# Safest stocks



## MrBlackhill (Jun 10, 2020)

Today, I was wondering... they say that Canadian banks are part of the highest regulated institutions in the world. They have been there for more than a century. They provide a great total return as an investment. (By the way, I'm talking long term, I know people are talking about loan losses during these times of pandemic.)

*Don't do that* but... why wouldn't I simply put all my money in *NA* stock and get an average of +14% CAGR, which is much better than buying XIU or SPY or even QQQ?

If ever the Big 6 banks crash... I think that would mean Canada as a whole is already in d**p sh*t. *Tell me, what can happen so bad to our banks?*

In the realm of Canadian stocks with a 20+ years of history...

Another great Canadian stock which seems very safe is *CNR*. But I guess a derailment could happen? Or a terrorist attack? Or more lockdown? Why is it doing so great?

Another great Canadian stock which seems very safe is *MRU*. But why is it thriving that much? Isn't there competition from L which has been underperforming MRU?

Another great Canadian stock which seems very safe is *FTS*. Electricity, yup, we got this. But there are many others growing like EMA, BIP or BEP?

Another great Canadian stock is *TIH*. Makes sense because...? I didn't study that one.

Conclusion... Buy *NA*, *CNR*, *MRU*, *FTS* and *TIH*, and you're good to go! Sleep on both ears, no management required except reinvesting dividends and balancing the portfolio once every year and make easily an average of +16% CAGR total return! Add *RY*, *TD*, *BNS* if you wish more "diversification" and added safety. Also WCN, EMA, CAR-UN...

Seems like almost guaranteed double-digit returns over the long term and the hyper-regulated banks makes it pretty safe, not?

_Post here the best performing "safest" stocks with 20+ years of history and let's discuss why they are (or aren't) safe, why they are doing so good.

*I think all these stocks can go wrong... except for the highly regulated Big 6 Canadian Banks. Tell me more about it, please.*

(I talk about Big 5 and Big 6 simply because I think NA should not be left apart)_


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## :) lonewolf (Feb 9, 2020)

Many view gold, silver & the dollar as safe. It is not the gold, silver or dollar that panics it is people. I think it is best to look @ price pattern to see price pattern that leads to lower prices & price pattern that leads to higher prices & invest in low risk/ high reward price patterns.

buy 5 up 3 down 
sell 5 down 3 up


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## agent99 (Sep 11, 2013)

Banks?? Our banks seem safe but........

Who would have thought RBS would have tanked? Set chart at Max.

Could we see a headline like this: 
*Coronavirus: Barclays, Lloyds, HSBC and RBS suspend dividends *
link here


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## MrBlackhill (Jun 10, 2020)

Canadian Big 6 Banks are part of the most highly regulated banks in the world, as opposed to other banks in the world. These Canadian banks are considered as the safest banks in the world.

A bank like BMO has been paying dividends for more than 190 consecutive years, going through two World Wars and the Great Depression.

All of the Canadian Big 5 Banks are part of the top 35 safest banks in the world. None of the UK banks you mentioned are part of the top 50 banks. In fact, there are no UK banks in the top 50.


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## milhouse (Nov 16, 2016)

There's always risk but how do you quantify it over a decade or multiple decades?
A number of companies have done well in regulated (re protected) industries. IMO, the main type of risks which can structurally impact these companies are regulatory change/deregulation and technological change (and IP theft). These might be easy to see in hindsight but may be difficult to see in the early stages before it's too late if the change is rapid. 
Look how quickly the taxi industry was run over by ride hailing. Demand by the public forced regulatory changes. Correspondingly, who knows what kind of fintech might spur change in the financial services/banking industry. However, the banks are big enough that if they can't beat "them" (fintech), they'll likely just buy them. But their margins would likely be hurt. The big grocery players? Who knows what kind of inroads Amazon can make into the marketplace? The list goes on. 

However, while that's what I think about, it doesn't necessarily keep me up at night. I'm generally a believer in the dominate players in moat'ey industries. Though I am also well aware that some of these companies could stagnate and underperform for a number of years and that might be hard to endure for some.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> Canadian Big 6 Banks are part of the most highly regulated banks in the world, as opposed to other banks in the world. These Canadian banks are considered as the safest banks in the world.


But have you looked into what those regulations do? Many of the strict regulations are about capital management, to maintain solvency of the bank. Bank solvency, and remaining in business, is a different thing than the share price doing well. Banks can remain in business, and solvent, while the share price suffers horribly.

In fact the way the regulations are designed (especially new bail-in legislation) is to ensure that equity holders take all losses, to preserve solvency and safety of bank deposits.

I think that many investors in bank stocks have a fundamental misunderstanding of the "safety" of the banks. It is very plausible that in some turmoil, the banks will remain in business, and deposits will be safe. But this would likely come at the expense of equity, because equity issuance is the mechanism used to recapitalize troubled banks.

When we talk about how safe the Canadian banks are, we mean that deposits are safe and that the bank won't collapse. But the reason the banks won't collapse... the reason for their safety... is that regulators will require aggressive issuance of equity (wiping out the equity).

Canadian banks are safe. Deposits are safe. Their equities are not.

When you own equity in a bank, you are assuming all the risk and are making my deposits safer -- by agreeing to take all that risk on the equity side, in case of a banking crisis. New stronger bank regulations and bail-in legislation has helped make this more solid.



MrBlackhill said:


> A bank like BMO has been paying dividends for more than 190 consecutive years, going through two World Wars and the Great Depression.


I think you have to be careful when considering the historical (hundred+ year record) to the current situation. The big 5 that we see today were consolidations of a huge number of smaller banks. In each economic crisis, say 100 years ago, then again 50 years ago, some banks collapsed into each other and merged balance sheets. This kind of consolidation went a long way to paper over trouble at individual banks.

