# Lowdiv TSX portfolio - tracking



## james4beach (Nov 15, 2012)

I'm going to share my trades and track my new *Lowdiv TSX portfolio*. The goal is to outperform XIC (TSX Composite) long term while focusing on low dividend paying stocks and small caps, for a variety of reasons -- both tax & theoretical.

I had an earlier version of this that turned tragic due to woefully bad diversification. The last portfolio spit out something that was entirely in tech & mining (two sectors). I feel that my approach was working well other than the diversification, and now I've hopefully fixed that.

Is it real?

Yes I actually buy these, but am waiting to see more solid track record before I put in larger amounts. Currently my portfolio is 8K, and it's a minority of my Canadian stock exposure. This is an experiment.

Methodology

*Lowdiv* just means that I apply my search and screening starting with the lowest or zero yielding stocks. Here's my theory: this is opposite to the common screening. Dividend paying stocks are extremely popular, and everyone is chasing the same high dividend stocks, making them a crowded trade. By searching among the lowest yielding stocks I think I'm working in a less crowded space, hopefully with more opportunities. Additionally I'm mostly dealing with small caps, unlike the usual large dividend large caps.

A new portfolio is generated every 6 months. I have a long list of criteria that I follow, and one of them is diversification: the portfolio is mostly sector balanced, with a requirement of minimum 4 sectors and minimum 8 stocks. All stocks are equal weight. I also consider all commodity stocks as one sector (energy, materials, mining are all the same sector). All of this is to fight the tendency to pick up too many commodity-related stocks, since many pay no dividends.

Performance

I will track the performance over time by posting updates of this table. All figures are total returns, but I'll ignore fees on my trades.


StartEnd*Lowdiv*XIC total_Lowdiv relative_2016-12-28ALL TIMECumulative return


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## james4beach (Nov 15, 2012)

First update: portfolio created 2016-12-28, purchased today. Lots of sectors here, and 8 stocks as required by my rules:


BYD.UNconsumerCCL.BindustrialDSGtechKXStechKDXcommodityONEXfinanceQBR.BmediaWCNenvironment


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## leeder (Jan 28, 2012)

Similar to your previous thread/portfolio, I think it's an interesting concept. Aside from the sector and # of stocks held, could you share your screening criteria to come up with the above 8 stocks? If not the specific criteria, perhaps generally what you hone in when choosing the stocks (e.g., value metrics, growth metrics, etc.). Why not use HXT as a comparative? Also, you mentioned a new portfolio is generated every 6 months. Does that mean there will be 8 new stocks every 6 months? How realistic is it to turn over the portfolio on this frequency? I ask because many dividend investors are long term holders of the stocks, so that they can capture the dividend income. They sell when the fundamentals of the company have changed. Perhaps rather than re-generating a new portfolio, you should have certain measures in place whereby if the stock no longer meets certain number of criteria upon your 6-month portfolio review, you sell and replace? In any case, just throwing some thoughts to consider...


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## james4beach (Nov 15, 2012)

Criteria: My screening is mostly technical, focusing on traditional "technical analysis" concepts like rising trends, attaining new highs, and being able to maintain reliable uptrends. It's primarily a momentum strategy, where the core concept is that a stock that is in a strong uptrend is likely to continue rising. I take the view that technical analysis isn't magic, but rather illustrates the viewpoints of many other investors: those investors believe these are strong companies with strong prospects, and so the prices rise. My experience has also suggested that I can do reasonably well at ditching a stock whose fortunes have turned. For example in my other thread you'll see that I abandoned VRX and PSG (now delisted) before their heaviest losses.

Turnover: I've only been able to do limited backtests with my screening methodology but I think it gives some continuity between 6 month periods. For example the last portfolio, not shown as it was theoretical and without real $, was {CCL.B, WPK, ONEX, DSG, KXS, SJ, DOL, BYD.UN, WCN} and so six, _i.e. most_, of the stocks carry forward. I don't know if this holds true over longer periods.

Only KDX and QBR.B are new

Benchmark: I wanted to use TSX Composite vs TSX 60 as a benchmark because the TSX 60 (XIU, HXT) has all large caps and minimal overlap with the stocks I'm looking at-- mostly small/mid caps. But my portfolios overlap completely with the TSX Composite; they come directly from it. Since my portfolio is a subset of the TSX Composite, I thought this is a good benchmark.


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## james4beach (Nov 15, 2012)

One important change from my last thread is that I am focusing much more on technical analysis (the "quality" of the stock) rather than the dividend issue. In my last version, I was being stubborn about wanting stocks that pay zero dividends. This led me to make some poor stock choices among slim pickings. Upon the advice posted in that thread, I've now opened up the stock universe to the whole TSX Composite. I still prefer stocks with low dividends, but the dividend level is a secondary factor behind the technical screening.


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## james4beach (Nov 15, 2012)

For those familiar with my earlier thread, here's a summary of the changes in this new methodology:


 Choosing from a much bigger pool of stocks: now entire TSX Composite instead of just zero dividend stocks
 This gives me more choice and lets me pick better stocks
 Technical analysis screening (stock "quality") is now primary, while low dividends are a secondary factor
 Enforcement of minimum # of stocks and sectors. This diversification reduces risk, especially for such volatile small caps


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## james4beach (Nov 15, 2012)

james4beach said:


> First update: portfolio created 2016-12-28, purchased today.


