Investing

This is why I index

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  • Jun 12th, 2017 9:04 am
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Deal Addict
May 31, 2007
3922 posts
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Stryker wrote:
May 15th, 2017 8:31 am
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.
A good point I read about this stock, is if there is any reason why (we) should not be picking stocks, this is it. (HCG) because You never really know what's going on in the boardroom, and investors are always the ones to lose.

Like you said, there has been many examples of this over the years.
Deal Addict
May 31, 2007
3922 posts
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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...
What is your total asset allocation %?

Fixed income (bonds, cash, GIC, etc)
Cad equity
Us Equity
International Equity

Have you compared your returns when you started to couch potato with similar allocation to fixed income?

For example, an all equity couch potato since 2008 returns are quite high. And no stock picking so adjusted risk is WAY less.

I will continue discussion with my point of view.
[OP]
Deal Addict
Nov 9, 2013
1674 posts
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Edmonton, AB
STP123 wrote:
May 15th, 2017 1:15 pm

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.
I totally agree - it's all about being honest with yourself and comfortable with the approach you take.

Thank you for the kind words!
[OP]
Deal Addict
Nov 9, 2013
1674 posts
514 upvotes
Edmonton, AB
Jungle wrote:
May 15th, 2017 3:57 pm
What is your total asset allocation %?

Fixed income (bonds, cash, GIC, etc)
Cad equity
Us Equity
International Equity

Have you compared your returns when you started to couch potato with similar allocation to fixed income?

For example, an all equity couch potato since 2008 returns are quite high. And no stock picking so adjusted risk is WAY less.

I will continue discussion with my point of view.
My asset allocation is about 50% Canadian stocks and 50% US stocks. They are held in different accounts. The graphs for the results are shown from my Canadian account, and the data is a bit better as I have been picking stocks for a longer period of time.

I've been holding my US picks for just over a year now. My annualized TTM returns for my US picks are 18%, which is in line with the index (~ 17% TTM as per YCharts data). Of note, the major drivers of the S&P 500 return in the last 12 months of the US index were Amazon, Facebook, Microsoft, Google and Apple - I only own Apple.

Outside of my daughters RESP I do not have any fixed income. Outside of my daughters RESP I do not have any international equity exposure.

I cannot compare my returns to an over arching indexing strategy because I hold no fixed income and I hold no international equities. Therefore I can only compare to an index of Canadian stocks and US stocks.
Deal Addict
May 31, 2007
3922 posts
997 upvotes
treva84 wrote:
May 15th, 2017 4:32 pm
My asset allocation is about 50% Canadian stocks and 50% US stocks. They are held in different accounts. The graphs for the results are shown from my Canadian account, and the data is a bit better as I have been picking stocks for a longer period of time.

I've been holding my US picks for just over a year now. My annualized TTM returns for my US picks are 18%, which is in line with the index (~ 17% TTM as per YCharts data). Of note, the major drivers of the S&P 500 return in the last 12 months of the US index were Amazon, Facebook, Microsoft, Google and Apple - I only own Apple.

Outside of my daughters RESP I do not have any fixed income. Outside of my daughters RESP I do not have any international equity exposure.

I cannot compare my returns to an over arching indexing strategy because I hold no fixed income and I hold no international equities. Therefore I can only compare to an index of Canadian stocks and US stocks.
Do you own any passive ETFs?
What percentage of your entire portfolio is stock picking and what percentage is passive ETF? (or you all stocks?)
[OP]
Deal Addict
Nov 9, 2013
1674 posts
514 upvotes
Edmonton, AB
Jungle wrote:
May 15th, 2017 7:03 pm
Do you own any passive ETFs?
What percentage of your entire portfolio is stock picking and what percentage is passive ETF? (or you all stocks?)
100% stocks, no ETFs.
Deal Addict
May 31, 2007
3922 posts
997 upvotes
treva84 wrote:
May 15th, 2017 7:17 pm
100% stocks, no ETFs.
You should compare to an all equity couch potato. Since this is the "do nothing" protfolio, if you can't beat it, what's the point? Plus your taking on so much more risk stock picking than using index funds. How would you feel if this portfolio was beating you or was very close? With one bad stock pick away, would it be worth it?

Have you tracked your returns with XIRR? Don't trust what brokerage says.
Compare to this all equity e-series when you started. This is not easy to beat over a long time and requires no effort. Just stay the course.

2009 +16.98%
2010 +9.08%
2011 -4.94%
2012 +11.65%
2013 +27.52%
2014 +11.93%
2015 +10.36%
2016 +8.48
2017 YTD +9.51%

Also when stock market crashes you are going to get slaughtered with no bonds. At 100% equity this will really lower your CAGR and may take much longer to recover compared to a portfolio with bonds. Plus bonds, you can also rebalance after a market crash and come out (even) more ahead and recover faster. This will put your CAGR ahead for a few years @ less risk. Plus sleep at night factor is a bonus.
Jr. Member
Feb 26, 2017
136 posts
32 upvotes
Jungle wrote:
May 15th, 2017 7:37 pm
You should compare to an all equity couch potato. Since this is the "do nothing" protfolio, if you can't beat it, what's the point? Plus your taking on so much more risk stock picking than using index funds. How would you feel if this portfolio was beating you or was very close? With one bad stock pick away, would it be worth it?