The result of 150+ years of consolidation is what we see today. So the Canadian banks today are not comparable to the banking situation 100 years ago. There is much less room today to consolidate and recover from balance sheet catastrophes. In 1998, the BMO and RBC tried to merge but this was blocked by government.

Let's say we get a bad banking crisis next year. If this was 100 years ago, a troubled bank could have been absorbed by another bank. But this can't be done today, so banks will be forced to deal with their own losses and solvency. On top of that, new regulations _ensure_ that equity holders will take the losses.


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## Pluto (Sep 12, 2013)

Equity holders take most of the risk in any stock in any industry, so I don't see why banks are especially risky.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> I think that many investors in bank stocks have a fundamental misunderstanding of the "safety" of the banks. It is very plausible that in some turmoil, the banks will remain in business, and deposits will be safe. But this would likely come at the expense of equity, because equity issuance is the mechanism used to recapitalize troubled banks.
> 
> When we talk about how safe the Canadian banks are, we mean that deposits are safe and that the bank won't collapse. But the reason the banks won't collapse... the reason for their safety... is that regulators will require aggressive issuance of equity (wiping out the equity).
> 
> ...


That's a point, but - again - I'm wondering... If ever one of the big banks gets to the point of wiping out the equity or just tanking hard, it would hit pretty hard the investors future sentiment about banks and the bank would then lose many investors. If the bank loses many investors, it loses its ability to stay safe due to lack of equity, so I don't think the banks would want to get there. I don't know about the regulations, but if Canadian banks wants to keep their status of the safest banks in the world, they also have to be safe for their investors. I guess that's especially true for the banks, as opposed to other organisations which are more likely to tank. So - again - it means it's safer. Not?

And I think @Pluto got a point also.



james4beach said:


> Let's say we get a bad banking crisis next year. If this was 100 years ago, a troubled bank could have been absorbed by another bank. But this can't be done today, so banks will be forced to deal with their own losses and solvency. On top of that, new regulations _ensure_ that equity holders will take the losses.


I must admit don't know about the history of the growth of the big banks. I get that TD was established from a merge of two banks during the 1950s and that CM was also established from a merge of two banks in the 1960s. Otherwise, BMO, BNS, LB, NA and RY are banks founded in the 1800s and never merged, as far as I know?

You think that if ever one of the Big 6 is in trouble, it could not be merged? Why you say it can't be done today?


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## agent99 (Sep 11, 2013)

MrBlackhill said:


> Otherwise, BMO, BNS, LB, NA and RY are banks founded in the 1800s and never merged, as far as I know?


National Bank was involved in a merger. It also ran into difficulties several times. 
Here is the history: History - Portrait of the Bank | National Bank

Like many Canadian investors, my allocation to banks is likely too high. I have not checked closely, buy I think NA has been the best performer of the big banks I hold (all 6). Yet where we are, there is just one branch that I have noticed. On the other hand, there are many Scotia branches, yet BNS seems to be one of poorer performers. 

I haven't tried to investigate why BNS doesn't seem to be keeping up. This review is interesting: Best Canadian Bank Stocks - September 2020
One theory says, we should buy BNS because it is paying highest dividend and price will eventually bounce back!


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## AltaRed (Jun 8, 2009)

agent99 said:


> I haven't tried to investigate why BNS doesn't seem to be keeping up. This review is interesting: Best Canadian Bank Stocks - September 2020
> One theory says, we should buy BNS because it is paying highest dividend and price will eventually bounce back!


BNS is not keeping up due to their Latin American holdings under performing. Whether this will pay off for them in the long run remains to be seen.

It has always held that rotation among the banks based on dividend yield has been an effective strategy. Think of it as rotation within a sector...rather than sector rotation. Don't know if that works all the time, but seems to work on longer term rolling averages. I've never played that game myself.


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## londoncalling (Sep 17, 2011)

I think there is some good discussion with many valid points. I am familiar with the highest yield rotation play and it is a factor for me when adding to my Canadian bank holdings. I do not own CM but opted for CWB instead. I hold the rest of the big 5 but only got TD in 2020 at what now seems too high a price. I am slightly overweight BNS based on the buy the highest yield argument. 

I would be curious to peruse the list of the worlds 50 best banks as I am wanting to increase my exposure to banks outside of Canada. At the end of the day I am sticking with the thesis that if Canadian banks fail we do have a lot to worry about. I am already concerned(but not losing sleep) over the current global financial situation


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## kcowan (Jul 1, 2010)

TD seems to have to much US exposure for the Canadian analysts. Similar to BNS' Latin America exposure but less dangerous?


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## kcowan (Jul 1, 2010)

One structural change that has happened to Canadian banks is the Bail-In in which shareholders must anti up before the government.


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## AltaRed (Jun 8, 2009)

kcowan said:


> TD seems to have to much US exposure for the Canadian analysts. Similar to BNS' Latin America exposure but less dangerous?


There was such a rush to the USA by the likes of TD, RY and then BMO that it was a crowded trade by the time BNS came along. BMO's effort seems to have gone nowhere. BNS needed to look elsewhere and is a bet on Latin America eventually getting its act together. Latin America has unimaginable potential but arguably doesn't seem to have the culture to succeed economically. BNS will likely be first of the 4 I hold that I will sell to fund future cash flow needs.


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## MrBlackhill (Jun 10, 2020)

agent99 said:


> National Bank was involved in a merger. It also ran into difficulties several times.
> Here is the history: History - Portrait of the Bank | National Bank


Thanks for that info!


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> Otherwise, BMO, BNS, LB, NA and RY are banks founded in the 1800s and never merged, as far as I know?


As far as I know, most, if not all of them have some kind of history of mergers and amalgamations.