Still pretty early, only 2 months into this period, but there appear to be a couple home-runs: CCL.B +10%, KXS +20%, KDX +25%. All eight positions are positive. Performance tracking and next update comes in June...


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## BoringInvestor (Sep 12, 2013)

Good luck james4beach.

Would you be able to link back to your previous version where you tracked your portfolio. I'd be interested to see how that developed.


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## james4beach (Nov 15, 2012)

Here's the old thread: http://canadianmoneyforum.com/showthread.php/49914-Tracking-my-non-dividend-portfolio-DIVZ

You can see the turning point at which the old method went wrong:
http://canadianmoneyforum.com/showt...rtfolio-DIVZ?p=1188865&viewfull=1#post1188865

It was going well, outperforming XIC, until I got into a period where too few stocks were qualifying for my criteria. At that point I started constructing flawed portfolios -- too much single stock exposure and sector concentration. I think I've addressed those problems in this new attempt.


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## james4beach (Nov 15, 2012)

james4beach said:


> First update: portfolio created 2016-12-28, purchased today. Lots of sectors here, and 8 stocks as required by my rules


There's a little over a month to go before the next update and rebalance. In the current period the TSX (XIC) is up 1.9% and my portfolio is up 9.3%.

Six of the eight positions are outperforming the TSX. Portfolio dividend yield is 0.3%


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## My Own Advisor (Sep 24, 2012)

Interesting stuff James


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## mordko (Jan 23, 2016)

james4beach said:


> There's a little over a month to go before the next update and rebalance. In the current period the TSX (XIC) is up 1.9% and my portfolio is up 9.3%.
> 
> Six of the eight positions are outperforming the TSX. Portfolio dividend yield is 0.3%


If we were to select a small subset of TSX, we would expect it to be more volatile than TSX with the same expected long term return (assuming diversified choice of industries). Didn't the same companies underpeform TSX in the previous reporting period? 

Otherwise, "low dividend" investing is what they call "factor" investment. Everyone is buying the opposite factor (high dividends), so outperformance of a contrarian low div strategy shouldn't come as a surprise. However factors tend to take turns in providing outperformance benefits. 

Regardless of the above, the monitoring period is too short to be meaningful.


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## james4beach (Nov 15, 2012)

mordko said:


> Regardless of the above, the monitoring period is too short to be meaningful.


True, this is too short a period and it could just be volatility that I'm seeing.


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## james4beach (Nov 15, 2012)

This current 6 month period is coming to an end. I try to act roughly mid June and mid December. The worst position (KDX) has suddenly spiked 10% which provides a good opportunity to exit, since KDX will be sold in the upcoming rebalance. Current portfolio is looking like +14% gain vs +1% for TSX, huge outperformance. Stay tuned...


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## humble_pie (Jun 7, 2009)

i had to look back to see what this portf contained, here's the link.

http://canadianmoneyforum.com/showt...lio-tracking?p=1398737&viewfull=1#post1398737

took a flying browse through recent posts & apparently this is no longer low-dividend but instead it's been re-engineered as James4's Top 8 Picks.

it's an 8-pack in other words. One should keep in mind that a canadian midcap is only a smallcap in the US of A, though.

possible theories to explain the success of the 8-pack:

a) jas4 is a wizard, brilliant, genius stock picker;
b) one stock - onex - has pulled up all the others;
c) canadian small caps are largely neglected, therefore far more volatile than the TSX itself. In bull markets, canadian small caps will outperform as managers search for value outside the already-priced-to-perfection mainstream.

of course this means that in bear markets, look out below.

i'm also wondering why this thread was filed under Diaries. It's not really anybody's diary, it seems more suited to the Investing section. At least that's where i'd go looking for it.


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## james4beach (Nov 15, 2012)

As mordko rightly pointed out, it could also simply be volatility in a small/midcap portfolio. The 6 month performance is quite meaningless. Over time, the volatility on my picks might average out to the TSX Composite performance. I intend to continue doing this for a few years and seeing how the performance develops.

I share your concern about what might happen in a bear market. Stay tuned I guess... I will post updates as I rebalance the portfolio.

Also, moved to Investing.


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## james4beach (Nov 15, 2012)

humble_pie said:


> apparently this is no longer low-dividend but instead it's been re-engineered as James4's Top 8 Picks.


Not quite. It's still intended to be low in dividends, but I loosened that criteria. Previously I had explicitly looked for zero-dividend stocks. Now, I consider all stocks with dividends, but I still prefer the low dividend yielders.

The current portfolio has a dividend yield of 0.3%, so it still pays virtually no dividends. I realize this means it's of little or no interest to most people here, and that's kind of the point. I know that people don't seek out low dividend stocks, so I think there might be more stock picking opportunity in that space.

Contrarian trade


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## humble_pie (Jun 7, 2009)

nice to see this here.

jas4, don't you also have another portf of stock picks? as best i can recall, weren't they the 6 top holdings by weight from XIU?

i'm wondering how the top 6 XIU pack compares to the low-div 8-pack over the past half-year. The 2 mini-portfs are almost polar opposites in concept. It would be nice to post about them consecutively, if not side-by-side, so folks could see the contrast.

jas4 sorry if this suggestion seems like too much work. Please ignore if that's the case, certainly you already have your hands full with the forum these days.

the thing is, both portfs are interesting little creatures & taken together they probably have a good pulse on the TSX. Do you think you might be able to wrangle the time to track or report on these 4 together:

- jas4's top XIU 6-pack
- XIU
- jas4's low div 8-pack
- XIC


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## Moneytoo (Mar 26, 2014)

james4beach said:


> The current portfolio has a dividend yield of 0.3%, so it still pays virtually no dividends. I realize this means it's of little or no interest to most people here, and that's kind of the point. I know that people don't seek out low dividend stocks, so I think there might be more stock picking opportunity in that space.


