# Has anyone tried this 2MP ongoing from 86 by morningstar



## 1980z28 (Mar 4, 2010)

http://news.google.com/news/url?sa=...tIGQAg&usg=AFQjCNHitKjlnDteTc6JSGkCfYriKLZcxg

Also includes 2015 picks

I have some of the picks FTS being the largest at over 100k

I do like what I see,could be a great retirement starter


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## OptsyEagle (Nov 29, 2009)

The problem with these types of "mechanical investing" strategies is two fold:

1) Data Mining: If you sit at your computer long enough you will find literally thousands of strategies that back test well that really are just a complete fluke. It is almost impossible to separate these numerous flukes from what might be a valid strategy. Some are obvious, but many are simply not. Their time frame may seem like enough time to determine it but objective statistical analysis would say something quite different.

2) Investor Persistence: Even if the portfolio strategy is sound, you will find when you look back at the back tested results that there will be a number of years, and in some cases a few years in a row, where it will underperform the index. Now, an investor may say, "who cares, as long as it beats the index in the long term". Well it is pretty difficult for an investor, searching for outperformance to sit in an underperforming strategy for an ENTIRE YEAR, and in some case 2 or 3 years in a row, when so many OTHER strategies have been outperforming the index. It only takes 10 minutes and a few clicks of a mouse to change the strategy or tweek it. Therefore, almost all investors will inevitably switch to a new strategy long before the one they are in starts to perform better.

You might think you will be different, but I doubt it. Anyway, those are my thoughts on your question.


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## 1980z28 (Mar 4, 2010)

Good advice


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## Moneytoo (Mar 26, 2014)

OptsyEagle said:


> The problem with these types of "mechanical investing" strategies is two fold:


Ditto from "The Intelligent Investor" (I was struggling with first few chapters, now determined to finish reading it ):

"Throughout the past decade or so [note: the commentary was written in 2003] one speculative formula after another was promoted, popularized, and then thrown aside. All of them shared a few traits—This is quick! This is easy! And it won’t hurt a bit!—and all of them violated at least one of Graham’s distinctions between investing and speculating. 

...

The Foolish Four, in short, was one of the most cockamamie stock-picking formulas ever concocted. The Fools made the same mistake as O’Shaughnessy: If you look at a large quantity of data long enough, a huge number of patterns will emerge—if only by chance. By random luck alone, the companies that produce above-average stock returns will have plenty of things in common. But unless those factors cause the stocks to outperform, they can’t be used to predict future returns.

None of the factors that the Motley Fools “discovered” with such fanfare—dropping the stock with the best score, doubling up on the one with the second-highest score, dividing the dividend yield by the square root of stock price—could possibly cause or explain the future performance of a stock. Money Magazine found that a portfolio made up of stocks whose names contained no repeating letters would have performed nearly as well as The Foolish Four—and for the same reason: luck alone. *As Graham never stops reminding us, stocks do well or poorly in the future because the businesses behind them do well or poorly—nothing more, and nothing less.*"


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## OptsyEagle (Nov 29, 2009)

They do make good articles...and that is all they do. 10 years from now there will be a new one and it will also make for good reading.

My best advice ... try not to bother reading about them. As I said above, even if they did work the majority of investors could not make money from them anyways.


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## Moneytoo (Mar 26, 2014)

OptsyEagle said:


> ...even if they did work the majority of investors could not make money from them anyways.


Apparently when too many people start following the same strategy - it also stops working. There were a few examples in the book (written back in early 70's), and here's the recent one (almost identical to one from the past!): Reasons To Avoid Momentum Based ETFs. This explanation:

"...once people learn about some investment strategy based on psychological behaviour, those strategies tend to stop working because people's behaviours change."

- made me wonder if it's the reason why bonds don't really counter-balance stocks lately? And if the Couch Potato strategy will stop working eventually (when there're too many followers, buying basically the same stuff at the same time)?


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## Pluto (Sep 12, 2013)

I'm not a big fan of mechanical investing either. A lot of companies have a high dividend just before they cut it, and go into years of trouble. Pretty scary strategy - with out any filter to weed out the crap from the quality companies. 