Here's Bank of Nova Scotia for example.
1883: merged with Union Bank of Prince Edward Island
1913: merged with Bank of New Brunswick
1914: merged with Toronto-based Metropolitan Bank
1919: merged with Bank of Ottawa
1994: bought Montreal Trust Company
1997: bought National Trust Company of Toronto

That's 137 years of mergers, acquisitions, and combining balance sheets. These activities are what fuelled Scotia (and the others) into becoming hugely successful, valuable, behemoths with "amazing track records".

What you are looking at today (when you look at Scotia etc) is the entity which gobbled up a ton of small and mid sized banks around the country.

I'm pointing out that the banking landscape today is very different. Can they repeat the above kind of track record _going forward from today_? I would argue "no". And that means that the backward-looking track record, including performance & dividends, may not be an accurate predictor of the forward-looking performance.

Everyone seems to want to extrapolate from the past performance of the Big 5 banks. I'm saying that the past performance is quite useless and irrelevant going forward.


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## MrBlackhill (Jun 10, 2020)

You think there could not be more mergers going forward?

There's still about 30 different growing banks in Canada which could still be merged or bought


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## agent99 (Sep 11, 2013)

If investor wants to avoid our banks because they are so risky, better avoid etfs (like XIU) and MFs because most have 30-40% exposure to the banks.

On the other hand......


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## MrBlackhill (Jun 10, 2020)

Also, @james4beach , I know you talk a lot about the hindsight bias and that past performance does not indicate future performance. I totally agree with you and we should always recall these concepts. I also understand that the word "safe" can be misleading because there are no truly safe stocks by definition, it's not GIC.

But here I'm trying to talk about the safest from a relative perspective, from a probabilistic perspective, when comparing to other stocks.

I mean, after you've told a beginner investor about diversification, asset classes, risks of the market, etc., now he's ready to start his portfolio and he's asking for a few examples of stocks he could buy. I'm pretty sure 99.99% of Canadian investors will name at least one bank. And if he's asking for a few examples of stocks that should do well in the new 20 years, again, I'm pretty sure Canadian banks would be cited.

I know I'm still talking about the past, but I think it has an effect of investor psychology. In the past 25 years, *all* of the Big 6 had at least positive total returns in *any* 7-year window and the lowest 15-year total return was 7.57% CAGR by CM bank, all others were better. And all of the Big 6 had double-digit total returns on average in a 15-year window during those 25 years.

Is there any other Canadian industry which can tell the same story?

My question in this thread for you @james4beach is: if you were tasked to list the top 10 Canadian stocks which you believe are the most likely to provide near double-digit returns in the next 20 years while being the least likely to tank and the safest, what would be on your list?


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> My question in this thread for you @james4beach is: if you were tasked to list the top 10 Canadian stocks which you believe are the most likely to provide near double-digit returns in the next 20 years while being the least likely to tank and the safest, what would be on your list?


That's a tough one and 20 years is a long time. Not sure what I would say to that.

I've never burdened myself with the task of committing to a buy & hold for very long time horizons like that.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> That's a tough one and 20 years is a long time. Not sure what I would say to that.
> 
> I've never burdened myself with the task of committing to a buy & hold for very long time horizons like that.


To make it easier, I'm not saying that you must absolutely hold it during 20 years, but simply to find the stocks you believe you're the most likely to be holding during the longest period of time because you'd be happy with the total returns.


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## MrBlackhill (Jun 10, 2020)

And actually, a good start point is that you have a 5-pack, right?

Interestingly, 3 of the 5 stocks you have are stocks I mentioned in my OP (RY, CNR, FTS). And... There's a bank!

I know that your 5-pack is only a little part of your overall portfolios, but I'm just pointing out your selection of stocks for that portfolio.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> And actually, a good start point is that you have a 5-pack, right?
> 
> Interestingly, 3 of the 5 stocks you have are stocks I mentioned in my OP (RY, CNR, FTS). And... There's a bank!
> 
> I know that your 5-pack is only a little part of your overall portfolios, but I'm just pointing out your selection of stocks for that portfolio.


I would agree that RY, CNR, FTS seem like good bets. But I should add that my 5-pack simply duplicates the top holdings of the TSX 60. I leave the portfolio management to the good folks at the S&P and my 5-pack is not too different than passive indexing.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> To make it easier, I'm not saying that you must absolutely hold it during 20 years, but simply to find the stocks you believe you're the most likely to be holding during the longest period of time because you'd be happy with the total returns.


Some other ones that come to mind are: EMP.A, EMA, MRU, BCE

But I disagree with something fundamentally about this exercise. IMO stock portfolios must always be managed, because companies can change dramatically at any time. A company which is great today could turn into junk 15 years from now.

If you pick some great companies today, yeah, they'll still be great in 5 years. Maybe even in 10 years. But a lot of things can change in 10+ years and at some point, you might effectively be dealing with a whole different company. For example GE transformed from an industrial giant to an industrial has-been, coupled with an aggressive and mismanaged financial arm.

So I don't see the point of this because I think it's a huge mistake to maintain long term static positions in stocks. Even the index is constantly evolving; it's actively managed.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> But I disagree with something fundamentally about this exercise. IMO stock portfolios must always be managed, because companies can change dramatically at any time. A company which is great today could turn into junk 15 years from now.
> 
> If you pick some great companies today, yeah, they'll still be great in 5 years. Maybe even in 10 years. But a lot of things can change in 10+ years and at some point, you might effectively be dealing with a whole different company. For example GE transformed from an industrial giant to an industrial has-been, coupled with an aggressive and mismanaged financial arm.
> 
> So I don't see the point of this because I think it's a huge mistake to maintain long term static positions in stocks. Even the index is constantly evolving; it's actively managed.