It was of high interest to me last year when I opened a non-reg account, and realized that with both me and my husband in high marginal tax brackets - the dividend taxes are higher than capital gains ones (besides, the thought was that we'd only start selling when we're retired and our incomes will be much lower) 

So I had a short list of low or no dividend paying stocks (different from yours), bought the first one, ATD.B - but then had a "change of heart" (as the indexing part of our portfolio was doing much better than expected), and decided to stop stock-picking and become an indexer. So buying HXT in the non-reg (no hassle with dividends!) and XMD in TFSA  But might reconsider in a few years - depending on performance and the level of interest (to spend more time on it)


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## james4beach (Nov 15, 2012)

humble_pie you are correct that these are my two Canadian strategies. The two of them together make up all my Canadian exposure.

XIU five pack is the top weighted stock from selected sectors, currently: RY, ENB, CNR, BCE, FTS. These are very large caps. Lots of dividends too.

Lowdiv are some of the smallest caps in Canada, as per this thread.

Together, these two portfolios tickle opposite ends of the TSX Composite spectrum. It might be good to track them in the same thread. If I had to guess, I'd say that all of it together averages out to the TSX Composite... hopefully better.


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## humble_pie (Jun 7, 2009)

james4beach said:


> Together, these two portfolios tickle opposite ends of the TSX Composite spectrum. It might be good to track them in the same thread. If I had to guess, I'd say that all of it together averages out to the TSX Composite... hopefully better.



how about a friendly betting guesstimate. in one year, i'd put the combo at slightly lower since i'm anticipating a pullback & the smaller caps will be hit harder than the mammoth companies.

but in 10 years the average will be slightly higher, goes my betsstimate. Of course one would probably have to adjust the components of low-div over a 10-year cycle since these companies are more prone to buyout or collapse.


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## james4beach (Nov 15, 2012)

Those seem like reasonable guesses, humble_pie.

At the moment I don't think I can unify all the tracking. This lowdiv portfolio is something I revisit in June & December but at somewhat arbitrary dates, and all my tracking is based on "not quite 6 month periods". This is because this method involves quite a bit of analysis work, and I have to find the time to do it.

My other method (XIU top weights) involves just about zero effort and is strictly aligned to the calendar year.


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## james4beach (Nov 15, 2012)

*6 month portfolio update and rebalancing*

Here is performance after the first period. So far so good, far outperforming XIC. I expect this lowdiv portfolio will be very volatile. Only time will tell if it does as well as XIC.


StartEnd*Lowdiv*XIC total_Lowdiv relative_2016-12-282017-06-1915.0%0.7%+14.3%ALL TIMECumulative return15.0%0.7%+14.3%

Only one holding changed: KDX was replaced with NXE. I made the changes on 2017-06-19 and currently have about 10 K invested. The new portfolio is, equal weights:


BYD.UNconsumerCCL.BindustrialDSGtechKXStechNXEcommodityONEXfinanceQBR.BmediaWCNenvironment


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## My Own Advisor (Sep 24, 2012)

Interesting short-term results. The lowdiv portfolio is expected to be more volatile than the XIU-unbundled effort (I've always had a bias to the latter) so I'll be curious to see when the tipping point might be to favour one over the other. I suspect after a couple of years James, if you keep this up, there could be a cool trend.

Meaning, you could run a hedge fund 

Certainly short term the lowdiv is winning. YTD the TSX is pretty much flat right?


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## humble_pie (Jun 7, 2009)

james4beach said:


> Here is performance after the first period. So far so good, far outperforming XIC.



hello, a couple of points if i may:


1) that 15% return for lo-div while XIC does .7% is only for the 6 months dec/16 to jun/17, right? in other words one could extrapolate an annualized return for lo-div of something around 30%, which does seem a bit outrageous ... or perhaps that 15% is already annualized?

i was thinking that lo-div outperformance might be primarily due to ONEX, a stock that jumped 9.77% over the same 6 months. 

but can't compare unless we know a bit more about that 15% outperformance fig, is it straight 6 months, or ...


2) searching for XIC historical price on 28 december/16 turned up - amazingly enough - the exact same closing price as 19 june/17. On both dates XIC closed at 24.31, ie no gain, no loss, no performance across 6 months.

it's true that both XIC & lo-div would have paid dividends during the 6-month period. However i was hoping for net-of-dividends reporting only, ie measurements based strictly on publicly traded closing prices.


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## like_to_retire (Oct 9, 2016)

humble_pie said:


> ......
> it's true that both XIC & lo-div would have paid dividends during the 6-month period. However i was hoping for net-of-dividends reporting only, ie measurements based strictly on publicly traded closing prices.