And about Graham: Notwithstanding his insights, don't get taken in by his buying companies below net asset value. Apparently he didn't make much money at it. I think Buffet and Munger call his margin of safety as taking the last puff off a good cigar. Buffet has much better ideas on the type of company to buy - He likes to buy companies where the cigar never ends. After reading the Intelligent investor, If you read the Essays of Warren Buffet and find out why he liked companies such as GEICO, AMEX, Gillette, Wells fargo, you get a clearer idea of what they mean by value and safety and quality. Once one studies why he like those and other companies, you will never again buy into the luck theory. The greatest investors never paid much attention to it. Also if you look at their history of buying Buffet and Munger get very aggressive in their buying when an industry or the economy in general are in trouble - they don't worry because they are buying quality survivors. 

Individual investors don't need to buy the very risky crap. Leave that to the funds with billions upon billions to invest - they are in a way, forced to get into average and below average names due to the amount of money they must invest, plus they have some misplaced faith in diversification. If you focus on quality survivors, you don't need more than 10 stocks. 

One thing that gets young people into risky below average stocks is they are to eager to make a killing. They might get a huge profit from one or two, which is encouraging, but some others blow up in their face, making the overall result average or worse. 

So as far as the strategy in question goes, ie 2MP - there is no strategy to weed out the crap.
I'm not very keen on index investing either eg some TSX etf, for the same reason - one ends up buying some dogs along with the good ones, plus one ends up buying cyclical resource stocks for the long run. why would anyone want to do that? One is better off buying a bank etf for the long run, and trading oil and other resource stocks.


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## Moneytoo (Mar 26, 2014)

Pluto said:


> If you focus on quality survivors, you don't need more than 10 stocks.


Yeah, we have 23 stocks (14 Canadian, 6 US and 3 ADRs) - I love them all, but if I were to start over, I wouldn't buy at least half of them, and would wait for a better price on the remaining half (not even sure in which category 5 Oil & Gas stocks and 1 Pipeline are lol) 

Intuitively (or just using a common sense? ), I followed this advice (that I read about after we bought most of the stuff): 5 things that Cramer says should be in your portfolio, now:

"*You need a dividend-paying stock with a high yield, you need a growth stock, you need something speculative, you need something foreign and you need some gold*"

Wasn't sure about gold for most of last year (bought a gold bullion ETF in early May, that went down soon after - and stayed down) - but looks like it'll come in handy this year


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## Pluto (Sep 12, 2013)

Gold was an attraction for me early in my investing, but soon lost its allure. I was under the influence of economists pointing out government debt, inflation, eventual doom, and so on, and claiming the answer was to invest in gold. The reality is that the best inflation hedge is stock in a quality business that will likely never end. Buffet is, I think, better on the gold topic than Cramer. I often listen to Cramer because he stimulates my thinking, but I don't agree with him on a lot of topics, and gold is one of them. There is an interview with Buffet on the gold topic on youtube that to me is quite enlightening. 

Cramer is a professional money manager, and they are not always the best to get advice from. The reason is professional money managers have a lot of money to invest, and so their strategies are tuned to putting billions to work. Nothing wrong with that. Then their advice to individuals is coloured by their strategies. But individuals don't have billions to invest, and that means they don't need to employ all the strategies of money managers. Individuals have the luxury of focusing on the highest quality industries, and stocks. Plus individuals can get out of stocks in a minute, but money managers might take 2 - 3 months to unwind a big position. That's an advantage individuals should consider using. And if one is going to buy a speculative stock, to me that requires a trading strategy. For that, Loeb's book, the battle for investment Survival, Bill O'niel's books, Jessie Livermore, offer a lot of insights. I'm not sure why Cramer would tell people they need a speculative stock when it requires more luck and knowledge in trading strategies than most people care to learn.


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## Moneytoo (Mar 26, 2014)

Pluto said:


> And if one is going to buy a speculative stock, to me that requires a trading strategy. For that, Loeb's book, the battle for investment Survival, Bill O'niel's books, Jessie Livermore, offer a lot of insights. I'm not sure why Cramer would tell people they need a speculative stock when it requires more luck and knowledge in trading strategies than most people care to learn.


Well you know that most people (myself included *sigh*) would rather gamble than read & learn, but thank you very much for all your recommendations! 

