For those new to the blog, I like to keep my readers up to date on portfolio changes. One of the reasons I started this blog was to educate others, but also to improve my own investing. By keeping an open book of my portfolio and changes to it, I hope to generate discussion so others can see how I put my investing philosophy into practice. For the most up to date portfolio changes follow my twitter account as I will usually tweet first and then follow-up with a blog post.
On February 23, 2015 I decided to buy Canadian Western Bank (TSE:CWB Trend) again as it had dropped another 10% from my target buy price of $30 to around $27. I picked up shares for an average price of $26.93. I first bought shares in the company on December 16, 2014 at $29.33. With my latest purchase I was able to average down bringing my cost base to $28.45.
Canadian Western Bank is a regional Canadian bank in you guessed it Western Canada (mainly Alberta and BC). They have managed to increase their dividend for 23 consecutive calendar years in a row. They are currently (March 2015) yielding around 3% which is historically high for the company. Their shares are suffering right now because of their exposure to Alberta and its struggling economy with the oil price so low. I took this as an opportunity to buy more shares.
Related article: Canadian Western Bank Dividend Stock Analysis & Portfolio Update
You can see from the chart below that I had an opportunity to buy shares below $27 in late January 2015 and early February, but I didn’t pull the trigger.
At the time the Canadian banks weren’t doing very well and Bank of Nova Scotia (TSE:BNS Trend) had dropped to around $61. I was hoping to initiate a position in Bank of Nova Scotia at $60 so I was waiting for just a bit more of a drop. Rather than invest more in Canadian Western Bank I planned to use the money to add to a new position. Bank of Nova Scotia never dropped to $60, instead increasing in price along with Canadian Western Bank, so in the end I didn’t invest in either at the time. I’d still like to invest in some other Canadian Banks, but they’ll need to fall another 10% or so in price. I already mentioned that I start to get interested at $60 for Bank of Nova Scotia, but National Bank of Canada (TSE:NA Trend) looks enticing too, if drops to $42. The other banks that I’d consider are Toronto Dominion Bank (TSE:TD Trend), Royal Bank of Canada (TSE:RY Trend) and probably Bank of Montreal (TSE:BMO Trend), but they are priced about 20% or more above my target buy price.
My work-in-progress averaging down plan
When I invest in a company I typically look for a good company that I understand, one with strong financial strength, a long history of earnings and dividend increases, a wide moat, and a sustainable dividend. Once I identify the company, I come up with a reasonably conservative stock price I’d be willing to buy them at. Then I wait, and wait … eventually the price will drop below my target buy price and I’ll have the opportunity to invest. So far this part of my strategy is fairly well planned out. Until recently I didn’t realize that I don’t have an averaging down plan. I have set target buy prices, but I had no defined plan to buy more when the price continues to drop.
I starting thinking about this and came up with a work in progress plan that I’m hoping you’ll comment on. I’ve used the example below with some hypothetical amounts to highlight my plan.
The idea behind this averaging down strategy is that the company fundamentals haven’t changed and I still believe the dividend will grow in a sustainable manner. If this is the case and the price keeps dropping I should be happy to buy more of a great company at even cheaper prices. If the stock gets to 50% below my target price, then I’ll have to make some serious decisions on if I want to make a large purchase to really take advantage.
My averaging down plan is still in the works and I don’t think I’d use it for all my stocks as I’ll have to take into consideration diversification (not being too overweight in one stock or one sector) and risk tolerance. I do like the idea of having a plan in place for stocks that I want to average down with. When people start to panic as prices drop, I want to be able to fall back on a plan that is based on rational thought, not my emotions at the time.
What do you think of this plan and my recent purchase of Canadian Western Bank?
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