It's usually favourable to show both share price return and total return. The total return is the salient of the two. Whether a company holds onto their cash or pays it out, the total return captures both situations. Share price alone does not reveal the whole picture.

ltr


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## humble_pie (Jun 7, 2009)

like_to_retire said:


> It's usually favourable to show both share price return and total return. The total return is the salient of the two. Whether a company holds onto their cash or pays it out, the total return captures both situations. Share price alone does not reveal the whole picture.
> 
> ltr




ltr with all due respect, that would be the view of a practicing retail investor who wishes to measure his return in the simplest & most tangible manner possible.

but what i'm looking for is price performance. Metadata. I'd want income streams excluded, they might be comforting to retail who own XIC or lo-div, but imho they blur the picture


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## Pluto (Sep 12, 2013)

this is excellent returns. so far so good.


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## like_to_retire (Oct 9, 2016)

humble_pie said:


> but what i'm looking for is price performance. Metadata. I'd want income streams excluded, they might be comforting to retail who own XIC or lo-div, but imho they blur the picture


But the total return camp continually preach that there's no difference between a dividend stock and a growth stock in that regard. And that makes sense to me mathematically. If a company pays a 5% dividend, the share price drops by 5% and is then comparable (as long as the 5% is included) to the equivalent company that paid 0% dividend. If I disregard the dividend and look at share price alone, it looks as though the growth stock's return was 5% better, and we know that's not true. Share price alone reveals an inaccurate comparison.

ltr


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## james4beach (Nov 15, 2012)

My Own Advisor said:


> I suspect after a couple of years James, if you keep this up, there could be a cool trend. . . . YTD the TSX is pretty much flat right?


Yes YTD the TSX is flat. I agree, this will need a couple years of data and I'm not getting too excited until I see a longer track record.



humble_pie said:


> 1) that 15% return for lo-div while XIC does .7% is only for the 6 months dec/16 to jun/17, right? in other words one could extrapolate an annualized return for lo-div of something around 30%, which does seem a bit outrageous


That's correct, the 15% is non-annualized. As I gather longer term results, I'll calculate both cumulative total and the annual rate of return. I didn't want to do that with just 6 months of data.



> i was thinking that lo-div outperformance might be primarily due to ONEX, a stock that jumped 9.77% over the same 6 months.


Not at all, ONEX was one of the lower performers in this time range. Here's a link to each constituent in the first period, sorted by absolute return. The average of these works out to 14.2%, and my actual performance of 15.0% is measured based on the prices I filled at on the trade dates (which causes some wiggle).

KDX -20.4%
ONEX +9.9%
BYD.UN +12.5%
QBR.B +13.5%
DSG +15.3%
CCL.B +22.3%
WCN +22.5%
KXS +38.2%



> 2) searching for XIC historical price on 28 december/16 turned up - amazingly enough - the exact same closing price as 19 june/17. On both dates XIC closed at 24.31, ie no gain, no loss, no performance across 6 months.


I record exact prices at trade/rebalance time, and the price fluctuates throughout the day, but I did get a slightly positive +0.7% XIC return. This also matches what stockcharts shows, adjusted for the dividend it pays out:

XIC +0.7%



> it's true that both XIC & lo-div would have paid dividends during the 6-month period. However i was hoping for net-of-dividends reporting only, ie measurements based strictly on publicly traded closing prices.


You can use these stockcharts links to get returns based on closing prices and net of dividends. What I've put in my table (and the 15.0%) is also net of dividends, but it takes into account the exact price at the time of trade/rebalance which does vary a bit from closing price.

Most of these are small caps and have some very wide bid/ask spreads. There can be a significant difference between an intraday bid/ask and the day's close. When I update the table with performance, I am using either my actual trade *fill* price, if I've made a trade, or I use the pessimistic side of the bid/ask -- the price I would have filled at if I made trades.

So in summary, my figures of 15.0% for lowdiv and 0.7% for XIC
* is a total return, not annualized
* includes dividends
* uses actual trade prices or pessimistic bid/ask as if a trade occurred
* comes from actual weighting of my shares, so not perfect equal balance

I believe this gives the most honest performance of how my portfolio actually does and gives the most honest comparison to benchmarks.


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## andrewf (Mar 1, 2010)

humble_pie said:


> ltr with all due respect, that would be the view of a practicing retail investor who wishes to measure his return in the simplest & most tangible manner possible.
> 
> but what i'm looking for is price performance. Metadata. I'd want income streams excluded, they might be comforting to retail who own XIC or lo-div, but imho they blur the picture


If you don't want your XIU dividends, I can relieve them from you.


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## humble_pie (Jun 7, 2009)

.

fantastic outperformance for the lo-div. Thankx for discussing the structure, how it works.

i'm happy with either no divs or else tracking all divs, even though this latter means the comparative performances could be slightly skewed due to XIC's larger dividend per dollar invested. This would make it an apple vs an orange.

but if doing apples & oranges one should be consistent, no?

here we have XIC with dividend, returning .70 across 6 months.

but when it comes to the 8 stocks composing the lo-div portf, where are the dividends that should be included in their return? if taken as cash divs, the cash should be in the account; however accumulated cash divs don't seem to be part of the total return.




james4beach said:


> Here's a link to each constituent in the first period, sorted by absolute return. The average of these works out to 14.2%, and my actual performance of 15.0% is measured based on the prices I filled at on the trade dates (which causes some wiggle).





> You can use these stockcharts links to get returns based on closing prices and net of dividends. What I've put in my table (and the 15.0%) is also net of dividends, but it takes into account the exact price at the time of trade/rebalance which does vary a bit from closing price.





