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
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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?
Just with excel. Easy. Money goes in the box. Money goes out the box. Start and end totals. That's it. Don't know any other programs that do it. It's very worth it to ensure you know you're proper returns of your entire portfolio if you're doing this yourself. For investors that devote hours picking stocks and doing research, I don't understand how a couple of minutes of putting some data in returns spreadsheet is a big deal. Once you keep track, moving along its low maintenance. In fact, this is actually necessary in order to measure your performance.
treva84 wrote: 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.


Was talking about portfolio recovery, and the effect it can have on your CAGR. Bonds have a very important utility in a portfolio. Because losses and gains are not equal, they help you during and after market crashes.

For example:

Using couch potato and "worse case" example, investor (starting 2007), it took 7 years to come back with 100% equity portfolio. It took investor 6 years with 25% bonds to come back. It took investor 4 years?to come back with traditional 40%bond /60% equity split. Now, if investor rebalanced bonds aggressive into 100% equity after market crash, the recovery would be 1-2 years, pulling much higher CAGR out into the bull market. (with MUCH less risk)

Another interesting look: It took 100% equity investor over 10 years since 2007 to beat investor with 25% bonds. And the difference today is only beating by total 1.04%, (not annual)

The 20 year CAGR of couch potato with 10% bonds is 6.63%, with 25% bonds its 6.63%. (same return, lower risk with 25% bonds!)

XBB has a 5.44% annual return since inception, (nov 2000), not plarty return (a double and a half), and that came with low risk. But the real utility bonds held in your portfolio has more value than that. (sleep at night, hold value, something to rebalance etc)

Bonds are still correlated. Using e-series again, it was up 5.66% in 2008 while everything else had crashed.

So what this has shown, is adding certain mix of bonds to stocks can lower volitility of portfolio, smooth returns and help deliver similar return. (with lower risk)


treva84 wrote: 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.


If your returns are correct +48% (as shown by TD Waterhouse screenshot since 2012), comparing to an "all equity" couch potato shows you might have underperformed by a lot. The total return is 109% as of 2012. Does your waterhouse include all your accounts?
treva84 wrote: 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?
You might enjoy stock picking but if there is an approach that is less risk that can make more, might be something to seriously consider.
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May 31, 2007
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STP123 wrote:
May 16th, 2017 12:34 am
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
Those are really high returns. Do you sell any stocks or just add to existing? What is your current portfolio now?
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Jul 23, 2007
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Jungle wrote:
May 15th, 2017 2:56 pm
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.
People can pick stocks or not pick stocks, it's up to them. All I know is at some point I'll either be adding to a stock I already have in the non-registered portfolio or buying a new equity that I don't at present own.

Just like in the past, I expect to see other company failures in Canada moving forward. It's just part of the process.
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May 25, 2008
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Jungle wrote:
May 16th, 2017 1:22 am
Those are really high returns. Do you sell any stocks or just add to existing? What is your current portfolio now?
Most of the stocks bought in 2008/2009 I still have: BCE, IPL, SRU.UN, KEY, etc. I also bought a lot of Canadian perpetual preferred shares that I have completely turned over. The gains in 2016 were largely due to taking advantage of the collapse in the Canadian rate-reset preferred share market. I'm selling these off now as they approach par, but the process will probably take another couple of years because interest rates have pretty much stalled. I will always maintain a core holding of Canadian blue chip dividend growers like the banks, pipelines/midstream, Reits and utilities and will continue to add to these when prices drop.
Last edited by STP123 on May 16th, 2017 8:18 am, edited 1 time in total.
[OP]
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Nov 9, 2013
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@Jungle , I started buying US equities in my RRSP last year, and as I mentioned I don't hold any international equities, so I can't compare my returns to a strategy to an index since 2012 as it's apples to orange. The TDDI account is my TFSA (Canadian equity only).

@STP123 do you hold bonds? If not, what was your experience during 2008 / 2009?
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treva84 wrote:
May 16th, 2017 8:34 am
@Jungle , I started buying US equities in my RRSP last year, and as I mentioned I don't hold any international equities, so I can't compare my returns to a strategy to an index since 2012 as it's apples to orange. The TDDI account is my TFSA (Canadian equity only).

@STP123 do you hold bonds? If not, what was your experience during 2008 / 2009?
I hold very few bonds and all are in my registered accounts, obviously for tax reasons: BCE strips, Manulife bonds and PH&N actively managed high yield / junk bond fund. Most of my fixed income are held in my employer DC/DB pension fund, which allows me to take more risk with my personal portfolio.

