Extreme saving gone wrong

I enjoyed reading Laura Shin’s interview with Cait Flanders, who runs the Blonde on a Budget blog. They discussed Flanders’ year of living frugally during which she spent about half her income on living expenses while the rest went to savings and travel. To cut back she imposed a shopping ban on most non-essentials that included takeout coffee, new clothes, books and electronics. Overall, the experience was so good that she expects to continue with it for another year. I’m always a sucker for frugal living stories because I’m not a big spender myself. Mind you, that doesn’t stop me from ordering coffee at my local café or going out to dinner when I want to. But I generally live a simple life. Flanders’ ability to save about 50% of her after-tax income got me thinking. While I keep close track of my net worth, I haven’t bothered to compare my expenses to my non-investment income. But, based on a quick back-of-the-envelope calculation, I figure I might be doing a little too well on the savings front. At some point a fanatical devotion to saving is counter productive. After all, you can’t take it with you. That’s why extreme savers (with more than enough money in the bank) should have a spending goal rather than a saving goal. (On the other hand, savers with generous spirits might carry on with their frugal ways and donate large estates to charity.) The interview also inspired me to sit down, when I have a little spare time, and accurately count up my expenses for the last few years. It’s something anyone near retirement should do too because it will give them a better sense of how much money they need to live on. In happy cases, an early retirement–without financial worry–might be in the cards. On the other hand, it’s also good to know when a bit more work is in order. It’s something to think about when you’re at the beach this summer and dreaming of staying a little longer.

Safer Canadian Dogs

Investors following the Dogs of the Dow strategy want to buy the 10 highest yielding stocks in the Dow Jones Industrial Average (DJIA), hold them for a year, and then move into the new list of top yielders. The Dogs of the TSX works the same way but swaps the DJIA for the S&P/TSX 60, which contains 60 of the largest stocks in Canada. My safer variant of the Dogs of the TSX tracks the 10 stocks in the index with the highest dividend yields provided they also pass a series of safety tests, such as having positive earnings. The idea is to weed out companies that might cut their dividends in the near term. Just be warned, it’s a task that’s easier said than done. Here’s the updated Safer Dogs of the TSX, representing the top yielders as of July 7. The list is a good starting point for those who want to put some money to work this week. Just keep in mind, the idea is to hold the stocks for at least a year after purchase–barring some calamity.

Name	Price	P/B	P/E	Earnings Yield	Dividend Yield
Potash Corp (POT)	$39.10	2.88	18.28	5.47%	4.97%
BCE (BCE)	$53.83	4.12	19.09	5.24%	4.83%
CIBC (CM)	$91.78	1.95	10.45	9.57%	4.75%
Bank of Montreal (BMO)	$73.94	1.43	11.91	8.40%	4.44%
National Bank (NA)	$47.05	1.74	10.48	9.54%	4.42%
Rogers (RCI.B)	$44.04	4.17	17.55	5.70%	4.36%
Shaw (SJR.B)	$27.45	2.65	16.94	5.90%	4.32%
Bank of Nova Scotia (BNS)	$63.93	1.66	11.12	8.99%	4.25%
TransCanada (TRP)	$50.28	2.1	20.69	4.83%	4.14%
Royal Bank (RY)	$76.37	2.13	11.75	8.51%	4.03%

Notes Source: Bloomberg, July 7 Price: Closing price per share P/B: Price to Book Value Ratio P/E: Price to Earnings Ratio Earnings Yield: Earnings divided by Price, expressed as a percentage Dividend Yield: Expected-Annual-Dividend divided by Price, expressed as a percentage As always, do your due diligence before buying any stock, including those featured here. Make sure its situation hasn’t changed in some important way, read the latest press releases and regulatory filings and take special care with stocks that trade infrequently. Remember, stocks can be risky. So, be careful out there. (Norm may own shares of some, or all, of the stocks mentioned here.)

New & Noteworthy

The Evolution of a Value Investor Tom Gayner, the CIO of Markel Corp, talks about his journey as an individual and a value investor.

Food for Thought

I Fooled Millions Into Thinking Chocolate Helps Weight Loss Why it’s dangerous to believe the nutritional study of the week. A similar lesson applies to the world of finance.