Investing

This is why I index

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  • Jun 12th, 2017 9:04 am
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May 11, 2014
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freilona wrote:
May 14th, 2017 11:02 pm
This was actually one of the main reasons for me to choose indexing: the next Nortel will be just replaced in the index eventually, without me worrying about it or having to do anything (perfect for "buy&hold"er :))
For me, Nortel would have been the reason why I wouldn't index. Nortel at one point was +30% of the index?

But for the most part, it should be fine over the long term.

I do a hybrid index and stock picking. I am about 30% index, and 70% individual stock picking. Other than some bad trades, (eg. HCG) I've done very well.
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xgbsSS wrote:
May 14th, 2017 11:14 pm
For me, Nortel would have been the reason why I wouldn't index. Nortel at one point was +30% of the index?
ZCN in my husband's TFSA is capped at 10%, HXT in the non-reg is not capped, but both of them combined will be less than 10% of our portfolio :) Here's what I'm planning for out target asset allocations by the end of next year (when both my husband and I will turn 50):

10% GICs
10% Bonds
5% Preferreds

10% Canadian

20% Developed
10% Emerging

35% US
xgbsSS wrote:
May 14th, 2017 11:14 pm
I do a hybrid index and stock picking. I am about 30% index, and 70% individual stock picking. Other than some bad trades, (eg. HCG) I've done very well.
Last time I checked, the 13 stock "paper practice portfolio" that I put together in May'14 (from the stocks recommended on fool.ca and SeekingAlpha at the time) has done incredibly well:

AT&T Inc
Bell Aliant Inc
New Flyer Industries
Emera Inc
Fortis Inc
Hawaiian Holdings Inc
Laurentian Bank of Canada
Loblaw Companies Ltd
Noble Corporation PLC
Omega Healthcare Investors Inc
Saputo Inc
Starbucks Corp
Suncor Energy Inc

Unfortunately, we ended up buying both the biggest winner and the biggest loser from the list in our real portfolio - plus a few more losers later on lol
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freilona wrote:
May 15th, 2017 12:34 am
Last time I checked, the 13 stock "paper practice portfolio" that I put together in May'14 (from the stocks recommended on fool.ca and SeekingAlpha at the time) has done incredibly well:

AT&T Inc
Bell Aliant Inc
New Flyer Industries
Emera Inc
Fortis Inc
Hawaiian Holdings Inc
Laurentian Bank of Canada
Loblaw Companies Ltd
Noble Corporation PLC
Omega Healthcare Investors Inc
Saputo Inc
Starbucks Corp
Suncor Energy Inc

Unfortunately, we ended up buying both the biggest winner and the biggest loser from the list in our real portfolio - plus a few more losers later on lol
Not a bad list! Hawaiian was a holding I used to have, and sold too early :P
Ultimately people need to do what is more comfortable for them. If indexing is more comfortable and the less work involved is more valuable, I think there is nothing wrong with that at all. I have more individual picks myself, but in reality, it is more two stock picks that make a large portion of the portfolio and small positions in the others with the ETF holdings.

Aeroportuario del Norte (NASDAQ:OMAB)
Air Canada (Largest Holding) - Nearly 30% of portfolio
Algonquin Power
Bank of Internet (2nd Largest Holding) (NASDAQ:BOFI) **Sorry earlier said First Internet which was a holding I used to have (INBK)
Canadian Western Bank
Controladora Vuela/Volaris Airlines (NASDAQ:VLRS)
Corus Entertainment
Extendicare
Home Capital (mostly sold off now :P)
Fanuc (TYO:6954)
Lassonde Industries
National Bank
Versabank Preferred Series A & B
Lloyds Banking Group
Martinrae
Parkland Fuel
Sysmex Holdings (TYO:6869)
Tricon Capital
United Continental

To be fair, I shouldn't say I am indexing. I buy dividend ETFs.

