Ask me Anything: Answers Part 3

Its the home stretch, folks! This final installment from last weeks “Ask me” blog will answer questions on the buy/sell discipline that we use at ValueTrend. Another question regarding preferred shares, plus a related question regarding a the pipelines  will be covered. Lets get at it!

ValueTrend’s buy/sell discipline

Paul asks about the buy/sell discipline we use at ValueTrend. Do we buy in one lump sum, or in stages? What kind of parameters mark our buy/sell decisions?

To start, I’d like everyone to understand that you need a systematic approach to buying and selling. But you also need some flexibility. Some of the systematic factors we use at ValueTrend have been discussed over the years on my blogs. I’ll rehash them now, but for more depth, you can check a few of my past blogs including here, here. The hardest part of investing is in the sell side of the equation. I wrote a MoneySaver article on selling here, and a dedicated blog on that subject a while ago, and would encourage all to read it – here.

Ok – here is the quick & dirty view of our buy discipline. This assumes that you have chosen a stock that met the criteria noted in the blog and article links above. Its a fundamentally sound company illustrating a base breakout or a touch of a trendline within an overall attractive look to the chart. The stock is in a sector that appears attractive, and the macro market view (Bear-o-meter) signals at least neutral risk/reward for stocks. Once that’s all established, we determine our conviction – aka  the size we want as a % of our portfolio before we buy the stock. In our case, we tend to buy 2% positions for a mid-low conviction trade. If we are very convinced of the trades merit, we tend to go as high as 5%.

As an aside, if a position that started at 5% moves to 7% or more, we trim it. We have done this many times over the years – but a recent example was Microsoft. This summer favored tech stocks, and our discipline forced us to reduce the position (despite no technical breakdown) to keep it in line with our desired 5% position size. We redeployed the 2% in a new value stock position. Since then MSFT has performed relatively flat while our value stocks rallied. So, as we like to say, “A system saves you from yourself”. Our system saved us from our desire to keep up with the overvalued index by overweighting the hot sector (tech) this summer.

Back to buying: If the stock (or ETF) is in a superb position – we may just buy 4% from the start. But more often than not, we leg in. Lets say we want to own 5% of the stock. We might buy 2% now, and then if the stock is moving nicely out of the base and has lots of room to go before resistance, we can add another leg and either complete the 5% purchase, or break that last bit into another 2 legs. We can decide to buy 2% now, and another 1% later – or any combination of that legging process. This is where my comment for “flexibility within the system” comes from.

Craig and I discuss the stock continually during this process. Is it still fundamentally attractive? Has it popped too hard and reached an overbought status, thus negating the opportunity to buy more right now? Is it not acting as we wish – suggesting we hold off on buying? The timing on our legging in is determined by the technicals. A breakout, followed by a test of the neckline and bounce is a great reason to buy the second leg. A breakout followed by a move back below the neckline is a reason to not do the next leg, and start to review a potential sell if it gets worse. There are too many factors to cover here, but that’s why you need to study many charts over many years to start to get a feel for how stocks act. Below is a chart of Natural Gas. My notes over the years are on it -we’ve traded this commodity a few times with equities and the UNG ETF. We recently entered the trade with a gas equity. You can see the double bottom of late, and the test. Great times to be legging in (first on the break, next on the test and bounce off the neckline). We only recently bought on the test-rebound trade – we missed the neckline break. But still, its a great illustration of the discipline.

Preferred shares

JS asks about preferred share ETF’s like BMOS’s ZPR and Horizon’s HPR. They more or less all look the same, so there isnt one that I’d say is a standout technically. Lets look at the ZPR chart. Is it bullish?

In my view, its a neutral looking chart. That’s OK for income investors – it just means there’s not much upside left. The $10 wall of resistance coming up will be a stopping point. Can it blow through? Sure it could! But its a higher probability that it will stall there. Again, that’s fine, given the 5.5% dividend and its relatively limited downside. Its really just returned to its old price range.

JS also asked about LRCN’s (Limited Recourse Capital Notes). My only input is this: the investment industry is constantly trying to re-invent the wheel. Or, you might say it takes the tools that have always been there and repackages them with new layers of fees. I can’t chart these investments, and they are not in my radar.  So I’m not much use to you here JS – except to say that 30 years in the business has shown me more than one new idea fade away leaving investors hanging. Not to say that’s the case here. But do make sure you do your homework before buying.




Linsay asked about pipelines. They are cheap, and have stuck in a rut despite  the resurgence in value stocks. Yields are great, and yet… no movement on thesee underdogs. Linsay wants to know… “whaz-up” with that?

To be sure, Linsay, your comment within your question about Biden being a potential factor is accurate. Rumblings abound regarding the Keystone project abound. Hard to say how this will play out, but it surely does contribute to the tension regarding the sector. TC Energy (TRP-T) is certainly in danger if the deal falls through. You can see that the stock has been weak, and its rebound hasnt kept with the rest of the value stocks despite its attractive 5.5% current yield. Mind you, its downside seems contained to around $50 (currently near $60), so a pullback to the low $50’s might be a good entry for income investors.

Enbridge, which we own in our Income Platform, is approaching a strong point of old resistance in the mid-$40’s. It has outperformed TRP. Its yield is just shy of 8% at this time, and the dividend appears safe. So its still not a bad income play – downside risk is in the mid-$30’s.

The only pipeline we own in the ValueTrend Equity Platform is Pembina. This stock pays well over 7% in dividends, and we perceive that to be relatively safe. The chart shows a big base forming. Its just coming into neartermed resistance at $36. What we like about this stock, vs. the other two, is that its overhead resistance is far less a factor should the stock crack $36. The company is a bit more diversified than some other pipelines. There’s an energy play in there, along with just the transportation side. The stock has little in the way before it hits the mid-$40’s. So there is a lump in our way at $36 coming soon that may slow the train, but we get paid to wait, or we can just sell. Or…we can hope for a breakout, and plan on another 20% upside, plus the 7% dividend. To us, this stock offers the upside potential that we like in the Equity Platform, while paying a dividend worthy of the Income side.


That’s it for this round of “Ask me Anything”. Back next week with my usual nerding out on markets and sectors.


  • Maybe too late for a question but given the up coming “tax loss” period at year end but with special consideration of the Covid-19 market shock and subsequent recovery – do you have any analysis that might be of assistance over the next 5 weeks ???


  • Hi Keith,

    I was wondering if you could share which site(s) you like to use for charting and technical analysis? I’ve been using for years but recently the site keeps crashing on me (not sure if my computer is the cause). I was hoping to find another free or low cost one that has similar features. If other readers of your blog could share what they use too, that’d also be great!



    • Josh the only good free one I know of is the freestockcharts one. They are changing to a different format as I understand so that’s probably your challenge. You may need to pay for a basic subscription. Its the best out there. Consider it an investment in your trading success.

  • Thanks so much for your reply Keith and for writing your blog, I never miss one! I just checked out the acp charting on stockcharts and it looks pretty slick!

  • Hi Keith- Do you have an opinion on US Apartment REITS? The big ones are all 20%-30% off of their 52 week highs.

    • I’ve not spent much time on them Randy, but a quick look at a couple of them suggested they are trying to break out of a base-which is always a positive sign.


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