PS Just listened to ""How to Find Canada’s Best Dividend Stocks" webinar from Questrade & VectorVest - wonder how many people are using stock screeners successfully... but I think I'll just stick to ETFs for now - well, mostly, need to buy something speculative with my "play money" (because it's fun! )


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## axelis (Jan 13, 2015)

Just want to make sure I'm understanding... are you guys saying that when it comes to stock picking, not only isn't there a single strategy (nothing new), but most strategies aren't going to work (even the "logical ones") because investors may not stick to it, or too many people following may ultimately impact the effectiveness of the strategy, etc...?

Then how do you pick a good stock / portfolio of stock is it's not going to work well anyway?


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## Moneytoo (Mar 26, 2014)

axelis said:


> Then how do you pick a good stock / portfolio of stock is it's not going to work well anyway?


Define "well"  If your goal is to beat the indexes, then yes, most likely any strategy won't work in the long run. If you want to have quality stocks that pay good dividends that aren't getting cut in market downturns - your portfolio may underperform the indexes, but will work well for you


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## axelis (Jan 13, 2015)

I must be missing something... if option 1 is to reproduce the indexes (minus fees, but by following the index to the best of one's abilities) and option 2 is to get quality stocks w/ good dividends (what % would you consider good dividends btw?) but to underperform the indexes (I think I'm about to answer my own question), then how can option 2 work better than 1? Would this be because you're not taking the dividends yield into account (i.e. your principal may not grow as much in option 2 but you're still earning via dividends so when you're looking at the big picture option 2 has a better return?)


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## Moneytoo (Mar 26, 2014)

axelis said:


> I must be missing something... if option 1 is to reproduce the indexes (minus fees, but by following the index to the best of one's abilities) and option 2 is to get quality stocks w/ good dividends (what % would you consider good dividends btw?) but to underperform the indexes (I think I'm about to answer my own question), then how can option 2 work better than 1? Would this be because you're not taking the dividends yield into account (i.e. your principal may not grow as much in option 2 but you're still earning via dividends so when you're looking at the big picture option 2 has a better return?)


Aw for crying out loud... I just gave you an example of someone who's nearing retirement and for whom consistent income is more important than capital appreciation. What is YOUR goal? Depending on your personal goal you can decide if the strategy is gonna work well for you or not. If you don't want to spend much time on learning and managing your portfolio, but want a chance to outperform the market - by all means, try the 2 minute or 10 seconds or whatever strategy


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## axelis (Jan 13, 2015)

Ok so maybe I wasn't clear. I'm not looking for a 10 sec strategy, but more wondering if there is any strategy (including deep financial analysis of stocks - I wouldn't do it personally) that is proven to pick stocks based on a goal (my goal being different than yours). I'm probably over simplifying, but my goal is to have a certain amount of money by a certain age. The 3 ways I think can get me there:
- adding money to the pot (saving)
- growing the capital (capital appreciation)
- income derived the capital

At the stage I'm at, I don't understand (ok maybe not understand, maybe I don't care is a better term) if the returns are under the form of capital appreciation or income/yield. If I have $10k invested and at the end of the year it grew to $10,800, or if it stayed as-is ($10k) but paid me $800 in interest/dividends I'm happy either way... is that fundamentally flawed (not taking into account taxation, i.e. both with a some registered account)?

The problem I have with stocks is that over the years I've always felt stocks moved unpredictably, or maybe it's a matter of me not looking at the right ones, or not following them actively?


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## 1980z28 (Mar 4, 2010)

axelis said:


> Ok so maybe I wasn't clear. I'm not looking for a 10 sec strategy, but more wondering if there is any strategy (including deep financial analysis of stocks - I wouldn't do it personally) that is proven to pick stocks based on a goal (my goal being different than yours). I'm probably over simplifying, but my goal is to have a certain amount of money by a certain age. The 3 ways I think can get me there:
> - adding money to the pot (saving)
> - growing the capital (capital appreciation)
> - income derived the capital
> ...


No one can predicate a winner

If one could,one would not have a problem with income
Even the board at Berkshire Hathaway with warren will hit and miss

So if you index I believe that you will average the market going forward

Because the index is the market for the most part,made up of sectors

Good luck


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## Moneytoo (Mar 26, 2014)

axelis said:


> The problem I have with stocks is that over the years I've always felt stocks moved unpredictably, or maybe it's a matter of me not looking at the right ones, or not following them actively?


