Several days ago I reviewed last year’s resolution, which was to expand my horizons by following new companies that I had yet to consider for investment. While this was done successfully, the work is never over, and with a new year upon us, there is a lot of room to step back and do things more successfully in the current year.
For 2018, the resolution is to take less risk. With so many fantastic companies available at bargain prices, this coming year is expected to be extremely successful as the large majority of investments made will come from the shallow end of the pool, and all major calamities — the deep end — will be averted.
Although some extremely large gains will be missed, so too will the large losses, which translates to needing a lower average rate of return on all successful investments in order to beat the benchmark. There are numerous examples of this in 2017. To begin with, shares of Canadian Imperial Bank of Commerce (TSX: CM)(NYSE: CM) touched a low of less than $105 per share and closed the year at a price of $122.54. Investors had the opportunity to enjoy capital appreciation in excess of 15% in addition to a dividend yield of approximately 4.5% (the average yield throughout the year).
This was not the only high-quality opportunity offered to investors. During the year, shares of Enbridge Inc. (TSX: ENB)(NYSE: ENB) fell to less than $44 per share, only to close the year at a price of $49.16 after increasing the dividend to yield close to 5.5% at current prices. Investors who were patient enough to sit and wait for the fat pitch have done very well throughout 2017.
One of the reasons for taking less risk throughout the year may be to avoid bubbles. In the case of cryptocurrency, the aggregate market value of all cryptocurrency is estimated to be US$600 billion, while the total amount of physical (U.S.) currency sits at approximately $1.2 trillion. Although many would argue, I believe that cryptocurrency is a complete bubble and am happy to pass up the opportunity for fast profits. Should the bubble burst, I will lose no sleep.
For 2018, the best opportunity for investors to buy into a low-risk security and receive an above-average return is with none other than Laurentian Bank of Canada (TSX: LB). After hitting a minor roadblock, the bank is trading at no more than tangible book value. Essentially, investors who purchase shares at current prices will receive a net asset value equal to the amount they are paying with the added bonus of a 4.5% dividend yield.
Given the historical returns on equity, shareholders can expect the company to make a profit of no less than $6 per share. In addition, as the current dividend accounts for ~42% of earnings, shareholders may also be rewarded with a share buyback that could drive shares even higher.
With Laurentian Bank of Canada as one of my favourite investments heading into 2018, the only other thing we need to wonder is just how patient we will have to be to see significant movement to the upside.