Have you tracked your returns with XIRR? Don't trust what brokerage says.
Compare to this all equity e-series when you started. This is not easy to beat over a long time and requires no effort. Just stay the course.

2009 +16.98%
2010 +9.08%
2011 -4.94%
2012 +11.65%
2013 +27.52%
2014 +11.93%
2015 +10.36%
2016 +8.48
2017 YTD +9.51%

Also when stock market crashes you are going to get slaughtered with no bonds. At 100% equity this will really lower your CAGR and may take much longer to recover compared to a portfolio with bonds. Plus bonds, you can also rebalance after a market crash and come out (even) more ahead and recover faster. This will put your CAGR ahead for a few years @ less risk. Plus sleep at night factor is a bonus.
Why don't you trust the rate of return from your brokerage? I'm all for spread sheets but this just seems like a lot of extra work when the returns from your brokerage should be accurate.

With TDDI there is a time weighted rate of return then a personal rate of return. The time weighted is average for each year while personal rate of return factors in the contributions/withdraws and the amounts in the account.
[OP]
Deal Addict
Nov 9, 2013
1674 posts
514 upvotes
Edmonton, AB
Jungle wrote:
May 15th, 2017 7:37 pm
You should compare to an all equity couch potato. Since this is the "do nothing" protfolio, if you can't beat it, what's the point? Plus your taking on so much more risk stock picking than using index funds. How would you feel if this portfolio was beating you or was very close? With one bad stock pick away, would it be worth it?

Have you tracked your returns with XIRR? Don't trust what brokerage says.
Compare to this all equity e-series when you started. This is not easy to beat over a long time and requires no effort. Just stay the course.

2009 +16.98%
2010 +9.08%
2011 -4.94%
2012 +11.65%
2013 +27.52%
2014 +11.93%
2015 +10.36%
2016 +8.48
2017 YTD +9.51%

Also when stock market crashes you are going to get slaughtered with no bonds. At 100% equity this will really lower your CAGR and may take much longer to recover compared to a portfolio with bonds. Plus bonds, you can also rebalance after a market crash and come out (even) more ahead and recover faster. This will put your CAGR ahead for a few years @ less risk. Plus sleep at night factor is a bonus.
I used to do it by hand but I found it too tedious so I stopped. How do you track your XIRR? Do you know of any third party programs that do? I've been playing with Wealthica which is essentially portfolio Mint but then you still run into the issues that you'd have with Mint (i.e. if money goes POOF bank says "well you shouldn't have given any third party your password dummy!").

I do agree that drawdown will be an issue with the next major crash. I disagree that holding bonds is the best way to mitigate this. Bonds and stocks have been highly correlated in their movement since ~ 2000, so holding bonds doesn't guarantee much, other than paltry returns.

The way I try to limit my draw down is by being strict about the valuation at which I buy a stock. If I buy when it's undervalued I should have less draw down when the market crashes. Also I regularly add money to my account and I hold cash, so I can keep buying as things go lower. This will help limit my short term draw down while maximizing long term returns (it's like dollar cost averaging).

You can see evidence of this if you look at my longer term returns chart - when the rate of return for the broad index dropped between Dec 2014 and Dec 2015 I dropped a little then resumed my upward trajectory as I continued to buy stocks. Of course, the real test will be during the next bear market - we'll see how I do then.

With respect to risk, it all depends on what our definition of risk is. If we define risk as losing money, I don't think stock picking is risky. I believe I have a decent vetting process that allows me to generally pick long term winners. I won't get every one right - no one can. As long as I get the majority right I'll be ok. Also consider this - indexing is immensely popular, and every time someone buys the index it increases the market cap of the top stocks. If the earnings stay the same (and why would they increase if people buy the stock?) the P/E expands with increasing prices, driving up valuations. So in essence as money flows in, you get less and less of a good deal. Eventually, you're buying the most expensive stocks, while everyone else is rushing to buy them. Prices keep going up, everyone feels good, money keeps flowing in, prices keep going up, everyone keeps feeling good. Does that not sound risky to you?

Also with respect to your is it worth the time comment, @freilona made a great point with her sweater analogy - sure, she could spend 100 hours knitting a sweater or she could just go out and buy one. Although going out and buying one is easy, is knitting it automatically bad, if it's her hobby and she enjoys doing it?
Deal Addict
May 31, 2007
3922 posts
997 upvotes
Chance7652 wrote:
May 15th, 2017 8:50 pm
Why don't you trust the rate of return from your brokerage? I'm all for spread sheets but this just seems like a lot of extra work when the returns from your brokerage should be accurate.

