About six months ago, I decided that I wanted to get more actively involved in picking individual stocks using a value investing approach and that my TD mutual fund RRSP account was not enough for me. I looked at converting to a TD Waterhouse account, but it had an annual fee of $100 and cost $30 per trade. Since I'm just starting out as an investor, I want to conserve as much money as possible, so I decided to transfer my RRSP account to a Questrade self-directed RRSP with no annual fee and only $5 per trade. I already have a TFSA trading account with Questrade and hadn't had any problems with them, so I decided it would be a good move to have my RRSP with Questrade as well.
After waiting until I could sell my TD mutual fund units without incurring an early trading fee, I moved everything to a money market fund with no early penalty fees and initiated a transfer. The first step was to open a Questrade RRSP account. You are allowed to have more than one RRSP account, you just can't contribute more than your total allowed annual contribution limit between the two accounts. I finished the Questrade RRSP application up to the point where you need to fund the account. Then I found the appropriate transfer form from Questrade's website. It will even fill out all your new account information for you, and you just need to provide the details of the relinquishing institution. I didn't need to contact TD in any way at this point.
Once Questrade initiated the transfer, they informed me that the transfer would take 10-20 business days (which translates to about a month). So I patiently began waiting, and researched stocks and read about value investing while I waited. TD and Questrade were true to their word and took the most amount of time possible before I would start to get impatient. Exactly one month plus a day, I logged on to my TD online banking and the RRSP account had been sold out and closed. I thought I might have to make a separate request with TD to close the account, but it turns out they did that for me. But when I checked Questrade, expecting to see my RRSP balance, I instead found that the transfer had been rejected.
According to Questrade, the relinquishing institution said that the account number was invalid. I found that confusing because the account was closed according to TD EasyWeb. Questrade said they could re-initiate the transfer (which would take another 10-20 business days) if I sent them an account statement with my name, address, and account number on it. I uploaded a scanned copy of the document and waited a couple more days. Nothing was changing, so I called TD. They said that my RRSP was closed and that they had no other information. So I called Questrade and told them the situation, and they looked into the problem.
Apparently the account was transferred to Penson financial (who provides holding services for Questrade), but the transfer could not be completed to Questrade because of the account number. What happened was the following. When I was filling out the transfer request form on Questrade's website, I wrote in the full 10-digit RRSP account number that I saw in TD EasyWeb. When I checked my account statement, the account number was only 7 digits. What I actually needed was just the last 7 digits, which is what caused all the trouble.
So after Questrade opened a ticket for me and reviewed my uploaded account statement, two days later I was informed that my Questrade account was funded and that I could begin trading. Before initiating the transfer over a month ago, I Google searched a bit to see what kind of transfer fees TD would charge me for moving my account to another institution. From what I found, I was expecting that TD would take about $100 from my RRSP in fees. To my delightful surprise, I found that they didn't take a cent!
So now my self-directed RRSP with Questrade is funded, and I'm ready to do some value investing!
Friday, April 13, 2012
Monday, March 19, 2012
Hasbro Share Repurchasing: Follow-Up
Back in February, I wrote a blog post about Hasbro Inc.'s use of free cash flow to repurchase shares, and how sometimes the amount of shares repurchased approached or exceeded the company's free cash flow. I'll admit that I initially panicked at my findings, as I was about to make a purchase of Hasbro shares. On the advice of a friend, I did some further investigating on the issue, and I am now writing this blog post to summarize my findings.
I spoke with Hasbro investor relations, and they were very helpful in providing me with details of Hasbro's policies on use of free cash flow. Hasbro generates a healthy amount of cash, and there are multiple options for what to do with that cash. According to investor relations, Hasbro's first priority is to reinvest in the business, typically in the order of tens of millions of dollars. Acquisitions are an option, however they are not typically pursued as the value obtained is not sufficient, but intellectual property is sometimes purchased. Cash could be used to pay down debt, however Hasbro makes use of "good debt" that is manageable and adds to the business's ability to operate. If you take a look at Hasbro's annual balance sheets, their total current liabilities are typically less than their total long-term debt.
At Hasbro, it is a tradition to return cash to shareholders. Hasbro has maintained or increased their quarterly dividend every year since 2002. Hasbro has been buying back shares for a long time, and continues to do so under their current authorization since 2005. Hasbro's reason for buying back shares is to offset dilution of shareholder value as a result of stock-based compensation of management, and to buy back shares over and above that offset in order to increase shareholder value. Hasbro does so opportunistically to take advantage of low share pricing at times. Typically in the past and going forward, Hasbro does not use debt to repurchase shares.
If you look at the table in my last blog post, the only year in which Hasbro spent more than 100% of their free cash flow to repurchase shares was 2010. According to investor relations, this was to offset the conversion of a convertible debt offering issued in 2001 into common stock. Hasbro's net change in cash for 2010 was +$91.75 million, even though it repurchased $546 million of common stock. Hasbro also took on debt that year to raise cash. I had read through multiple annual reports dating back to 1997 from Hasbro in search of why this particular year was so aggressive in terms of share repurchases. I found multiple references to convertible debentures and share repurchases, but I did not find any mention of their connection to each other.
In terms of whether Hasbro believed its shares to be undervalued when purchasing them, the only answer I found was an average price quote for a time period that I should have written down but must have missed, and that purchases were opportunistic.