30% BMO Canadian Dividend (ZDV)
30% Vanguard US Dividend Appreciation (VGG
15% BMO International Dividend (ZDI
15% iShares Core EAFE (XEF)
10% BMO Preferred (ZPR) --> Thinking of transferring to XPF or splitting to ZHP

My goal with individual stocks especially the large Air Canada, Bank of Internet are value plays, some are quick trades and some dividend appreciation. I try to limit overlap with what is held in ETFs, although some I hold just to trade in and out.
Outside this investment plan, I contribute $2500 annually to Saskatchewan Pension Plan. It is my out of sight, out of mind portfolio of my RRSP.


ugh...fool.ca. Not a fan.... Seeking Alpha while it attracts crazies, they at least have some decent writers and articles.
Last edited by xgbsSS on May 15th, 2017 12:57 am, edited 1 time in total.
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xgbsSS wrote:
May 15th, 2017 12:57 am
Not a bad list! Hawaiian was a holding I used to have, and sold too early :P
I know, when you posted about them and I checked the prices - I was like, holy cow, why did I buy all the other crap but not HA?! lol
xgbsSS wrote:
May 15th, 2017 12:57 am
Ultimately people need to do what is more comfortable for them. If indexing is more comfortable and the less work involved is more valuable, I think there is nothing wrong with that at all.
Amen to that.. :) One of the other considerations for me was also how easy it'd be for my husband to take over and continue if something were to happen to me.
xgbsSS wrote:
May 15th, 2017 12:57 am
I have more individual picks myself, but in reality, it is more two stock picks that make a large portion of the portfolio and small positions in the others with the ETF holdings.
Wow never held any of them (and didn't even hear about some :)) I think that's what I realized eventually: that holding the same stocks as the index is not gonna beat it by much (even if bought at better valuations) - and reasearching "something completely different" is too much work (and risk - in my case :)) But if I ever overcome my regrets of selling too early/not selling near tops - I might reconsider having a "play portion" of a portfolio for swing-trading.. :)
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HCG was the first stock where I changed my mindset in regards to selling. Just held on until all hope was lost, and that came with the announcement of the $2 billion loan. I don't know where this company is going now, and I don't really care. In the past, I've stood and watched stocks go to zero or essentially worthless. I was determined that if the initial reason for purchase no longer applied then even if the company somehow managed a turnaround after I'd sold I would just move on to another investment elsewhere. I prefer to get a fraction of the cash I've put into an investment rather than nothing. I only found out after the fact that I got out of HCG about the same time as Mawer and some other fund companies, so I wasn't the only one who goofed.

In 2016 of the Canadian stocks I own, there were no buyouts or dividend cuts, so no necessary sales from the portfolio. That was a good year. Since the start of 2017 I've only had to sell the one above.
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freilona wrote:
May 14th, 2017 11:02 pm

Personally, I don't like comparing with the (worst of the) average, that's why for a real comparison I set up a separate account - my husband's TFSA - and its performance convinced me more than anything else that indexing works better than I expected :)

This was actually one of the main reasons for me to choose indexing: the next Nortel will be just replaced in the index eventually, without me worrying about it or having to do anything (perfect for "buy&hold"er :))
Conceptually, the issue I have with indexing is you don't even care if you buy the next Nortel in the first place, because ultimately it doesn't matter (as you cite above). On the one hand, I would like to think I'd largely avoid buying the next Nortel but I did also recently buy HCG.

HCG has come up a few times by a few different posters so let's quickly talk about it - the fear and irrationality tanked the stock, despite the fundamentals being pretty decent. The problem was management and this is where I screwed up. I remember thinking something along the lines of "meh no big deal - it's dealt with" when I read about the broker fraud. While this may have been true - it was dealt with - it shook investor / consumer confidence which I didn't really recognize, which is what led to it's demise.

xgbsSS wrote:
May 15th, 2017 12:57 am
Not a bad list! Hawaiian was a holding I used to have, and sold too early :P
Ultimately people need to do what is more comfortable for them. If indexing is more comfortable and the less work involved is more valuable, I think there is nothing wrong with that at all. I have more individual picks myself, but in reality, it is more two stock picks that make a large portion of the portfolio and small positions in the others with the ETF holdings.
I totally agree.