> Most of these are small caps and have some very wide bid/ask spreads. There can be a significant difference between an intraday bid/ask and the day's close. When I update the table with performance, I am using either my actual trade *fill* price, if I've made a trade, or I use the pessimistic side of the bid/ask -- the price I would have filled at if I made trades.



jas4 i understand the methodology you're using to price your holdings - i have a lot of experience pricing options in illiquid markets (btw using the "ask" if that's the side of the spread you would have to go to, is not an efficient or desirable pricing mechanism. Asks in illiquid markets are often insanely high & totally illogical, in effect the dealer is blocking the market. Bids are usually distorted as well but the bid distortion is not as severe.)


what i observe is that your methodology for calculating return on the 8 low-div holdings consists of calculations based on market prices on start dates & end dates only. So far, for these 8 stocks i'm not seeing any recognition of dividends they might have paid out during the 6-month calculation period.

in other words, your table shows XIC results with dividends included but the 8 lo-div stocks with no dividends. The problem seems to be set forth in your own words, as below. How can a portfolio manager report his performance with dividends included, while at the same time reporting his performance using raw market pricing data but nothing else?




james4beach said:


> So in summary, my figures of 15.0% for lowdiv and 0.7% for XIC
> 
> * is a total return, not annualized
> * includes dividends
> * uses actual trade prices or pessimistic bid/ask as if a trade occurred



.


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## james4beach (Nov 15, 2012)

humble_pie said:


> fantastic outperformance for the lo-div. Thankx for discussing the structure, how it works.


Before you get too excited ... I'm sure there will be future periods where lowdiv performs much worse than XIC ! Hopefully it will average out 



> but when it comes to the 8 stocks composing the lo-div portf, where are the dividends that should be included in their return? So far, for these 8 stocks i'm not seeing any recognition of dividends they might have paid out during the 6-month calculation period.
> 
> in other words, your table shows XIC results with dividends included but the 8 lo-div stocks with no dividends.


Guilty as charged. You are correct, I showed XIC with dividends but did not include dividends in my Lowdiv performance. This was a shortcut because I didn't think it would matter. I should go and calculate the result with Lowdiv dividends included, but I suspect it will barely change the result. The portfolio dividend yield was only 0.3% last time I looked, meaning that 6 months of dividends is only about 0.15%.

But you're right, I should include dividends in the lowdiv result. I suspect this won't change the 15.0% result. The way I justified this to myself was saying that it's a lot of work to gather dividend info for 8 stocks, and it's not worth the effort since the dividends are so low. Additionally, maybe it's good to handicap my method a bit. In reality, I am doing _better_ than what's stated.

The benefit of the handicap is, if after considering real trade prices, bid/ask spreads, and omitting dividends -- if I'm still outperforming XIC long term -- then I really have something.


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## humble_pie (Jun 7, 2009)

james4beach said:


> Guilty as charged. You are correct, I showed XIC with dividends but did not include dividends in my Lowdiv performance ... I should include dividends in the lowdiv result ... it's a lot of work to gather dividend info for 8 stocks ... not worth the effort



exactly. Up with the KISS principle. Omit dividends entirely. Don't bother with dividend calcs when preparing performance data for the lo-div portf. Just stick with raw market data. 

re pricing illiquid securities, the worst figs are the closing figs. Of these, the asks will usually be crazier than the bids.

some systems will price a mid-point, but even that can distort to the upside. 

it's a difficult call because there's no perfect solution. Myself, i would tend to favour pricing at bids only. Never mind that these are often below fair value, they are not usually *that much* below fair value. Maybe 5 percentish below fair value, while the asks can be 25% above fair value.


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## james4beach (Nov 15, 2012)

Well, it looks like my KXS position just fell 17% today on a bad earnings report. This means KXS is down 23% since the June rebalance - ouch.

Overall, the portfolio is down around 4% with XIU flat, so I've been underperforming in the current period. Meanwhile, my large cap 5-pack portfolio is outperforming XIU.


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## Pluto (Sep 12, 2013)

Looks like kxs has recovered a bit since august. maybe you are out of the woods. 
Less drama with the large cap 5 pack I take it. However, you are giving yourself a great education.


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## james4beach (Nov 15, 2012)

These small/mid cap stocks are always volatile so short term results could be all over the place. The KXS crash didn't hurt much because of strong performance of other stocks. The Lowdiv portfolio is up 13% year-to-date versus just 4% for TSX Composite.

It's looking good so far but it's too early to tell. I'd wait for over a year of results, maybe two years, before we can tell whether there's anything to this method.


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## james4beach (Nov 15, 2012)

james4beach said:


> Only one holding changed: KDX was replaced with NXE. I made the changes on 2017-06-19


I'm really happy about this replacement! If I had kept KDX, I'd have a -32% loss on that position. Instead NXE is up +20% since this swap.


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## james4beach (Nov 15, 2012)

Today I rebalanced my "lowdiv" portfolio, and here's the 6 month update. It under-performed for the six months, but the overall one year performance has been significantly higher than the benchmark, returning 10% more than XIC. Of course, that could just be small cap volatility and I wouldn't be surprised to give it back later.

I've calculated performance at actual fill prices, or if no trades occurred, at the bid. Ignoring trade fees. The XIC return includes dividends, but the lowdiv figure does not (since its dividends are so minimal, I ignore them here).


