Investing

This is why I index

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  • Jun 12th, 2017 9:04 am
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Dec 11, 2007
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Markham
Jungle wrote:
May 16th, 2017 2:41 pm
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
We pool dividends and new money and buy as opportunities come up. But generally we don't keep large quantities of cash and prefer to invest in whatever is fairly valued or better at the time. If nothing is available for a discount, we'll buy the highest quality companies that we already own up to certain point. We're not looking to smack home runs, just consistently churn out singles and doubles and minimize strike outs. Sometimes you get lucky and get a home run anyways :)


edit: Just want to add. Outperformance is actually not a main criteria of ours. Its nice and makes you feel good, but the important thing for us is income growth. Outperformance just happened to come with the companies that are the safest and grow their dividends consistently. We want to retire early, and to do that we need income replacement. Not the high yield questionable growth/sustainability stuff from unit trusts and what not, but solid income growth from the best companies in the world that sell things people need in good times or bad.
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May 25, 2008
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Same with Cerenity, I invest for the growth of income. It could be the result of dividend growth or trading into higher yielding opportunities due to weakness in the markets.
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Jungle wrote:
May 16th, 2017 2:12 pm

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!
I agree that grossed up dividends will result in clawbacks. From projected income when we could collect we won't be eligible base on the dividend and pension income we should be getting by that point - it will likely be clawed back significantly. I see it as a nice problem to have. As a strategy that has worked, I'm not going to change it to make ourselves eligible for payments that we will far exceed should we stay on course.
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Nov 4, 2007
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Cerenity wrote:
May 16th, 2017 3:02 pm
We pool dividends and new money and buy as opportunities come up. But generally we don't keep large quantities of cash and prefer to invest in whatever is fairly valued or better at the time. If nothing is available for a discount, we'll buy the highest quality companies that we already own up to certain point. We're not looking to smack home runs, just consistently churn out singles and doubles and minimize strike outs. Sometimes you get lucky and get a home run anyways :)


edit: Just want to add. Outperformance is actually not a main criteria of ours. Its nice and makes you feel good, but the important thing for us is income growth. Outperformance just happened to come with the companies that are the safest and grow their dividends consistently. We want to retire early, and to do that we need income replacement. Not the high yield questionable growth/sustainability stuff from unit trusts and what not, but solid income growth from the best companies in the world that sell things people need in good times or bad.
Do you mind sharing your current portfolio?
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Aug 4, 2014
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Jungle wrote:
May 16th, 2017 2:12 pm
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.
Well we have everything everywhere now, and TFSAs contributions are much smaller than RRSP ones now and non-reg in the future (at least while we keep investing 100K+ per year) I just don't want to have Canadian equities in RRSPs where they'll be taxed the worst when we retire, but when we started - we didn't have anywhere else to put them :) But TFSAs will continue to be all 3 groups of equities, Canadian, US and International, as a few smart people pointed out - no one knows which one will grow the most.
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Dec 11, 2007
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kasm wrote:
May 16th, 2017 4:21 pm
Do you mind sharing your current portfolio?
Healthcare: Johnson & Johnson, UnitedHealth, Abbott Labs
Consumer Staples: Coca Cola, Philip Morris, Hershey, Unilever
Consumer Discretionary: Disney, Nike, Tiffany
Telecom: Telus, AT&T, Rogers
Industrials: CN Rail, Boeing, United Technologies
Financials: TD, Scotiabank, Bank of America (spec)
Energy: Exxon Mobil, Enbridge, TransCanada, Kinder Morgan (spec), Suncor (spec)
Tech: Visa, IBM
Utilities: Southern, Hydro One
[OP]
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Jungle wrote:
May 16th, 2017 1:55 pm
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?
You are talking about the opportunity cost (i.e. by doing one thing, I missed another) - I understand what you are saying.

The other consideration is I didn't have the capital at the start that I do now, and my capital continues to grow with time. What I mean is I didn't start with a massive pile of cash and invest it all at once. Instead, I save money every month and the buy here and there. It's a slow trickle of water that will hopefully fill the bath tub with time - I am not starting with the full bath tub. I can only track my picks from the time I have been investing in stocks. Although I am also constantly adding to my new pool of capital every month, but not necessarily buying stocks every month.

Essentially my goal is to do what @Cerenity and @STP123 demonstrate they are capable of doing. Of note I have been in the game for far less time, have far less experience, and I had no money in the markets during the bottom of the bear market in 2009 (I actually had negative net worth at that time!). I wasn't actually even interested in investing at that time as I was tied up with other things.

