.
« Reply #1 on: May 14, 2015, 10:40:20 AM »
With the amount of capital gains you'll have, that makes it more complicated to sell. I don't know what Canadian tax rates are. But that's an instant disadvantage for diversifying. Maybe just put all your new investments (including the dividends from these 2 stocks) into diversified funds. And then sell these off when the taxation makes better sense.

hodedofome

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Re: 85K in two Canadian Oil stocks. Need help to diversify.
« Reply #2 on: May 14, 2015, 11:59:26 AM »
It seems you've made 4-5x your money in 5(?) years. If that's correct, consider yourself very fortunate. Although it could be a decent tax hit, you could sell 1/2 or all of it this year and just chalk it up to experience. Even after the taxes, you'd still be ahead of any index fund you could have owned over the same time period. You have a considerable amount of individual stock risk and there's no law that says those stocks can't come back down and you lose all your gains. Best to just take the money while you're still ahead. Waiting years to sell everything out of fear of taxes doesn't make any sense. The stocks could drop by 50% while you wait.

In the future be sure to have a defined method for investing in individual stocks (defined position sizes, defined entries and defined exit strategy). You should not be 'guessing' what you should do, you should know what you're going to do ahead of time.

Jon_Snow

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Re: 85K in two Canadian Oil stocks. Need help to diversify.
« Reply #3 on: May 14, 2015, 01:28:07 PM »
I better not offer advice here. I have 150k in ONE Canadian oil stock. I'm surprisingly okay with it. One of the safer dividends out there and pays me almost $1000 monthly.

Don't do what I do. ;)

hamildub

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Re: 85K in two Canadian Oil stocks. Need help to diversify.
« Reply #4 on: May 14, 2015, 01:30:02 PM »
I would definitely sell off at least 90% of each of those positions, especially given the volatility (remember you haven't made a dime until you actually sell your shares!). Yes there will be a tax hit, but that really depends on your marginal tax rate and if you have any investment losses in the last 7 years and I'm sure there are other tax factors that I'm forgetting. I would be hesitant to switch it all to RRSPs without first looking at your overall portfolio - do you have significant passive income now? Do you have a lot in RRSPs already? Will you receive the best bang for you buck for the deduction? Do you have a TFSA set up yet?

While you would have had less returns in a diversified portfolio over the last 5 years you also would have had significantly less volatility, in essence you got lucky. It's easy now to say that you were smart in your investment decisions, however it could have easily gone the other way.

All of this is moot if you already have a securities portfolio worth over $1million, in which case I would still say to crystallize some gains and play around with $40k or so if you're so inclined.

daverobev

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Re: 85K in two Canadian Oil stocks. Need help to diversify.
« Reply #5 on: May 14, 2015, 03:44:55 PM »
I better not offer advice here. I have 150k in ONE Canadian oil stock. I'm surprisingly okay with it. One of the safer dividends out there and pays me almost $1000 monthly.

Don't do what I do. ;)

Man you are living on the edge. Monthly payer? Not COS surely?

daverobev

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Re: 85K in two Canadian Oil stocks. Need help to diversify.
« Reply #6 on: May 14, 2015, 03:47:39 PM »
Stock A 45K purchased 10K. Current price $35/share,  52 week high $66, low $33. Dividend ~$200/month
Stock B 40K purchased 7.5K. Current price $3.35/share,  52 week high 4.31, low 2.2. No Dividend

I know itís dangerous to have all your eggs in one (two) basket. You can see from the 52 week high and lows these are not stable stocks. But these have done very well for us over about 5 years. (They were doing much better for us about a year ago :( when they were at the high.)  We are basically debt free and have rental property to help diversify our portfolio but this is a big chunk of our ďcashĒ investment. 

Adding to the complexity these are both in non-registered accounts & Iím in Canada ;) .
My spouse and I each have about 20K RRSP room (like 401(k)) and 30K TFSA room (like Roth IRA).

Selling the stocks & moving into registered investments would trigger a capital gains tax so I donít think it should be done all at once.

I was thinking of moving it into Vanguard,  VAB~20% (Bonds), VCN 30%(Canadian Index), and VXC~50%(Rest of the World Index).

I know I need to diversify, I am just wondering when, where, how much, how fast?

Thanks!

General advice is that Canadians have too much in Canada - but that's up to you. I'm thinking 10-15% total in Canadian ETFs.

I don't like VXC much as there are multiple layers of withholding, and it is particularly inefficient inside an RRSP vs holding US versions. So say instead of that, take 25% VTI and 25% VXUS. Or 30% of each, and 20% each VAB and VCN (I'm not saying I don't like Vanguard, not at all, they are great, but VXC is not the best). NB VXUS holds some Canada as it is, well, the world less US.

Jon_Snow

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Re: 85K in two Canadian Oil stocks. Need help to diversify.
« Reply #7 on: May 14, 2015, 04:41:31 PM »
I better not offer advice here. I have 150k in ONE Canadian oil stock. I'm surprisingly okay with it. One of the safer dividends out there and pays me almost $1000 monthly.

Don't do what I do. ;)

Man you are living on the edge. Monthly payer? Not COS surely?