StartEnd*Lowdiv*XIC total_Lowdiv relative_2016-12-282017-06-1915.0%0.7%+14.3%2017-06-192017-12-272.6%7.2%-4.6%Cumulative return1 year total17.9%8.0%+10.0%

Several stocks were abandoned in today's rebalance: KXS, CCL.B, ONEX. Luckily KXS recovered somewhat from his horrendous drop. New additions are: DOL, GIB.A, FSV, APH. The current portfolio, with each stock at approximately equal weight, is:


BYD.UNconsumerDOLconsumerWCNindustrialDSGtechGIB.AtechNXEcommodityFSVfinanceQBR.BmediaAPHhealth


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## Pluto (Sep 12, 2013)

17.9 is a great return. doing your own research and testing is better than accepting some analysis from a book.


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## james4beach (Nov 15, 2012)

Thanks! I'm very happy with this year's 17.9%


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## james4beach (Nov 15, 2012)

This new APH position makes me nervous (see post 39 with current portfolio). This one is going to be crazy volatile. It's only 11% of the portfolio though so hopefully that limits its craziness.

If any of you are wondering how I came to hold a marijuana stock... my stock selection process is actually done blind. I first replace the stock names with numbers and scramble them. I only reveal the stock names to myself at the end. So I didn't go looking for marijuana stocks.


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## james4beach (Nov 15, 2012)

YTD (since Dec 27 more precisely), my lowdiv portfolio is outperforming the TSX Composite. This has been a nice surprise during this turbulent market. The TSX Composite is down approx -2.7% whereas my portfolio is 0%.

As I post each six month rebalance, I'll post an all time compounded annual growth rate (CAGR) now that I'm past the 1 year mark. This will show whether I'm doing better than the index, longer term.


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## james4beach (Nov 15, 2012)

Portfolio update and performance evaluation is coming this month. In the current 6-month period, my portfolio is performing about the same as XIC. The history of this lowdiv strategy is now approaching 1.5 years. The all-time CAGR for Lowdiv is about 13% compared to 6% for XIC including dividend but I'll do a precise calculation with the next portfolio update.

I think I'll start taking my results more seriously at 2 years.


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## james4beach (Nov 15, 2012)

Here's the 6 month update. My lowdiv portfolio slightly outperformed the TSX Composite in the last period. In its 1.5 years, the compound annual growth rate of this portfolio was 15.6% versus 7.2% for XIC, so it continues to outperform. Turnover is low, with 78% of the positions kept from the last update.

Though this performance looks great, it's possibly due to just one lucky period (first row of table) and so I'll need to see a continued pattern of success over many periods before concluding that this is anything other than accidental.

Performance is calculated at actual fill price, or the bid price if no trade occurred. Trade fees are ignored. The XIC return includes dividends, but the lowdiv figure does not (ignoring the minimal divs).


StartEnd*Lowdiv*XIC total_Lowdiv relative_2016-12-282017-06-1915.0%0.7%+14.3%2017-06-192017-12-272.6%7.2%-4.6%2017-12-272018-06-184.9%2.5%+2.4%     *Overall CAGR*1.5 years*15.6%*7.2%+8.4%

The current portfolio, with each stock at approximately equal weight, is:


BYD.UNconsumerDOLconsumerWCNindustrialDSGtechGIB.AtechIFP (new)commodityFSVfinanceQBR.Bmedia


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## james4beach (Nov 15, 2012)

In the current period, Interfor (IFP) is doing very badly (getting destroyed) down 37% since I bought. This is a lumber company. The price of the lumber commodity reached an impressive peak in May, but has fallen severely since then with about a 50% drop in raw lumber.


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## Pluto (Sep 12, 2013)

^
Yep. Cyclicals are a trade.


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## james4beach (Nov 15, 2012)

Seeing big losses in a couple positions, I decided to do tax selling and replaced the portfolio with an ETF that might behave similarly over the next 30 days. For those who may be interested, I temporarily replaced my Lowdiv portfolio with a 0.55 weight in WXM to "stand in" while I wait out the 30 days. When I post final performance numbers, I will show both the portfolio's performance, and my actual performance including proxy.

Currently, my portfolio (if I held it continuously) is down -7.3% since June. Actual performance with WXM proxy is -7.2% but I just made the replacement yesterday. Over the coming month, the performance could diverge.


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## james4beach (Nov 15, 2012)

This also reminds me of something important, the portfolio's beta. You'll see in my performance tables that so far, the TSX Composite is positive for every period. It could turn out that my growth/small cap picks are just a high beta, leveraged exposure to the Canadian stock market. If that's the case I may just give back all gains in a bear market; the whole thing may be equivalent to being leveraged long XIC.

I'm hoping for some negative TSX periods coming up so I can see how my strategy performs during down-markets. Continued outperformance would be a really good sign. However, if I see severe underperformance during all negative TSX periods, then I have to seriously consider whether I'm effectively just leveraged into stocks -- in other words, the stock picking may not add any value.

More data is needed. Really hope we get a few negative periods for the TSX so I can better evaluate my strategy. I'm going to keep this portfolio small until I see how it performs through a few rough periods.


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## like_to_retire (Oct 9, 2016)

james4beach said:


> ........replaced the portfolio with an ETF.