I should mention, I don't mean for this to be a thread that bashes indexing, or one that tries to convert indexers to stock pickers or vice versa. I regret talking about returns as well because it inevitably creates the stock picking vs indexing argument. The whole reason I created it and the whole reason I bumped it was to try and reflect on my investment journey and create discussion, with the hope of making myself a better investor.
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treva84 wrote:
May 14th, 2017 5:27 pm
So one year later I wanted to bump this thread, largely to reflect on how the last year has gone and invite further discussion.
...
I think my strengths are generally in acting rationally and recognizing when something is cheap. I think my weaknesses are that I often like to buy those cheap things, but I am also not very good at selling. Good things generally happen to cheap companies (i.e. DH) but I also don't possess the expertise to discern value plays from value traps (i.e. adding to HCG at $19.00). I am also terrible at gauging when to exit. Therefore, if I leverage my strength (which is holding on through thick and thin) I need to buy those companies that have the greatest chance of long term success (i.e. wide moats).
...
Thus, moving forward, I'm trying to make it so I never have to sell. Specifically, as mentioned above, my strategy is morphing into a dividend / value / moat strategy, where I'm being far more selective and not just buying something because it's cheap. This is also very hard, as it means I have to be less active and do nothing. Patience is a virtue I have difficulty cultivating!
Very interesting discussion you have going here. I don't know how I missed this thread in the past.

Kudos to you for taking the time to look inwards and determine your best strengths and weaknesses. This is something that sounds easy but is quite difficult to do, in many different ways. Strangely, I find many many similarities between you and me. I get the feeling we are at similar stages in our lives and our investing styles have grown into something very similar as well. I too have learned from some missteps along the way - adding to POT as it dropped into the high 20s thinking that was a good point to average down for example - but they are probably an essential part of the learning process.

Thanks for keeping us up-to-date on your progress.
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Feb 26, 2017
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Recently I've started comparing my returns to a CCP style portfolio of Canada, International and bonds (40% vxc, 40% vcn & 20 vab). I've only done it for 2017 YTD and I probably picked the wrong time frame as its beating me so far 6.5% to 3.2% :). I own index funds in my work RRSP match as well as my kids RESPs.

I enjoy researching and picking stocks and I tend to lean towards dividend growth stocks. I think as long as I continue to enjoy investing (hopefully I don't have to many more HCGs) and my returns are alright I'll continue to do my own investing.
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It doesn't matter if you index or are an active investor. I myself do a bit of both. To my mind it matters more that you can save, invest and re-invest over the long term. If you can't save then you're not going to get anywhere.

I remember a few years ago Jason Zweig who's an avowed index investor himself had this to say.

"I once interviewed dozens of residents in Boca Raton, one of Florida's richest retirement communities. Amid the elegant stucco homes, the manicured lawns, the swaying palm trees, the sun and sea breezes, I asked these folks - mostly in their seventies - if they'd beaten the market over the course of their investing lifetimes. Some said yes, some said no. Then one man said, "Who cares? All I know is my investments earned enough for me to end up in Boca."
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Stryker wrote:
May 15th, 2017 9:10 am
It doesn't matter if you index or are an active investor. I myself do a bit of both. To my mind it matters more that you can save, invest and re-invest over the long term. If you can't save then you're not going to get anywhere.

I remember a few years ago Jason Zweig who's an avowed index investor himself had this to say.

"I once interviewed dozens of residents in Boca Raton, one of Florida's richest retirement communities. Amid the elegant stucco homes, the manicured lawns, the swaying palm trees, the sun and sea breezes, I asked these folks - mostly in their seventies - if they'd beaten the market over the course of their investing lifetimes. Some said yes, some said no. Then one man said, "Who cares? All I know is my investments earned enough for me to end up in Boca."
Yeah in the end it's income and savings rate which drive most of the wealth generation. There are a lot of really rich old retired people who invested in nothing but GICs their whole lives.
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Stryker wrote:
May 15th, 2017 9:10 am
It doesn't matter if you index or are an active investor
My opinion is that index investing is active investing. It's just less active than actively managed funds.
The index constantly kicks companies out and replaces them with others.