Again, the first major bear market will either make or break this strategy. If I let emotions control me and act out of fear I'm doomed. If I can keep a level head and aggressively buy - like Cerenity and STP123 - I should do well. We shall see.

And, to answer your question, HCG was 5% of my total portfolio (pre crash).
Last edited by treva84 on May 16th, 2017 10:50 pm, edited 1 time in total.
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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. It's interesting reading my first post and reflecting back - when I started this thread I was expressing my frustration and lack of confidence in my stock picking ability.
...

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!

How will this play out? I guess I'll find out this time next year.

As always, I invite your comments, thoughts and feedback.
zobi123 wrote:
May 14th, 2017 6:41 pm
Nice to see you keeping up with your strategy. The moat idea is great because most companies with a wide moat should still be here a few decades down the road (TD, ENB, BCE etc.).
Buying these quality names at good valuations with a disciplined approach will be amazing in the long term. For example setting a rule for your self as to when to buy a specific company.
An example of one rule I used was to add to TD whenever the yield hit 4% as that would be considered high based on historical averages.
Cerenity wrote:
May 16th, 2017 8:15 pm
Healthcare: Johnson & Johnson, UnitedHealth, Abbott Labs
Consumer Staples: Coca Cola, Philip Morris, Hershey, Unilever
Consumer Discretionary: Disney, Nike, Tiffany
Telecom: Telus, AT&T, Rogers
Industrials: CN Rail, Boeing, United Technologies
Financials: TD, Scotiabank, Bank of America (spec)
Energy: Exxon Mobil, Enbridge, TransCanada, Kinder Morgan (spec), Suncor (spec)
Tech: Visa, IBM
Utilities: Southern, Hydro One
Great discussion and thank for sharing your thoughts. I too get burned by HCG and are rethinking about investment strategy.

A few people has suggested to be much more selective about picking stocks, e.g., only stick to blue chip stocks, and I also read stories on investment articles about others success with such approach. One concern of this is diversification. If only very selective stocks are invested then as portfolio size increase, each stock will carry more and more risk, and probably not enough diversification ? What is your thoughts on that ?

Thanks
[OP]
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sfrancis wrote:
May 16th, 2017 10:54 pm
Great discussion and thank for sharing your thoughts. I too get burned by HCG and are rethinking about investment strategy.

A few people has suggested to be much more selective about picking stocks, e.g., only stick to blue chip stocks, and I also read stories on investment articles about others success with such approach. One concern of this is diversification. If only very selective stocks are invested then as portfolio size increase, each stock will carry more and more risk, and probably not enough diversification ? What is your thoughts on that ?

Thanks
My approach is that like that of any ongoing interests - any sport, any hobby, any career - investing is a practice. You make mistakes and you learn from them. There is a Buffett saying that comes to mind - "When a person with money meets a person with experience, the person with experience gets the money, and the person with the money gets experience". HCG was that for me. I think it's ok to be reflective and question your decisions - it part of being honest and open and will make you a better investor at the end of the day (so, it's ok to revisit your strategy).

I understand what you are saying about diversification. As time has gone on I have added a few extra rules to existing rules - i.e. no commodity companies - which further limits my pool. Moving forward, I'm trying to focus more on buying higher quality companies, which also further limits my pool. At present, I have a rule that no one position should represent more than 10% of my portfolio (therefore at minimum I need 10 stocks at any given time) but in reality I am holding about 40 positions across all accounts at present.

I think this is actually too many and I'm in the process of whittling them down. Again this is moving slow - I have a problem selling (endowment effect?).

I remember reading in one of the books I've read that you get the vast majority of benefit from diversification from holding 15-20 stocks. After that, it almost makes no difference as you get very diminishing returns. So this is what I always strived for, although I'm obviously at double this number. At the end of the day it is what you are comfortable with. If you feel like you can truly understand the business and the risks and you are comfortable holding, then diversification would not be necessary (I can feel the indexers rolling their eyes Winking Face) . It also depends if you believe in the capital asset pricing model and systematic and unsystematic risk.
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Cerenity wrote:
May 16th, 2017 8:15 pm
Healthcare: Johnson & Johnson, UnitedHealth, Abbott Labs
Consumer Staples: Coca Cola, Philip Morris, Hershey, Unilever
Consumer Discretionary: Disney, Nike, Tiffany
Telecom: Telus, AT&T, Rogers
Industrials: CN Rail, Boeing, United Technologies
Financials: TD, Scotiabank, Bank of America (spec)
Energy: Exxon Mobil, Enbridge, TransCanada, Kinder Morgan (spec), Suncor (spec)
Tech: Visa, IBM
Utilities: Southern, Hydro One
I believe we have very similar strategy as I own much of what you have. Similarly, I've built my strategy around dividend-based investing. My dilemma, particularly for US dividend stocks is that I can only hold them in my RRSP/TFSA (these get maxed out early in the year), because taxation on US/foreign dividends are punishing, i.e. at marginal tax rate outside registered accounts. Do you hold US stocks outside of registered accounts and just accept the tax hit part of the cost of doing business?
Deal Addict
Dec 11, 2007
1697 posts
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Markham
sfrancis wrote:
May 16th, 2017 10:54 pm
Great discussion and thank for sharing your thoughts. I too get burned by HCG and are rethinking about investment strategy.