My experience in 2008/2009 was one initially of terror. My portfolio dropped in six-digit paper losses. I did however hold alot of cash at the time and this was used to buy up as much high yielding stocks as possible and it paid off. All my losses were regained by Sept. 2009 and continued to climb. It was basically a generational opportunity. In fact, I'll probably never see those valuations again in my lifetime.
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Feb 26, 2017
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STP123 wrote:
May 16th, 2017 8:18 am
Most of the stocks bought in 2008/2009 I still have: BCE, IPL, SRU.UN, KEY, etc. I also bought a lot of Canadian perpetual preferred shares that I have completely turned over. The gains in 2016 were largely due to taking advantage of the collapse in the Canadian rate-reset preferred share market. I'm selling these off now as they approach par, but the process will probably take another couple of years because interest rates have pretty much stalled. I will always maintain a core holding of Canadian blue chip dividend growers like the banks, pipelines/midstream, Reits and utilities and will continue to add to these when prices drop.
Those are impressive returns STP. IPL and KEY were two of the 3 first stocks I bought when I started my RRSP again in 2010 (I cashed it out for the HBP in 2007).
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Chance7652 wrote:
May 16th, 2017 9:05 am
Those are impressive returns STP. IPL and KEY were two of the 3 first stocks I bought when I started my RRSP again in 2010 (I cashed it out for the HBP in 2007).
Yes, IPL and KEY were both purchased with initial yields around 11%+. So you have capital appreciation + high yield + dividend growth. The resulting total return since purchase put these investments around 20 - 25% annualized.
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Aug 4, 2014
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I think that in addition to total returns and asset allocation, it’s important to consider all other factors, like portfolio size, frequency and size of contributions, commissions at one’s broker and taxation (could be more, but that’s what influenced my decision :))

For example, in our case:

1) As portfolio size increases from 500K to 1M, I decided to gradually decrease Canadian equities portion (used to be 28%, now 19%, target 10%) by replacing some Canadian stocks with bonds in registered accounts and moving Canadian equities portion to non-reg account. 10% of a million is only 100K - not enough for a proper diversification IMO.

2) We add 5.5K per year to TFSAs, plan to add 5-10K a few times a year to the non-reg. We’re with Questrade, where adding to ETFs is free, but buying individual stocks would cost $5-10 per trade (and on these amounts stock commissions would be higher than MERs of the ETFs)

3) We both have group RRSPs, and still sizeable unused RRSP contribution room from previous years which we plan to use up by the end of next year. My husband’s portion will all go into GICs (Spousal RRSP at People’s Trust) and mine into US and International equities.

4) We’re both in high tax brackets, so paying taxes on dividends every year in the non-reg would cost us more than having HXT in there and only paying capital gains when we sell (when our incomes are much lower) If I stop working before my husband does, I’ll reconsider dividend investing with “a loan” from him :)

So I guess portfolio reconstruction became my new “sweater” as it took a lot of reading and analyzing.. :)
Deal Addict
May 31, 2007
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STP123 wrote:
May 16th, 2017 8:18 am
Most of the stocks bought in 2008/2009 I still have: BCE, IPL, SRU.UN, KEY, etc. I also bought a lot of Canadian perpetual preferred shares that I have completely turned over. The gains in 2016 were largely due to taking advantage of the collapse in the Canadian rate-reset preferred share market. I'm selling these off now as they approach par, but the process will probably take another couple of years because interest rates have pretty much stalled. I will always maintain a core holding of Canadian blue chip dividend growers like the banks, pipelines/midstream, Reits and utilities and will continue to add to these when prices drop.
When you add money to stocks that are on sale, how much are you adding relative to the size of your portfolio?

I did the same thing in 2010 and 2011, but more like double/triple down, what this did was boost xirr, I believe 2011 beat tsx by 16%. But this would explain why your returns so high via irr, they are highly unusual. It requires large contributions.

I admit it did feel scary dumping so much in when stocks were down so much. (Ry 42, enb 29, Cnr 31 etc)
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May 31, 2007
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treva84 wrote:
May 16th, 2017 8:34 am
@Jungle , I started buying US equities in my RRSP last year, and as I mentioned I don't hold any international equities, so I can't compare my returns to a strategy to an index since 2012 as it's apples to orange. The TDDI account is my TFSA (Canadian equity only).

@STP123 do you hold bonds? If not, what was your experience during 2008 / 2009?
The point is by not being balanced and diversified, you have missed out on about 60% gains in a comparable all equity couch potato with less risk. On a dollar basis this might have been very costly loss opportunity.

you wil need huge returns like stp to catch up. Based on performance from other threads, investors, studies, this maybe very unlikely.

How much was HCG % relative to you portfolio?
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May 31, 2007
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freilona wrote:
May 16th, 2017 11:34 am
I think that in addition to total returns and asset allocation, it’s important to consider all other factors, like portfolio size, frequency and size of contributions, commissions at one’s broker and taxation (could be more, but that’s what influenced my decision :))

For example, in our case:

1) As portfolio size increases from 500K to 1M, I decided to gradually decrease Canadian equities portion (used to be 28%, now 19%, target 10%) by replacing some Canadian stocks with bonds in registered accounts and moving Canadian equities portion to non-reg account. 10% of a million is only 100K - not enough for a proper diversification IMO.