The point of this thread is not about not reacting to what will happen in the future, but what should you do in the present.

Let me explain myself. Yes, I totally agree that a portfolio must be managed. At some point, you may drop a stock and add another one. That's true.

But we are here and now and in the present day, we must make a decision about which stock to pick. If your goal is to pick stocks and hopefully hold them on the long term to reduce the need for highly active management, then you'll try to pick such stocks that you believe will continue performing well in the next years and maybe even the next decades.

The goal of this thread is to try to identify those stable and "safe" stocks such as banks, CNR, MRU, TIH and FTS which performed well during more than 20 years.

The goal is also to have a discussion about why we believe they will continue performing well in the future with a reasonably low risk of underperforming and a high likelihood of stability (as I started discussing mainly about the Canadian banks).

The goal is not to buy such stocks and go to sleep for the next 20 years before looking at what happened. No, obviously, you'll reassess your portfolio at least every year. But if you identified the right stocks (and if you are lucky...), you'll continue holding those same stocks during many years.

For instance, there's certainly someone who made this exercise back in 2005 and picked RY, CNR, MRU and is still holding them as of today. Sure, he reassesses them every year. But every year, he continue believing they are good stocks.

But, yes, even if we believe we will hold these stocks long term, we must always reassess that we are not entering a "GE-like situation".



james4beach said:


> Some other ones that come to mind are: EMP.A, EMA, MRU, BCE


Good picks, they are also part of my watchlist.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> The point of this thread is not about not reacting to what will happen in the future, but what should you do in the present.
> 
> Let me explain myself. Yes, I totally agree that a portfolio must be managed. At some point, you may drop a stock and add another one. That's true.
> . . .
> ...


Ah yes, I see. That makes sense.

And yes even with periodic review of the portfolio, many stocks will remain there, possibly for a very long time. I wouldn't be surprised if my 5-pack still holds RY and CNR many years from now.


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## kcowan (Jul 1, 2010)

It seems to me that the last major change to banks was the TD acquisition of Canada Trust. Before that the government rejected the merger of RBC and BMO.


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## agent99 (Sep 11, 2013)

kcowan said:


> It seems to me that the last major change to banks was the TD acquisition of Canada Trust. Before that the government rejected the merger of RBC and BMO.


Prior to that, in 1993, Royal Bank of Canada bought Royal Lepage (which previously had been Royal Trust before the merger with Lepage). At one time, we had our home mortgage as well as savings accounts at Royal Trust.

Interestingly, Royal Trust started life in Montreal. It was formed by a consortium that included 9 BMO board members and Donald Smith was inaugural president (worth reading his biography!) RT shared premises with BMO back then.


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## Money172375 (Jun 29, 2018)

It seems to me that the last major change to banks was the TD acquisition of Canada Trust. Before that the government rejected the merger of RBC and BMO.


and the TD CIBC proposed merger. I actually saw logo prototypes.....green CIBC logo.


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## Rusty O'Toole (Feb 1, 2012)

You do know you are allowed to sell a stock if it starts to go sour? Many blue chips of the past have faded, some passed into oblivion, Of the stocks that make up the Dow Jones Industrial average none have been there from the beginning. Last of the original 12 was General Electric which was dropped in 2018. 
Warren Buffet is the great exponent of keeping a stock forever, but even he sells when the company stops performing.


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## MrBlackhill (Jun 10, 2020)

Do you think our Big 6 Banks can fall into oblivion? That's why I feel like they are the safest (relative to other stocks).


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## agent99 (Sep 11, 2013)

MrBlackhill said:


> Do you think our Big 6 Banks can fall into oblivion? That's why I feel like they are the safest (relative to other stocks).


I don't think all 6 could fail simultaneously. But certainly one or more could make some bad decisions at just the wrong time, and find themselves in trouble. At that point they may be allowed to merge rather than totally fail, as some US banks did. Investors no doubt know this and as a result, the bank's nvcc debt and preferreds have higher yields (lower prices) than non-nvcc debt/pfds. More here: Understanding key features in banks' debt and preferred share offerings | Complex investments | GetSmarterAboutMoney.ca

One reason not to try and pick a bank. Just own all 6. Even right now, that is working for me. I have also avoided banks in the lower tiers.


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## james4beach (Nov 15, 2012)

agent99 said:


> I don't think all 6 could fail simultaneously. But certainly one or more could make some bad decisions at just the wrong time, and find themselves in trouble.


Absolutely. To be clear, I don't think any of them will fail. A bank "failing" means it's insolvent, and it has collapsed.

None of them will fail. But it's very possible one of them could find itself facing large losses, and have insufficient capital. When it needs more capital, it will have to issue more equity which will reduce the value of current shares. If they have to issue a ton of equity, it could drive the share price into the ground resulting in catastrophic equity losses.

None of these banks will fail, but it's possible they could run into some trouble along the way which hammers its equity. Look at Citigroup and BAC if you want to see what that looks like. Those banks didn't fail; they survived the financial crisis. Citi's 15 year return is -9% CAGR (negative).


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## cainvest (May 1, 2013)

I think a 5-pack pick like BCE, RY, FTS, ENB, CNR are pretty safe bets for a longer term outlook. Even doubling up on each sector and adding in the other big banks would be fine IMO. Really one needs to assess yearly based on changing events and I think looking forward greater than 5 yrs is difficult on an individual stock basis.


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## MrBlackhill (Jun 10, 2020)

cainvest said:


> I think a 5-pack pick like BCE, RY, FTS, ENB, CNR are pretty safe bets


I also think they are very good choices, but I'm wondering why MRU and TIH never comes up? I would replace ENB and BCE by MRU and TIH. Maybe we could have a discussion about the pros & cons and their justification? As you may know, I'm a beginner investor, so I'm learning from the opinions of others.