A few people has suggested to be much more selective about picking stocks, e.g., only stick to blue chip stocks, and I also read stories on investment articles about others success with such approach. One concern of this is diversification. If only very selective stocks are invested then as portfolio size increase, each stock will carry more and more risk, and probably not enough diversification ? What is your thoughts on that ?

Thanks
I think you want to be very careful about diversification for the sole purpose of diversification. I'd rather own more of the best of the best than to diversify into lesser quality companies just for the sake of it. I'm perfectly fine buying the top 2 players in an industry and simply avoiding the weak industries or weak players altogether.

I'm going to play this picking game, I want to pick from sectors and companies that have historically been proven to outperform to tilt the odds as much as possible in my favor. That means more from healthcare, utilities, staples, and integrated energy firms which have been proven to outperform in data going back ~100 years. What more experienced people will recognize is that past a certain point, more risk does not equal more reward. Those industries and sectors above have been proven to compound at above average rates, and do it with less volatility and risk.

STP123 wrote:
May 17th, 2017 12:11 am
I believe we have very similar strategy as I own much of what you have. Similarly, I've built my strategy around dividend-based investing. My dilemma, particularly for US dividend stocks is that I can only hold them in my RRSP/TFSA (these get maxed out early in the year), because taxation on US/foreign dividends are punishing, i.e. at marginal tax rate outside registered accounts. Do you hold US stocks outside of registered accounts and just accept the tax hit part of the cost of doing business?
We have in the past, but most have been moved inside RRSP/TFSA and very little US remains in non-reg for us. We try to keep the lower yielding US assets in non-reg to help with the tax hit but my view has generally been that I'm not terribly against paying taxes since it means I'm making money. If its avoidable easily then I'll try my best to avoid it, but if it is too difficult, then so be it.

I manage our TFSA/RRSP contributions based on where I see value, how the exchange rate is, and what we're buying. The funds normally just sit in the non-reg account so that we retain flexibility in terms of where it can go. Once we see something attractive based on valuation, I'll try to be opportunistic and look for a good short term FX rate to do Norbert. If it is something where we want to open up a full position, we'll do it in an account that has more room, as I prefer not to own the same stock in multiple accounts. I keep it all together. Because of the nature of TFSA, it often takes a year or two to build a position up, and sometimes we end up with unused room and that is OK. Eventually it will get used, either this year or next.
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Husband's co-worker/aspiring stock picker sent this newsletter, I gave up after Rule #7 and scrolled to the bottom lol:
In summary, if I'm not beating the market's long term return, (TSX ~10%), or beating it the majority of the time, then I should stop investing in individual equites and instead be putting my money into an index fund.
My 70 Rules on Investing in Stocks

But maybe somebody will find (some of) it useful :)
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Im all for Indexing but nowdays it seems like almost everyone is buying Index funds. Is this just my personal experience or is Indexing now the trend ??

freilona wrote:
May 17th, 2017 8:19 pm
Husband's co-worker/aspiring stock picker sent this newsletter, I gave up after Rule #7 and scrolled to the bottom lol:



My 70 Rules on Investing in Stocks

But maybe somebody will find (some of) it useful :)
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Jul 23, 2007
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mrtrump wrote:
May 18th, 2017 7:59 am
Im all for Indexing but nowdays it seems like almost everyone is buying Index funds. Is this just my personal experience or is Indexing now the trend ??
Well, some index 100%, while others like myself only for part of the portfolios. Although it's certainly gotten more popular, there's always those who would prefer to go active rather than passive.
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Feb 4, 2015
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I prefer a GerRod approach...

Some index funds, some divvy funds and splash some growth stocks. This is in investment acct, anything goes in trading acct Winking Face

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