With TDDI there is a time weighted rate of return then a personal rate of return. The time weighted is average for each year while personal rate of return factors in the contributions/withdraws and the amounts in the account.
If this is accurate then I guess, but has anyone verified what they report is accurate to XIRR? ( I don't use TD )

However their return doesn't blend spousal accounts. A BIG XIRR of all accounts blended will show total return as one big portfolio. (especially if accounts have different weighting)
This is worth it. This stuff is really important. Best not to pretend or lie to yourself.
Sr. Member
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Aug 4, 2014
958 posts
151 upvotes
Toronto, ON
treva84 wrote:
May 15th, 2017 9:43 pm
I used to do it by hand but I found it too tedious so I stopped. How do you track your XIRR? Do you know of any third party programs that do?
I'm using bogleheads spreadsheet that Deepwater recommended. Took some time to fill up for previous two years (for 5 Questrade accounts - 2 RRSPs, 2 TFSAs and Joint Margin + People's Trust Spousal RRSP with GICs), but since then just updating it once a month along with rebalancing spreadsheet, doesn't take that long :)
[OP]
Deal Addict
Nov 9, 2013
1674 posts
514 upvotes
Edmonton, AB
Jungle wrote:
May 15th, 2017 9:59 pm
If this is accurate then I guess, but has anyone verified what they report is accurate to XIRR? ( I don't use TD )

However their return doesn't blend spousal accounts. A BIG XIRR of all accounts blended will show total return as one big portfolio. (especially if accounts have different weighting)
This is worth it. This stuff is really important. Best not to pretend or lie to yourself.
I completely agree.
freilona wrote:
May 15th, 2017 10:16 pm
I'm using bogleheads spreadsheet that Deepwater recommended. Took some time to fill up for previous two years (for 5 Questrade accounts - 2 RRSPs, 2 TFSAs and Joint Margin + People's Trust Spousal RRSP with GICs), but since then just updating it once a month along with rebalancing spreadsheet, doesn't take that long :)
Thanks for the suggestion - I will check this out.
Jr. Member
Feb 26, 2017
136 posts
32 upvotes
Jungle wrote:
May 15th, 2017 9:59 pm
If this is accurate then I guess, but has anyone verified what they report is accurate to XIRR? ( I don't use TD )

However their return doesn't blend spousal accounts. A BIG XIRR of all accounts blended will show total return as one big portfolio. (especially if accounts have different weighting)
This is worth it. This stuff is really important. Best not to pretend or lie to yourself.
I'll have to let someone else answer if the TDDI personal rate of return is accurate to XIRR.

The multiple accounts is an issue to calculate the return. Most of my funds are in one of the three accounts I track. I take the personal rate of return and weight it by the current amount in the account. Its not 100% but I find it pretty accurate.
Jr. Member
Feb 26, 2017
136 posts
32 upvotes
freilona wrote:
May 15th, 2017 10:16 pm
I'm using bogleheads spreadsheet that Deepwater recommended. Took some time to fill up for previous two years (for 5 Questrade accounts - 2 RRSPs, 2 TFSAs and Joint Margin + People's Trust Spousal RRSP with GICs), but since then just updating it once a month along with rebalancing spreadsheet, doesn't take that long :)
The spreadsheet doesn't look as intimidating as I expected. I have no idea how I would calculate a USD account with that. I can't really argue that you should have accurate information when investing.
Deal Addict
User avatar
May 25, 2008
1062 posts
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Jungle wrote:
May 15th, 2017 7:37 pm
You should compare to an all equity couch potato. Since this is the "do nothing" protfolio, if you can't beat it, what's the point? Plus your taking on so much more risk stock picking than using index funds. How would you feel if this portfolio was beating you or was very close? With one bad stock pick away, would it be worth it?

Have you tracked your returns with XIRR? Don't trust what brokerage says.
Compare to this all equity e-series when you started. This is not easy to beat over a long time and requires no effort. Just stay the course.

2009 +16.98%
2010 +9.08%
2011 -4.94%
2012 +11.65%
2013 +27.52%
2014 +11.93%
2015 +10.36%
2016 +8.48
2017 YTD +9.51%

Also when stock market crashes you are going to get slaughtered with no bonds. At 100% equity this will really lower your CAGR and may take much longer to recover compared to a portfolio with bonds. Plus bonds, you can also rebalance after a market crash and come out (even) more ahead and recover faster. This will put your CAGR ahead for a few years @ less risk. Plus sleep at night factor is a bonus.
I'll compare those numbers to my main non-registered Canadian cash account. There are no ETFs or bonds, just dividend payers and preferred shares I picked myself - it is not a small account but generates enough income for me to live on, although I still work, I just reinvests the income and it compounds like wildfire:

2009: +44.59%
2010: +20.49%
2011: +0.23%
2012: +13.08%
2013: +14.76%
2014: +9.41%
2015: -6.70%
2016: +40.11
2017: +12.79% YTD
2009 - 2017: 15.94% by Quicken IRR calculations.

I'm just presenting another side for Treva's consideration. There is effort involved and he is not wasting his time. With dividend payers, a crash is an opportunity to load up more and reinvest at lower prices (example: 40%+ returns in 2009 and 2016 from loading up after crashes - that is what active investing allows you to do). I swapped out of index / etf's 10 years ago and haven't looked back

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