To me, buy and hold DGI is much closer in form to true passive investing than index investing is / will ever be.

I'm sure lots of index bandwagoners will disagree but I'm fairly certain my turnover rate is substantially lower than the turnover of the index fund over the last decade.
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fogetmylogin wrote:
May 15th, 2017 10:08 am
Yeah in the end it's income and savings rate which drive most of the wealth generation. There are a lot of really rich old retired people who invested in nothing but GICs their whole lives.
Income and savings certainly helps, particularly in the early years - one needs the discipline in order to start building wealth. The problem is that we are taxed so heavily with employment income that it's very difficult to get your savings to compound. To generate true wealth (I know its a relative term, but what I mean is well into the 7 digit territory) one has to have some type of investing strategy, whether through capital markets or real estate. Income and savings are simply not enough.
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STP123 wrote:
May 15th, 2017 11:58 am
Income and savings certainly helps, particularly in the early years - one needs the discipline in order to start building wealth. The problem is that we are taxed so heavily with employment income that it's very difficult to get your savings to compound. To generate true wealth (I know its a relative term, but what I mean is well into the 7 digit territory) one has to have some type of investing strategy, whether through capital markets or real estate. Income and savings are simply not enough.
As long as you can keep up with inflation savings along can get to to the elusive 7 figures. Save $50k a year for 20 years and done. You need a family income of about $200k to make this realistic and of course you need to live well below your means but still on a budget that is well above the Canadian average. Maxing out RRSP and with some other deductions and you will pay about $30k in taxes (assumes aprox equal salaries). I am not sure that is excessive.
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fogetmylogin wrote:
May 15th, 2017 12:40 pm
As long as you can keep up with inflation savings along can get to to the elusive 7 figures. Save $50k a year for 20 years and done. You need a family income of about $200k to make this realistic and of course you need to live well below your means but still on a budget that is well above the Canadian average. Maxing out RRSP and with some other deductions and you will pay about $30k in taxes (assumes aprox equal salaries). I am not sure that is excessive.
The way I look at it is investing properly vs not properly affects whether your lifestyle can be potentially upgraded, or you are forced to downgrade it to make ends meet. Not saying there is anything wrong with living on less, just that it is necessary to make the math work. I think this is true no matter how much you make, whether its $500K a year, or $50K a year.

The person earning $50K in their working years , who invested wisely, could retire and live life like someone who earns $100K.
The person earning $500K in their working years, who stuck all their money in GICs, may retire and have to live like someone who also made $100K.

Both might be able to afford that luxurious Florida retirement home, but while that $50K person probably feels like he's living like a king, the $500K person might need to get accustomed to living just like an ordinary well off person instead of the 0.5%.

Is that justification enough to be satisfied with savings/GICs? Definitely not for me.
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fogetmylogin wrote:
May 15th, 2017 12:40 pm
As long as you can keep up with inflation savings along can get to to the elusive 7 figures. Save $50k a year for 20 years and done. You need a family income of about $200k to make this realistic and of course you need to live well below your means but still on a budget that is well above the Canadian average. Maxing out RRSP and with some other deductions and you will pay about $30k in taxes (assumes aprox equal salaries). I am not sure that is excessive.
Yes, it can be done. Here is an extreme example: http://www.millennial-revolution.com/ . High salary, great savers, perhaps not-so-good investors. But you have to be very disciplined and earn a high salary.

What really inspired me years ago was a case study I read in a personal finance magazine (Moneysense?) of a Canadian farmer who never made more than $50,000 / year who ended up retiring at 51 with a nest-egg of 2.5 million. He used a dividend-based approach with core holdings of high yielding stocks and dividend growing Canadian blue chips. Most of his gains were outside registered accounts simply because his investment wealth outgrew what he could put into RRSPs, with his modest income. From personal experience, I found my personal net worth really took off after taking a similar approach, ditching first mutual funds and then swapping out of index funds and into a dividend based investing approach. I believe everyone can find their own strategy that he/she is comfortable with. I have no doubt that Treva will be a very wealthy person when decides to call it a career because he possesses such discipline and has the ability to turn his earnings into a wealth building machine.

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