2) We add 5.5K per year to TFSAs, plan to add 5-10K a few times a year to the non-reg. We’re with Questrade, where adding to ETFs is free, but buying individual stocks would cost $5-10 per trade (and on these amounts stock commissions would be higher than MERs of the ETFs)

3) We both have group RRSPs, and still sizeable unused RRSP contribution room from previous years which we plan to use up by the end of next year. My husband’s portion will all go into GICs (Spousal RRSP at People’s Trust) and mine into US and International equities.

4) We’re both in high tax brackets, so paying taxes on dividends every year in the non-reg would cost us more than having HXT in there and only paying capital gains when we sell (when our incomes are much lower) If I stop working before my husband does, I’ll reconsider dividend investing with “a loan” from him :)

So I guess portfolio reconstruction became my new “sweater” as it took a lot of reading and analyzing.. :)
After a few years I found it was much easier just to keep every account balanced. We also have 8 accounts and it is just so much easier for contributions, allocation and rebalance.

Since 2008 the s&p 500 in cad has provided most of the return in couch potato it went up more than 4 fold.
Tax efficient advice on the internet told you to put this in your rsp with usd listed fund. Well thanks to that investors may have substantially larger rsp vs tfsa, etc and pay more tax upon rsp withdraw. So much for tax efficient accounts I'm not sold on it.

I believe growth is better balanced across all accounts.

You are correct to use horizon fund in non reg the dividend tax can add up based on income and also reduce social benefits because clawback is based on 38% gross up!
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Dec 11, 2007
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Markham
Our portfolio which focuses on a ultra high quality + dividend growth has similar results to STP123's since 2009

2009: +19.80%
2010: +11.25%
2011: +7.97%
2012: +13.71%
2013: +36.68%
2014: +21.44%
2015: +13.22%
2016: +17.40%

CAGR of 17.4% per year

Benchmark (adjusted for FX) is up 14.36% so we got about 3% of out-performance vs the index.
Most importantly, the portfolio declined less than the indices during 2008 (-15.8% vs -18.8% in the benchmark) and I expect it to do just as well during the next recession. It was somewhat tested in the 2015-2016 industrial/earnings recession and came out pretty well.

This might surprise some people, but the results were achieved without any of the high flying tech stocks (no AAPL, no GOOG, no AMZN, no FB, etc).

The most important thing to us is safety and income growth and that's what we focus on.
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Jungle wrote:
May 16th, 2017 1:48 pm
When you add money to stocks that are on sale, how much are you adding relative to the size of your portfolio?

I did the same thing in 2010 and 2011, but more like double/triple down, what this did was boost xirr, I believe 2011 beat tsx by 16%. But this would explain why your returns so high via irr, they are highly unusual. It requires large contributions.

I admit it did feel scary dumping so much in when stocks were down so much. (Ry 42, enb 29, Cnr 31 etc)
To get outsized returns, I will go overweight on a position sometimes in the order of 10-15% of my total portfolio. For example, the Canadian preferred share market is notoriously inefficient and I know I can capitalize on opportunities where I believe the market is undervalued. In 2009, investment grade Brookfield prefs were trading as low as 30cents to the dollar with yields up to 25%. I backed up the truck on these up to about 15% of my total portfolio and was rewarded handsomely by them. Similarly in 2016, Veresen, Capital Power, Husky, Enbridge, AIM and PWF prefs were all trading at huge discounts with outsized yields - knowing that the risk-return profile was heavily tipped in my favour. They have since returned in the 30-70% range. I would say I was up to almost 50% of my portfolio with these prefs. How many investors do you know will go up to 50% on prefs? So yes, highly unusual. Added to this, pickups on NA, TRP, ENB, RY, TD commons that were on sale in 2016 (good buys, but not as good as 2009) you have the recipe for outsized returns. If you look at my returns in the years other than 2009 and 2016, pretty normal, because the opportunities to buy at discounts were not there.
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May 31, 2007
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Cerenity wrote:
May 16th, 2017 2:17 pm
Our portfolio which focuses on a ultra high quality + dividend growth has similar results to STP123's since 2009

2009: +19.80%
2010: +11.25%
2011: +7.97%
2012: +13.71%
2013: +36.68%
2014: +21.44%
2015: +13.22%
2016: +17.40%

CAGR of 17.4% per year

Benchmark (adjusted for FX) is up 14.36% so we got about 3% of out-performance vs the index.
Most importantly, the portfolio declined less than the indices during 2008 (-15.8% vs -18.8% in the benchmark) and I expect it to do just as well during the next recession. It was somewhat tested in the 2015-2016 industrial/earnings recession and came out pretty well.

This might surprise some people, but the results were achieved without any of the high flying tech stocks (no AAPL, no GOOG, no AMZN, no FB, etc).

The most important thing to us is safety and income growth and that's what we focus on.
Very impressive thanks for sharing. Do you also make large contribution when stocks are cheap? Do you have a system of when to put money in?valuation

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