Or maybe just buy them all (Bank, FTS, CNR, MRU, BCE, ENB, TIH).

I don't like the looks of ENB's flat line for the last 5 years. Maybe Canadians also have a preference bias towards the Energy (O&G) sector? It's still a great stock, fundamentals are good, but it's now all about a high dividend yield, so I would - personally - tend to phase out after 5 years of flat line as I prefer stocks with lower dividends but growing SP with great fundamentals. (Quick fundamentals I tend to look at before analysing in depth : P/E, P/S, P/B, PEG, "PSG", RoE, D/E, Current ratio, Quick ratio, Profit margin)

Any idea why ENB stopped growing in SP starting around 2015?

Since we are talking about 5-pack, here's my top 5.

NA (or RY, TD, BNS)
CNR
MRU
FTS
TIH


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## Eder (Feb 16, 2011)

cainvest said:


> I think a 5-pack pick like BCE, RY, FTS, ENB, CNR are pretty safe bets for a longer term outlook.


I really like this line up better if a REIT is added, so a 6 pack similar to Argo's original thoughts. I use XRE for my daughters 6 pack but I may drop it and add Choice REIT soon.


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## agent99 (Sep 11, 2013)

To be honest, I don't see including a relatively small cap stock like TIH if you are choosing just 5 TSX stocks (or even 10) . It is not in same league as the other 4 choices. Sure it has had a good run, but can that continue for the long term? Dependent on their customer businesses, I guess which are dependent on a growing economy. Interesting company, but too dependent on just growth for me. I would like to see a better dividend.

I recall buying Loblaws when it was a darling of the TSX and had a chart much like TIH's! How could I go wrong buying one of Canada's largest grocers? 4 years later the stock had dropped to less than 1/2 the price I paid. And stayed there or thereabouts for a long long time. Finally got back to purchase price after about 14 years. And not much dividend in the meantime 

If choosing just 5 SAFEST stocks, you need to first decide on the objectives.
Are you early in the game and looking for safe long term gains. (good luck  )
Or near end of game and looking for safe cash flow.


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## james4beach (Nov 15, 2012)

Eder said:


> I really like this line up better if a REIT is added, so a 6 pack similar to Argo's original thoughts. I use XRE for my daughters 6 pack but I may drop it and add Choice REIT soon.


More sector diversification is always better (and safer). They say that diversification is the only "free lunch" in investing.

I just went with 5 in my pack because I wanted to stick with sectors I'm familiar with, but there's no harm in adding sectors. But careful... keep adding sectors and diversifying, and before you know it, you'll end up with XIC


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## like_to_retire (Oct 9, 2016)

james4beach said:


> ..... keep adding sectors and diversifying, and before you know it, you'll end up with XIC


Yep, without all the crap.

ltr


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## james4beach (Nov 15, 2012)

like_to_retire said:


> Yep, without all the crap.


A bit of an aside, but out of curiosity, what would you say is crap in XIC? If you have a moment to go through, say, 20 largest weights in XIC, which would you say are crap? (that have poor prospects of forward returns)?


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## cainvest (May 1, 2013)

MrBlackhill said:


> I don't like the looks of ENB's flat line for the last 5 years. Maybe Canadians also have a preference bias towards the Energy (O&G) sector? It's still a great stock, fundamentals are good, but it's now all about a high dividend yield, so I would - personally - tend to phase out after 5 years of flat line as I prefer stocks with lower dividends but growing SP with great fundamentals.


It about total return in any case but I'm fine with ~8% even if ENB continued to flat line. Nothing wrong with your preference for growth stocks, well all have our own objectives.


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## cainvest (May 1, 2013)

james4beach said:


> A bit of an aside, but out of curiosity, what would you say is crap in XIC? If you have a moment to go through, say, 20 largest weights in XIC, which would you say are crap? (that have poor prospects of forward returns)?


I think it's more about the other 200+ stocks rather than the top 20 or so ... just a guess though.


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## james4beach (Nov 15, 2012)

cainvest said:


> I think it's more about the other 200+ stocks rather than the top 20 or so ... just a guess though.


Those 200+ other stocks aren't meant to perform great all the time. They are the pool from which new winners might emerge. There was a time when SHOP and WCN were small weights of the TSX Composite. SHOP was added on 2017-06-16 and WCN was added 2016-05-27.

Performance since the time they were added is
WCN ... 22% CAGR (about 3x the TSX)
SHOP ... 115% CAGR (about 16x the TSX)

If you had gone stock-picking yourself and dismissed those 200+ stocks, you wouldn't hold these. Isn't that a loss?

I agree that a stock-picker can outperform the index but they have to be vigilant, and they have to make sure they are constantly watching for the new SHOP, WCN, FNV, etc. This is doable but it's a lot of work.

I just disagree with the idea that the bottom 200 stocks are crap. They are small weights, and not of much negative consequence. But you never know which company might rise to greatness and eventually, a few do, out of that 200.


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## MrBlackhill (Jun 10, 2020)

Eder said:


> I really like this line up better if a REIT is added, so a 6 pack similar to Argo's original thoughts. I use XRE for my daughters 6 pack but I may drop it and add Choice REIT soon.


What about CAR-UN.TO ? That's on my watch list of the most stable stocks, along with the one mentioned in my OP.



cainvest said:


> It about total return in any case but I'm fine with ~8% even if ENB continued to flat line. Nothing wrong with your preference for growth stocks, well all have our own objectives.