All in all, I've accomplished some in-depth research on Hasbro, and it was my first time calling the investor relations department of a public company. Hasbro seems to care about share dilution and seems dedicated to returning cash to shareholders, while growing its core brands and operations. I'll mull over Hasbro a little longer, but I don't want to over-analyze it.
I spoke with Hasbro investor relations, and they were very helpful in providing me with details of Hasbro's policies on use of free cash flow. Hasbro generates a healthy amount of cash, and there are multiple options for what to do with that cash. According to investor relations, Hasbro's first priority is to reinvest in the business, typically in the order of tens of millions of dollars. Acquisitions are an option, however they are not typically pursued as the value obtained is not sufficient, but intellectual property is sometimes purchased. Cash could be used to pay down debt, however Hasbro makes use of "good debt" that is manageable and adds to the business's ability to operate. If you take a look at Hasbro's annual balance sheets, their total current liabilities are typically less than their total long-term debt.
At Hasbro, it is a tradition to return cash to shareholders. Hasbro has maintained or increased their quarterly dividend every year since 2002. Hasbro has been buying back shares for a long time, and continues to do so under their current authorization since 2005. Hasbro's reason for buying back shares is to offset dilution of shareholder value as a result of stock-based compensation of management, and to buy back shares over and above that offset in order to increase shareholder value. Hasbro does so opportunistically to take advantage of low share pricing at times. Typically in the past and going forward, Hasbro does not use debt to repurchase shares.
If you look at the table in my last blog post, the only year in which Hasbro spent more than 100% of their free cash flow to repurchase shares was 2010. According to investor relations, this was to offset the conversion of a convertible debt offering issued in 2001 into common stock. Hasbro's net change in cash for 2010 was +$91.75 million, even though it repurchased $546 million of common stock. Hasbro also took on debt that year to raise cash. I had read through multiple annual reports dating back to 1997 from Hasbro in search of why this particular year was so aggressive in terms of share repurchases. I found multiple references to convertible debentures and share repurchases, but I did not find any mention of their connection to each other.
In terms of whether Hasbro believed its shares to be undervalued when purchasing them, the only answer I found was an average price quote for a time period that I should have written down but must have missed, and that purchases were opportunistic.
All in all, I've accomplished some in-depth research on Hasbro, and it was my first time calling the investor relations department of a public company. Hasbro seems to care about share dilution and seems dedicated to returning cash to shareholders, while growing its core brands and operations. I'll mull over Hasbro a little longer, but I don't want to over-analyze it.
Sunday, March 18, 2012
An Austrian School Contradiction: Revisited
In my previous blog post about Austrian School beliefs regarding price fixing and the gold standard, I described how fixing the rate of change in price is essentially the same as setting simultaneous floor and ceiling prices. This is technically untrue, since a rate of change implies the involvement of a time variable, however my floor and ceiling price limits have nothing to do with time. In other words, the price of a good can fluctuate between those price limits as quickly or as slowly as it may. All the price limits accomplish are a minimum and maximum absolute value difference between a good's starting price and its ending price, whichever point in time that may be.
Price limits aside, I was reading through a blog post on Mises.org ("Is Inflation about General Increases in Prices?") and realized that I may have misinterpreted some Austrian School beliefs, as I suspected I might have at the end of the last blog post.
The key difference that I failed to distinguish previously was that inflation is dilution of the money supply, not an increase in size of the money supply. For example, if gold is the medium of exchange in an economy and someone mines more gold, he is participating in the market's demand for gold. If he decides to cheat and dilute the money supply by melting down gold coins and reproducing them with less gold content, or by printing extra gold recipts (paper money), this person would be using the new "money" to buy something for nothing. In other words, he did not exchange wealth for wealth, he exchanged nothing for welath, which leads to a misallocation of resources in the economy.
This one paragraph doesn't do the concept justice, so I suggest you read through the original Mises.org article. In conclusion, Austrian School advocates of a gold standard aren't trying to regulate the size of the money supply; they are trying to control dilution of the money supply. Having real gold as the medium of exchange makes it much more difficult (although not impossible) to dilute the money supply than if the medium of exchange were a fiat currency (as we have today).
Price limits aside, I was reading through a blog post on Mises.org ("Is Inflation about General Increases in Prices?") and realized that I may have misinterpreted some Austrian School beliefs, as I suspected I might have at the end of the last blog post.
The key difference that I failed to distinguish previously was that inflation is dilution of the money supply, not an increase in size of the money supply. For example, if gold is the medium of exchange in an economy and someone mines more gold, he is participating in the market's demand for gold. If he decides to cheat and dilute the money supply by melting down gold coins and reproducing them with less gold content, or by printing extra gold recipts (paper money), this person would be using the new "money" to buy something for nothing. In other words, he did not exchange wealth for wealth, he exchanged nothing for welath, which leads to a misallocation of resources in the economy.
This one paragraph doesn't do the concept justice, so I suggest you read through the original Mises.org article. In conclusion, Austrian School advocates of a gold standard aren't trying to regulate the size of the money supply; they are trying to control dilution of the money supply. Having real gold as the medium of exchange makes it much more difficult (although not impossible) to dilute the money supply than if the medium of exchange were a fiat currency (as we have today).
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