I thought you had PFIC concerns with ETF's and stayed away from them?

ltr


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## james4beach (Nov 15, 2012)

like_to_retire said:


> I thought you had PFIC concerns with ETF's and stayed away from them?


Yes, I do have trouble with them. The one place I can hold them is inside my RRSP, and I recently opened up some space in that shelter. I was able to squeeze WXM in there, along with some new XBB units. I can't hold these ETFs anywhere else.


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## james4beach (Nov 15, 2012)

6 month update

I've reached the 2 year milestone! Annual rate of return since inception is +4.7% versus -0.4% for XIC so I'm beating the benchmark. Lowdiv beat the TSX Composite both in 2017 (strong year in stocks) and in 2018 (weak year in stocks).

I'm really glad we finally got a rough stock market, because watching Lowdiv hold up well this year has made me more confident about my strategy. Seeing these results, I've finally added more money to Lowdiv. I don't expect it to always outperform the benchmark, but I think there's a decent chance it will.

Performance is calculated at actual fill price, or the bid price if no trade occurred. Trade fees are ignored. The XIC return includes dividends, but the lowdiv figure does not (ignoring the minimal divs).


StartEnd*Lowdiv*XIC total_Lowdiv relative_2016-12-282017-06-1915.0%0.7%+14.3%2017-06-192017-12-272.6%7.2%-4.6%2017-12-272018-06-184.9%2.5%+2.4%2018-06-182018-12-17-11.6%-10.3%-1.3%     *Overall CAGR*2.0 years*4.7%*-0.4%+5.0%

Selecting stocks became much more difficult as the market weakened. One thing I worry about is how I will manage the portfolio if the TSX enters a severe bear market. The updated portfolio as of December 17 is:


MTYconsumerGOOSconsumerCPindustrialWCNindustrialGIB.AtechBAM.AfinanceQBR.BmediaKLcommodity

Tax loss selling

While trying to move this portfolio into my RRSP, I thought I'd sell in November and realize some losses, then switch to using a proxy ETF to wait out the 30 days. This worked OK but not great. The original portfolio if left alone returned -11.6% for the period whereas my net result using the proxy replacement for tax selling gave -12.3% or an outcome that's 0.7% worse.


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## james4beach (Nov 15, 2012)

Ouch, I'm already down 5%, just one week into this period. About the same as the TSX. It could be worse, I suppose.

Stocks are inherently risky though and this is the risk I chose to embrace. If the market remains weak for the next year, there will probably be some pretty steep losses in this portfolio (which has more volatile small caps).


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## james4beach (Nov 15, 2012)

I calculated a full year 2018 performance result. Lowdiv did 0.6% worse than XIC (total return) for the year. And clarifying for those who wonder if this is a virtual or real portfolio: yes these are real investments and I hold exactly what's shown in post# 52 (MTY, GOOS, etc) as of the dates shown.

My 2 year outperformance vs XIC entirely comes from early in the timeframe. The big question is whether outperformance can continue or if it was a one-off fluke (accident).


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## Spudd (Oct 11, 2011)

0.6% isn't bad as underperformance goes. I wouldn't worry about that. The results are wildly different from XIC for nearly every time period, which at least adds an element of interest to your investing, LOL. It will be fun to see how it goes in the longer term.


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## Argonaut (Dec 7, 2010)

Over a long enough timeframe, reinvested dividends account for nearly all returns on the stock market. Lowdiv is a neat idea, but I'm a firm believer in the power of dividends, and the sustainability of quality dividend stocks.


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## james4beach (Nov 15, 2012)

Argonaut said:


> Over a long enough timeframe, reinvested dividends account for nearly all returns on the stock market. Lowdiv is a neat idea, but I'm a firm believer in the power of dividends, and the sustainability of quality dividend stocks.


Except dividend aristocrat GE, I guess!


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## james4beach (Nov 15, 2012)

I'm feeling good about the current Lowdiv portfolio (since the rebalance on Dec 17). Since then, all positions have gone positive and it's up 10% in this period versus XIC up 8%. Of course this can all change if the market weakens again. But so far it continues to outperform XIC over 2+ years.


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## john.cray (Dec 7, 2016)

How is this portfolio doing at the end of 2019 ?


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## james4beach (Nov 15, 2012)

john.cray said:


> How is this portfolio doing at the end of 2019 ?


Sorry I missed this post and had stopped tracking my results here.

In 2019, my Lowdiv stocks outperformed XIC by roughly 4%. Perhaps more interesting, my 3 year annualized return is now 12% compared to 7% for XIC. That's certainly encouraging! I have 20K invested in this, up from my original 8K.

However also note that WXM (a momentum factor ETF) has the same return as my stock picks. I think that the kinds of growth/momentum stocks I'm finding are similar to WXM and many of the holdings are the same. So it makes sense to look at WXM as a proxy for what I'm doing.

Though WXM outperformed XIC over 3 years, as I have, *it has identical 5 year performance as XIC*. And this is the big question in my mind.... whether all this stock picking is actually worth it. WXM (and my stock picks as well) are simply more volatile than the index and will naturally vary.

But over long periods, can I really expect to outperform XIC by picking stocks this way? I'm still not sure. I'll continue doing this and see what happens after 5 years.


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## john.cray (Dec 7, 2016)

Thanks.