I totally agree that 8% is good, but if it stagnates for a long time (like CNQ) it means less performance in the case of a buy & hold strategy discussed here. From Jan 2015 to Dec 2019, the total return of ENB as been about 2% CAGR. So far they increased the dividend by about 12% yearly to keep investors. And at the moment the dividend they pay is higher than the EPS. But so far it doesn't seem an issue as they've been paying dividends at payout ratio above 100% for the past 5 years. That's currently beyond my comprehension as a beginner investor.



james4beach said:


> Those 200+ other stocks aren't meant to perform great all the time. They are the pool from which new winners might emerge. There was a time when SHOP and WCN were small weights of the TSX Composite. SHOP was added on 2017-06-16 and WCN was added 2016-05-27.
> 
> Performance since the time they were added is
> WCN ... 22% CAGR (about 3x the TSX)
> ...


Well, so far, XIU has the same performance as XIC and it has only the top 60 instead of the 220+. Interestingly, XIU should be more volatile, but it isn't. Same thing for OEF vs IVV for the past 15 years (S&P 100 vs S&P 500). ONEQ is holding all NASDAQ composite (1000+ stocks) while QQQ is holding NASDAQ-100 and QQQ is outperforming ONEQ.

The bottom stocks may not be crap, but their aggregate is clearly useless. And that's why if you just watch the TSX 60, pick the best performers, skip the trash and watch for rising stocks which are added, you'll outperform the index.

Market cap weighted index works fine for large caps, not for small caps. That's why the bottom is useless. Look at the TSX Venture Composite Index, that's 380+ of the smallest caps. Look at the TSX Smallcap Index, that's 200+ small caps. Horrible performance in the past 10 years. Those indices did well after the dotcom bubble and until the financial crisis. Maybe they'll thrive again if the large caps goes on a bubble and crash again. But even when those indices were doing well, XIC didn't beat XIU.

SHOP appeared in XIC for the first time in June 2017 but only in March 2019 for XIU. That's 2 years later. From June 2017 to March 2019, SHOP went up +145%. Did XIU miss out? Seems like it didn't because both XIU and XIC have about the same performance in the past 5 years (actually, XIU beats XIC). That's because the outperformance of SHOP in XIC was diluted by the underperformance of the other stocks until SHOP reached a higher weighting.

So if you don't need an ETF with 1000 holdings, if you don't need 500, if you don't need 100, if even 60 is doing great, what about 25-50 holdings only? I'm watching closely DXG which is an ETF investing actively in stocks worldwide and it's holding only about 23 stocks for a performance of 24% CAGR since Jan 2017. And it didn't even drop that much during the COVID crash, it dropped about -20% from its peak to its bottom and it recovered by mid-May.


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## cainvest (May 1, 2013)

james4beach said:


> Performance since the time they were added is
> WCN ... 22% CAGR (about 3x the TSX)
> SHOP ... 115% CAGR (about 16x the TSX)
> 
> ...


True you may not have got SHOP or WCN but the real comparison is between your selected holdings and the overall index. Guess the question would be how many groupings of say, the top 20 XIC holdings, (without SHOP and WCN) would have returned better than XIC? I would gather the selected timeframe would vary the results significantly here, whether it be 1, 2 or 5+ years.


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## agent99 (Sep 11, 2013)

This came in my email this morning: The Safest Dividend Stocks (From Dividend Earner.com - sometimes has interest stuff) . Might be of interest to some?









Find Safe Dividend Stocks for your Portfolio


Finding the safe dividend stocks can be difficult but when you know what to look for, it's easily done. A few charcteristics are needed to be have a safe dividend.




dividendearner.com


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## :) lonewolf (Feb 9, 2020)

Mr Black your playing against some of the most powerful corrupt people in the world. Judging by another post you started under restaurants & something about Covid you are not the best along with those who continually delete my posts @ judging truth from falsehood which is needed for this game. The posts were deleted by those that fear to face the truth & not take comfort in the herd. The example I am talking about is the link regarding Hydroxychloroquine being dangerous & not good for treatment of COVID you posted. The drug has been around & used for over 60 years & many doctors have been using successfully to fight COVID though the media & internet are censoring the doctors & are failing to reveal the bogus science being used to discredit the drug & instead promote vaccines that are more profitable for big pharma


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## MrBlackhill (Jun 10, 2020)

:) lonewolf said:


> Mr Black your playing against some of the most powerful corrupt people in the world. Judging by another post you started under restaurants & something about Covid you are not the best along with those who continually delete my posts @ judging truth from falsehood which is needed for this game. The posts were deleted by those that fear to face the truth & not take comfort in the herd. The example I am talking about is the link regarding Hydroxychloroquine being dangerous & not good for treatment of COVID you posted. The drug has been around & used for over 60 years & many doctors have been using successfully to fight COVID though the media & internet are censoring the doctors & are failing to reveal the bogus science being used to discredit the drug & instead promote vaccines that are more profitable for big pharma


I'll gladly have a chat with you. I like debates about diverging opinions. Start a private discussion with me and tell me what's the purpose of voluntary destroying the economy and voluntary let people die as you suggest. If you believe corrupted people are playing a worldwide game, it means they have a goal. What's their goal in this? So you believe something like China created the virus and now China is just waiting to release the vaccine at some point and take all of the world's profits? Meanwhile, China is infiltrated everywhere to censor everybody?

(To all the other people reading this post, I will not continue the discussion here. If @:) lonewolf wants to continue a discussion, make it private with me, I'll hear you).


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## like_to_retire (Oct 9, 2016)

james4beach said:


> A bit of an aside, but out of curiosity, what would you say is crap in XIC? If you have a moment to go through, say, 20 largest weights in XIC, which would you say are crap? (that have poor prospects of forward returns)?


You may have missed the point, but respected member caninvest already summed it up. 

The index contains a lot of duds that drags down the return. We all know this, so singling out specific stocks isn't something we need to do. It just ain't that hard to beat the Canadian Index. You know this more than anyone given your various individual stock schemes, although you don't seem to have a lot of confidence in them. Why challenge what everyone already knows?

