Taking every intelligent precaution is no guarantee you will avoid disaster. I had taken every course I could to learn to protect myself. I’d read everything I could in the field. I’d purchased every product suggested as protection. I stayed alert for signs of trouble. I practiced due diligence.
They say your life flashes before your eyes when you’re about to die. Well, I don’t remember that, but I do remember the look on the driver’s face as I came flying over top of one car to crash head first into his door panel.
It was the end of Expo ’86 in Vancouver and I was crossing the Iron Workers Bridge (commonly called the Second Narrows Bridge) on my motorcycle. It had just started to rain after a fifty-six day dry spell. I stopped to put on my rain gear. Had I not stopped to add another layer of protection, I’d have missed the multi-car pile up.
Luckily, I’d taken the BC Safety Council motorcycle course. It taught me how to ride properly and how to recognize danger signs. I always wore full protective gear. I was riding well back of the car in front of me. Further ahead I saw a car about to change lanes. Someone was beside him. I saw an accident about to happen and knew enough to ease off the throttle. However, after such a dry spell the bridge was like an ice rink. Next thing I was in the hospital. Four operations later I was on long-term disability.
Practicing due diligence didn’t keep me from disaster but I do believe it saved my life. I think the same holds true for the financial world. I feel comfortable with the protection DRIPs provide.
Dale Ennis has asked me to share my portfolio with you. What I’d like to do here is tell you how my portfolio came about. Some choices are intelligent and some are mistakes. All are part of a continual learning process. At this moment I’m not going to discuss my reasons for including a company. Rather, I’d like you to submit your comments to me about what you think is right or wrong about my portfolio. That will be the basis of a future column.
The only reason I had an RRSP at all was a fellow teacher and friend quit teaching to sell mutual funds. I began contributing to an RRSP to help him get started. I had no idea what a mutual fund was. The only financial education I ever had was my parents saying, "You should save 10% of your paycheque for a rainy day." I put it all in my savings account. I had no idea what a GIC was.
When I moved to Victoria, my wife and I transferred our retirement accounts to a "financial advisor" on another friend’s recommendation. It was only after we signed the transfer papers that it dawned on me and I asked naively, "Are you a stock broker?"
"We call ourselves financial advisors now," she said.
"Oh!" I said, suddenly feeling uneasy but not knowing why. I remembered my parents were born during the depression. I felt it had something to do with that.
In the "advisor’s" office was a pamphlet on investing. It said that the most important rule in investing was never to invest your money in anything you don’t fully understand. That’s exactly what I had just done. I felt even more uneasy.
Another friend, an insurance salesman, told me that as I was now on long-term disability I needed to save as much as possible. I knew that I had to take action.
With time on my hands I dove into the library and devoured every book I could find on mutual funds and financial planning. Within a few months I was an expert on funds. I knew everything about how to be successful with funds. At least I thought I did. I started giving advice. People started avoiding me at parties. I kept reading. I began to notice negative comments about mutual funds. I came across vague references to something called DRIPs or dividend reinvestment plans.
One day I noticed "Commission Free Investing" by Jim Otar in a local bookstore. After browsing it, I mentioned it to my financial advisor. She kept changing the subject for some reason. So I bought Jim’s book and another called "Stop Buying Mutual Funds" by Mark J. Heinzl. Bells and whistles started to go off for me. I realized DRIPs were ideal for the small investor and had the added safety feature over strict income averaging of being able to skip payments if necessary.
I discussed these books with my parents. They had never cared for mutual funds.
"I’ve got a couple of those companies in my portfolio," said each of my parents.
"You own stocks!" I said dumbfounded.
My parents transferred some shares of BCTel and IPL Energy into my name. I was started!
I kept reading about DRIPs. The more I read, the more sense they made to me as a small investor.
My wife had some Bank of Nova Scotia in her RRSP. I asked our financial advisor to transfer one share out. She kept trying to change the subject again. Eventually she transferred the share.
More reading and I learned about discount brokers and bought Canadian and U.S. companies through BMO InvestorLine. I kept reading and discovered books by Charles B. Carlson, the godfather of U.S. DRIP investing. From him I learned about DSPs (direct stock purchase plans) and bought companies directly, avoiding brokers altogether. More reading and I learned that many DSPs have high fees. I came across the Motley FOOL and other discussion boards where I learned about Moneypaper magazine and their low cost method of starting DRIPs. I bought companies through Moneypaper. I learned that I could partially reinvest my dividends in my broker’s synthetic DRIPs and set them up to do so. I started to learn how to look at individual companies with greater intelligence. I still have a long way to go.
In short, I’ve started DRIPs in virtually every way possible. My uneasiness was diminishing. I was in charge – much like putting a sick passenger in charge of steering a boat as a cure for sea sickness. You never quite get over the sea sickness but you do become more a master of your fate.
My current DRIP holdings are:
Canada: Bank of Nova Scotia, Bank of Montreal, BCE, Dofasco, Enbridge, TELUS, TransAlta.
USA: Abbott Labs, Chevron/Texaco, Coca Cola, Compaq, Intel, Johnson & Johnson, PEPSI, Pfizer.
Broker (Synthetic) DRIPs: CIBC, Disney, Thomson, TransCanada Pipelines.
Synthetic DRIPs occur when a brokerage offers to reinvest dividends from holdings in further shares of the same company at no cost. Virtually all brokerages offer this. Usually the brokerage purchases whole shares only. Excess amounts in a company DRIP purchase partial shares. Excess amounts in a synthetic DRIP almost always are received as cash. Synthetic DRIPs only allow optional payments with commissions.
None of the above are recommendations. In fact, a few I consider mistakes. If you’d care to, you can comment on my choices at email@example.com. I’ll discuss your opinions and my reasoning for choosing them in an upcoming column.
The DRIP Investor Resource Centre started by George Smyth has completed beta testing and has quickly established itself as one of the best DRIP discussion boards on the Internet.
There are now five active discussion boards, including "Non-U.S. DRIP Investors" that is largely directed to Canadian discussions. DIRC is free, non-commercial, provides access to free DRIP spreadsheets and articles.
Twice recently I’ve used Moneypaper’s "Guide to Direct Investment Plans" to look up information not readily available on my company statements. The "Guide" was listed last month on the Member’s Benefits page. It also has a few useful tips for Canadians. An updated Guide is in the works.
Intel, by far the most popular DRIP in polls at the DRIP Investing Resource Centre web site, and formerly fee-free, recently engaged ComputerShare as transfer agent of the Plan. A $4 fee has been added for optional payments.
Robert Gibb, 401-2910 Cook Street, Victoria, BC, V8T 3S7 (250) 383-7075 firstname.lastname@example.org. Robert Gibb is a retired school teacher. He gives seminars on dividend reinvestment plans. Mr. Gibb is a frequent contributor to Internet DRIP boards under the nickname OperaBob.