COS? God no. My early retirement would be a short one with that kind of investment acumen. ;)

As for "living on the edge"..dunno. The remaining  90% or so of my portfolio exhibits quite lovely diversification. :)
« Last Edit: May 14, 2015, 04:45:29 PM by Jon_Snow »

RichMoose

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Re: 85K in two Canadian Oil stocks. Need help to diversify.
« Reply #8 on: May 15, 2015, 05:47:17 AM »
Assuming you are still working and that you do not have tens of thousands in accumulated capital gains losses on your tax return, I would not sell these investments. The taxes would not be worth it. They still have gone up 400% for you and could be considered a great (but obviously high risk) investment. Just begin to diversify your holdings and take advantage of your registered accounts from now on. If you've got a DRIP on stock A, consider killing the DRIP and using that money in your TFSA / RRSP.

You may have to hold on to these stocks until retirement, saving them for your first stocks to go at that time. The good thing is at $80k they will be worth 10% or less of your portfolio by that time.

rmendpara

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Re: 85K in two Canadian Oil stocks. Need help to diversify.
« Reply #9 on: May 15, 2015, 10:08:29 PM »
You either made really great trades out of hard work and a little guts, or you are a moron and got lucky.

Since you never had an exit plan, my guess is you are closer to the latter than the former. No offense intended...

All investing is about discipline. It doesn't matter if you are a index-fund lover or a day trader. Having an exit plan is just as important as having an entry plan. Set up something you are comfortable with, such as:
- sell 25% of full value position after a holding doubles (per annum)
- sell 25% of full value position after a holding goes up 50% (per annum)

At this point, you've gotten a lot of upside, but after the first 100% (the first time it doubled), you clearly didn't know what you were doing.

Sell some of it, sell all of it, sell 25% of it. Which strategy you choose isn't right or wrong, necessarily, but you do need to choose something. Maybe you don't want to sell until your holding goes up 400%. That's fine. I wouldn't advise that, but sure, if that's what you decide. But, stick to it. More importantly, look back every few years and see how things are working out for you.

Best wishes in your trading endeavors.

K-ice

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Re: 85K in two Canadian Oil stocks. Need help to diversify.
« Reply #10 on: May 10, 2016, 05:48:51 PM »
UPDATE  It has been almost a year.

Hindsight is 20:20.   I should of just cashed out last year at this time and I would be better off.

We all know Oil has taken a terrible hit this past year.  In January 2016 my Oil stocks were at half of what they were in May 2015. 

Today they have climbed back up to about 2/3.  My "plan" with them was always buy and hold.  That is what I am still doing.  They are both currently at BookValue and I am tempted to sell a bit. No loss, no gain.
 

However, all new investments have been put into other more balanced funds, VAB and VXC.

Last year my portfolio was

86% 2 Oil stocks  14% other (mostly cash)

Today my portfolio is

40% 2 Oil stocks 60% other (mostly Vanguard)


They are still not at the point where I consider them "fun" money.  Less than 10% would be ideal.

My total portfolio has grown by about 40%, no thanks to the market, but just due to aggressive savings.

I guess you could say this is the advise I most followed:


Assuming you are still working and that you do not have tens of thousands in accumulated capital gains losses on your tax return, I would not sell these investments. The taxes would not be worth it. They still have gone up 400% for you and could be considered a great (but obviously high risk) investment. Just begin to diversify your holdings and take advantage of your registered accounts from now on. If you've got a DRIP on stock A, consider killing the DRIP and using that money in your TFSA / RRSP.

You may have to hold on to these stocks until retirement, saving them for your first stocks to go at that time. The good thing is at $80k they will be worth 10% or less of your portfolio by that time.


I am not at all mad they lost so much, I am in this for the long term and hope they are soon a small part of my portfolio.









RichMoose

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Re: 85K in two Canadian Oil stocks. Need help to diversify.
« Reply #11 on: May 10, 2016, 11:58:35 PM »
As your savings continue to grow, these two stocks will become a lot less relevant for your portfolio. I sold some more of my individual stocks (held in TFSA) due to a takeover offer which put it at a nice premium to comparable stocks at the time. The offer was for stock so I seized the opportunity to cash out and get away from one more individual stock. After trading costs I ended up just coming out ahead, but barely.

I am quite confident that my remaining stocks will do reasonably well over the long term as they are solid dividend paying large cap businesses, but I think I will be dumping them regardless in the coming months. Not because I don't want to buy and hold or because I believe their prospects have changed significantly from when I purchased them, but because I just want to simplify my portfolio and use index etfs only. That being said, if they were in a taxable account I would leave them.

This whole oil thing has been a hard lesson for me and many other Canadian investors. For me it has affirmed my movement to indexing, particularly with respect to volatility. It certainly pays (from a stress perspective) to have an investment plan and stick with it.

I commented on your other new thread regarding portfolio mix, so I think your feelings are similar to mine. Good luck in your decision making regarding these stocks.

K-ice

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Re: 85K in two Canadian Oil stocks. Need help to diversify.
« Reply #12 on: May 11, 2016, 12:07:29 AM »
Thanks Tux!