Many have their own method of beating the Canadian Index. My method is an equal sector approach. I started it in 2011 and am now 47.3% YTD ahead of the Canadian Index. It's a long term, slow approach, that builds over time. That's the way to beat an index.

ltr


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## james4beach (Nov 15, 2012)

like_to_retire said:


> You may have missed the point, but respected member caninvest already summed it up.
> 
> The index contains a lot of duds that drags down the return. We all know this, so singling out specific stocks isn't something we need to do. It just ain't that hard to beat the Canadian Index. You know this more than anyone given your various individual stock schemes, although you don't seem to have a lot of confidence in them. Why challenge what everyone already knows?
> 
> Many have their own method of beating the Canadian Index. My method is an equal sector approach. I started it in 2011 and am now 47.3% YTD ahead of the Canadian Index. It's a long term, slow approach, that builds over time. That's the way to beat an index.


I criticize the concept (and am doubtful even of my own stock picking) because a handful of years is a very short time period in the stock market. This kind of thing has been studied over much longer periods. Studies of mutual fund managers show they can't reliably beat the index over the long term. If they can't beat the index, what makes you think that you or I can?

Anecdotal stock picking success (like yours, mine, Eder's) can be misleading because it does not account for survivorship bias, nor does it span broad time periods.

I'm not saying it's impossible to successfully pick stocks, but I'm very skeptical. For this reason, my RRSP (which is most important to me) is purely index ETFs, even though I'm picking stocks elsewhere like my TFSA and non-reg.


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## like_to_retire (Oct 9, 2016)

james4beach said:


> I criticize the concept (and am doubtful even of my own stock picking) because a handful of years is a very short time period in the stock market. This kind of thing has been studied over much longer periods. Studies of mutual fund managers show they can't reliably beat the index over the long term. If they can't beat the index, what makes you think that you or I can?
> 
> Anecdotal stock picking success (like yours, mine, Eder's) can be misleading because it does not account for survivorship bias, nor does it span broad time periods.
> 
> I'm not saying it's impossible to successfully pick stocks, but I'm very skeptical. For this reason, my RRSP (which is most important to me) is purely index ETFs, even though I'm picking stocks elsewhere like my TFSA and non-reg.


Yep, and I guess you could second guess a strategy forever. I look at my strategy that is 9 years old and I'm 47 percentage points ahead of the index (not percent, but percentage points). I could lose to the index for quite a few years and still be ahead.

I guess someone could wait 20, 30, 50 years to satisfy your "long term" verification that the strategy works, and then say to themselves, "damn, I wish I had tried that strategy". 

ltr


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## james4beach (Nov 15, 2012)

like_to_retire said:


> Yep, and I guess you could second guess a strategy forever. I look at my strategy that is 9 years old and I'm 47 percentage points ahead of the index (not percent, but percentage points). I could lose to the index for quite a few years and still be ahead.
> 
> I guess someone could wait 20, 30, 50 years to satisfy your "long term" verification that the strategy works, and then say to themselves, "damn, I wish I had tried that strategy".


Here's a question for you. I'm assuming you think that the S&P 500 is a "good" index, and you're not going to try picking stocks to outperform it, right?

Well, the S&P 500 and TSX have nearly identical long term returns. Generally both markets, as far as cap-weighted market history goes, perform about the same over 100+ years. And over the last 20 years, they have identical performance.

So if the TSX index performs the same as the S&P 500 index, and you don't think you can pick stocks to outperform the S&P 500, why would you think you can pick stocks to outperform the TSX?


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## like_to_retire (Oct 9, 2016)

james4beach said:


> Here's a question for you. I'm assuming you think that the S&P 500 is a "good" index, and you're not going to try picking stocks to outperform it, right?
> 
> Well, the S&P 500 and TSX have nearly identical long term returns. Generally both markets, as far as cap-weighted market history goes, perform about the same over 100+ years. And over the last 20 years, they have identical performance.
> 
> So if the TSX index performs the same as the S&P 500 index, and you don't think you can pick stocks to outperform the S&P 500, why would you think you can pick stocks to outperform the TSX?


The S&P 500 is huge. As a Canadian, I don't have intimate knowledge of all those US stocks. I'm well aware that the S&P 500 and the TSX are quite similar over the long term.

I know I can beat the TSX, but have no knowledge of the S&P 500 and so I don't invest in it. I am behind the 8 ball investing in a US index since I don't enjoy the huge tax advantage that the Canadian index offers me in the dividend tax credit. There's also forex issues that I have no control over. I only invest in Canadian stocks.

If someone feels they can overcome all the disadvantages of foreign stocks they should probably just invest in the indexes.

ltr


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## cainvest (May 1, 2013)

james4beach said:


> Studies of mutual fund managers show they can't reliably beat the index over the long term. If they can't beat the index, what makes you think that you or I can?


Little bit of apples and oranges here IMO, individual vs MF managers. MF's generally trended towards larger gatherings of stocks and historically charged high MERs which lowered returns. An individual buying a sector spread subset of the near top weighted index stocks (5-10) is vastly different than the 99% of MFs in the past.

How long of a track record do we have on the Argo 5 pack? Did it fair better than the XIU/XIC indexes?


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> Here's a question for you. I'm assuming you think that the S&P 500 is a "good" index, and you're not going to try picking stocks to outperform it, right?
> 
> Well, the S&P 500 and TSX have nearly identical long term returns. Generally both markets, as far as cap-weighted market history goes, perform about the same over 100+ years. And over the last 20 years, they have identical performance.
> 
> So if the TSX index performs the same as the S&P 500 index, and you don't think you can pick stocks to outperform the S&P 500, why would you think you can pick stocks to outperform the TSX?