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## james4beach (Nov 15, 2012)

I'll share one technique I'm using, in case it helps others. People on this forum often warn about resource stocks, biomed, miners, etc. And these have caused me trouble as well in the past. They're too volatile! Over time I have gotten better at avoiding trouble stocks.

To generalize this a bit more instead of making blanket assumptions about sectors, I now screen by testing the volatility on a stock before adding it. I only started doing this numerically in 2019, but it's helped. What I do is pull up a 2 year chart and calculate the % difference between minimum and maximum price. Then I look at this metric across all the stocks and throw away the ones that are too volatile. This has served me well!

This method would protect you from mistakes like buying marijuana stocks, crazy resource stocks, penny stocks. Basically it nudges you towards well established large caps or steadier small and mid caps.


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## james4beach (Nov 15, 2012)

Interesting, I seem to have stumbled into a bunch of stocks which did not sell off with the market today. Several growth stocks I hold (QBR.B, IIP.UN, BYD, CJT, CAE) did not even decline today with the broad global selloff.

As the TSX falls today, my growth portfolio is pulling further ahead relatively speaking. Very interested to see how this plays out over time.

I'm not tired of stock picking yet. It still looks like it might work, even after 3 years.


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## like_to_retire (Oct 9, 2016)

james4beach said:


> Interesting, I seem to have stumbled into a bunch of stocks which did not sell off with the market today. Several growth stocks I hold (QBR.B, IIP.UN, BYD, CJT, CAE) did not even decline today with the broad global selloff.
> 
> As the TSX falls today, my growth portfolio is pulling further ahead relatively speaking. Very interested to see how this plays out over time.
> 
> I'm not tired of stock picking yet. It still looks like it might work, even after 3 years.


Yeah, not unusual for stock pickers. 

I see the index right now is down -0.71% (yikes) and my stock portfolio is plus +0.10%.

It ain't hard to beat the index in Canada.

My portfolio is 24 stocks that equally represents 8 of the 11 sectors in Canada. Three stocks each in (Financial Bank, Financial Non-Bank, Energy, Telecom, Utilities, Consumer Discretionary, Consumer Staples, Industrial). No Materials, Information Tech, Health Care.

ltr


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## james4beach (Nov 15, 2012)

Currently I am reviewing my portfolio twice a year, roughly in June and December as this thread has shown. I'm starting to think this is unnecessary and might be leading to unnecessary churn (driving up trading costs) without really improving my performance.

So I'm thinking that I might switch to a single mid-year annual review. This will reduce trading expenses, and June/July also tends to be a pretty quiet period in markets, which is good for adjustments.

The downside of going 12 months in between reviews is that I will be slower to catch important/fatal problems with my holdings. I guess time will tell if that's a problem. My gut tells me that 6 month intervals was too frequent.


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## fireseeker (Jul 24, 2017)

james4beach said:


> Currently I am reviewing my portfolio twice a year, roughly in June and December as this thread has shown. I'm starting to think this is unnecessary and might be leading to unnecessary churn (driving up trading costs) without really improving my performance.


James, you may be interested in this post by Dan Hallet about how often to rebalance. He sides with your gut.

https://www.highviewfin.com/blog/the-dos-and-donts-of-portfolio-rebalancing/


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## james4beach (Nov 15, 2012)

Thanks. There's a noteworthy point in that resource about the momentum factor, which is actually what I'm trying to capture with my strategy. Momentum appears to work on the time frame of about 6-12 months as mentioned in that post.

I'm learning with time, and refining my capital management strategies. The current ultra-bull market makes it a bit hard to evaluate how I'm really doing (since any idiot can do well in these conditions) but my sense is that I am getting much better at all of this.

The point at which I think I really started making progress was when I started documenting my strategies and procedures. With a documented procedure or recipe, I can more easily stick to a method. The stock picking I do with these low dividend stocks is written as a recipe, with explicit steps I need to follow. I do the same with my asset allocation plan.


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## londoncalling (Sep 17, 2011)

@james4beach 

I don't believe this is the most current thread you have going on low div portfolio but was unable to locate it in my search I have been curious as to how this type of portfolio has done recently in light of the increase to interest rates. Do you still have a low div portfolio that you track? If so could you share a bit of an update either here or another thread?


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## james4beach (Nov 15, 2012)

londoncalling said:


> I don't believe this is the most current thread you have going on low div portfolio but was unable to locate it in my search I have been curious as to how this type of portfolio has done recently in light of the increase to interest rates. Do you still have a low div portfolio that you track? If so could you share a bit of an update either here or another thread?


I stopped updating the thread, but still have some low dividend stock picks like CP, DSG, CSU, TRI, WCN and a few more. I update it once in a while but got tired of updating a thread.

Recently (last year) it has performed roughly 3% worse than the TSX Composite. Not too bad considering how much the market has changed. Certainly has not been as bad as US growth stocks.


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## londoncalling (Sep 17, 2011)

Thanks for the update James. As you may recall I spent the past 6 months shifting from higher yield slower dividend growth to lower yield higher dividend growth. I read today that the NASDAQ has officially entered bear territory. If the remainder of the quarterly reports miss we will likely see further slide. I expect growth overall to be muted the next few years especially for the tech sector in general. I don't own any of those high flying techs but there will be some that will continue to do well. May be an opportunity for me to start a position in Apple or Amazon. I like the diversification of your low dividend picks and have WCN on my watchlist.


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