S&P 100 has the same performance as S&P 500 in the past 15 years and that's not even stock-picking, that's just taking the top 100.
NASDAQ-100 is totally outperforming NASDAQ composite (1000+ stocks).

Let me do something very stupid here. This is the list of S&P 500 biggest stocks as of 1990. Visual History Of The S&P 500 | ETF Database
PortfolioVisualiser doesn't seem to have the full history of PM, so I'll just pick the 9 of the top 10 holdings as of 1990.
I'll invest 500$ at the start then 500$ every month. The portfolio of top 10 (top 9) is equal weight. I won't ever change my holdings, but I'll rebalance annually.
The "strategy" started underperforming SPY only in 2017, after 23 years. And it has held GE and T as a total of more than 20% of the portfolio which both dropped -80% at some point.
The portfolio is in blue, SPY is in red.














Backtest Portfolio Asset Allocation


Analyze and view backtested portfolio returns, risk characteristics, standard deviation, annual returns and rolling returns



www.portfoliovisualizer.com





Below, I made other examples with the top 10 holdings as of 1995, 2000, 2005 and 2010. It barely ever lagged SPY's 500 holdings. *Imagine if you would've been just a bit selective (instead of just picking blindly the top 10). And see how picking 10 stocks vs 500 stocks is not a big risk if you know what you're doing. *_Note, this assume the accumulating phase where you invest money monthly or annually or so. Results would differ drastically in the phase where you live off of your investments._

Maybe I was just lucky. Let's do that with the 10 biggest as of 2000 and hold on to them. This holds AIG which dropped bad, it also holds C and GE which dropped bad, that's 3 stocks so 30% of the portfolio dropped bad. Visual History Of The S&P 500 | ETF Database















Backtest Portfolio Asset Allocation


Analyze and view backtested portfolio returns, risk characteristics, standard deviation, annual returns and rolling returns



www.portfoliovisualizer.com





I did it with the top 10 stocks of 1990 (but PortfolioVisualiser had history starting 1994). I did it with the top 10 stocks of 2000. Let's do 1995. (Only PM will be missing again) Visual History Of The S&P 500 | ETF Database















Backtest Portfolio Asset Allocation


Analyze and view backtested portfolio returns, risk characteristics, standard deviation, annual returns and rolling returns



www.portfoliovisualizer.com





Let's do 2005, this one is lagging. But is it that much of a bad performance considering it holds C, AIG and BAC as 30% of the portfolio which dropped by more than -90%? Oh, it also holds GE which dropped -80%. That's 40% of the portfolio with insane drops. Visual History Of The S&P 500 | ETF Database















Backtest Portfolio Asset Allocation


Analyze and view backtested portfolio returns, risk characteristics, standard deviation, annual returns and rolling returns



www.portfoliovisualizer.com





And let's do 2010 also. Visual History Of The S&P 500 | ETF Database















Backtest Portfolio Asset Allocation


Analyze and view backtested portfolio returns, risk characteristics, standard deviation, annual returns and rolling returns



www.portfoliovisualizer.com


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## Pluto (Sep 12, 2013)

Some people think the safest stocks are the ones with lots of assets relative to other stocks. Seems to make sense. Tons of assets suggests they are able to survive economic storms better than smaller companies. 
However true that may be, it is missing something which seems to be growth. 
So I pick tons of assets + steady growth = safest stocks. 

CDN big banks seem to fit that criteria as do some other stocks.


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## milhouse (Nov 16, 2016)

Probably not the best example but the G&M had a Me and My Money article (paywall) on Sherry Cooper, the former chief economist of BMO. They originally interviewed her in 2017 (paywall), to see how she managed her money. And of course, she was (and still is) heavily invested in different bank shares. Longer term, she's looking to live off the dividends. During her working life, she reinvests the dividends via DRIPs which grows her portfolio without trying to time the market, which is particularly beneficial during bear markets. She comfortable with a non-diversified strategy since she knows the banking industry well. She said that the banking industry in Canada is solid and heavily regulated. And if the banks go down, there wouldn't be safety anywhere anyways. She does have other assets though: real estate, private and venture capital funds, US ETF's, stock options, and cash.
In the follow-up today, her portfolio seems fairly status quo from her original interview from an asset allocation perspective (concentration on the big 5 bank stocks in her dividend componet) and a focus on dividends for income and less concern about price fluxuations. The article notes the advantages of the bank stocks:
The big 5 basically have an oligopoly, controlling about 80% of the banking assets in Canada which allows them keep cutthroat competition low and profit margins high.
Barriers to entry are high with large capital requirements and the Bank Act which prevents single ownership of more than 20% of a bank's voting shares.
Heavy regulation due their central role in the economy and being a conduit for monetary stabilization policies. In turn, they are provide government backing in forms such as deposit insurance, guarantees against mortgage default.

The article references a Bank of Canada stress test report of the resilience of the Canadian banking system published last year that concluded the banks' capital reserves wouldn't be breached until an extreme situation of 8% decline in real GDP, 7 consecutive quarters of negative growth, 12.6% unemployment, and a 41% drop in housing prices.

It also says fintech and their disruptive technologies don't have as large of a war chest nor are as accepted/trusted by most Canadians. They are also hampered by regulatory obstacles. The net result is that several fintech companies have partnered with the banks.

So to tie this up with one of the original examples of the thread: Yes Canadian banks are susceptible to getting it on the chin in situations like today a the great recession but they have a large moat due to regulation and barriers to entry. Their resulting oligopolistic situation keeps their margins fat. And they are so tied into the economy, they are hooked into protections that the government provides. Unless regulation change, I can't see how banks would not be a candidate for long term performance.


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