I'm sorry, but I started actively investing less than a year ago - and, even to me, you sound like someone who doesn't have a clue and should either learn some more or pay for a good financial advice


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## axelis (Jan 13, 2015)

1980z28 said:


> So if you index I believe that you will average the market going forward
> 
> Because the index is the market for the most part,made up of sectors
> 
> Good luck


That's basically the only thing that worked for me in the past 7-8 years, but done using MF (like TD eSeries indexes) instead of stocks. The few experiences on stocks have been just like you described, "hit and miss"... but more miss than hit. I always feel like with stocks I have too much exposure, just like when I had a chunk of HPQ and it went from $50 to $11... and took a long time to recover. If I wanted to reduce exposure, then I would have to buy multiple stocks, but then I'm basically back to indexing, so then the index MF work good...


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## axelis (Jan 13, 2015)

Moneytoo said:


> I'm sorry, but I started actively investing less than a year ago - and, even to me, you sound like someone who doesn't have a clue and should either learn some more or pay for a good financial advice


Not sure how I should take that. You're quick to judge. And even if you're right, that comment isn't helping me ... Isn't the point of the forum to ask question like I asked, as a way of "learning some more"?

So tell me, what in my statement looks like "I don't have a clue"?

Also feel free to tell me where you find a good financial advisor (and what you define as "good").


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## My Own Advisor (Sep 24, 2012)

FWIW axelis, I have a post coming up about "how to invest in dividend stocks".

It's certainly not detailed but check in out in another week or so. 

The reality is, individual stocks are selections. Sure, there are some with great dividend histories, some with great capital appreciation, but none of these things are guaranteed in the future. So, what's your best bet? Invest in the entire market. Indexing. 

If you choose not to index, at least somewhat, I think you have to come to grips with the fact that you may win (market out performance) and you may lose (market under performance).

I have a bias to both strategies, dividend investing and indexing because I feel I'm getting the best of both worlds. YMMV. 

Stocks in general are very unpredictable in the short-term, months, years but over the long-term, decades as a collective they are quite predictable.


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## 1980z28 (Mar 4, 2010)

My Own Advisor said:


> Stocks in general are very unpredictable in the short-term, months, years but over the long-term, decades as a collective they are quite predictable.


Very correct


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## Pluto (Sep 12, 2013)

I'll offer some more ideas that might help some who are beginning their DIY investing career/hobby. 
If you are going for individual stocks check out the Canadian "Investment reporter" that is available in most libraries. that will help you find fundamentally sound Canadian and US companies. There will be other resources at the library as well, but it can be information overload to get into them all at once. If you like what you see, and it is more convenient, you can get your own subscription. 

If you are indexing my opinion is to stay away from comprehensive TSX etf's because they have too many cyclical resources stocks that have deep down cycles, and many of those stocks never seem to be able to stay above their all time highs, and in the long run, all you get is some dividends. 

Instead, why not look at the bank etf's, and other ones that exclude the resource issues. For example, zeb, and zwb. I suspect that a dollar cost averaging in those will out perform indexing in an etf that includes resource stocks. 

Too, I believe we are inching closer to a bear market. What happened in oil already is going to happen in the general market. I'm about 75% cash, and preparing to buy puts on indexes. but I don't expect people to believe me. However, if you do, I say lighten up on any rallies, and wait. When the bear arrives in force, consider buying the big banks near the bottom, as a core. 

Just a note: indexing is not a sure thing. Just look at Japan's market index since the late 1980s. I am not predicting we will be like Japan, but there is no guarantee we won't. That's one reason why I like to be out of stocks when a bear is approaching. 

And contrary to popular belief, there are investors who have avoided every market crash in their investing lifetime, and made decent money on the downside. (I'm not one of them. I learned the hard way. which is why I am now very patiently awaiting the end of the bull. I will make money just by not losing.)


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## axelis (Jan 13, 2015)

My Own Advisor said:


> FWIW axelis, I have a post coming up about "how to invest in dividend stocks".


In the meantime I sent you a pm


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## My Own Advisor (Sep 24, 2012)

And I just answered!


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## Moneytoo (Mar 26, 2014)

axelis said:


> Not sure how I should take that. You're quick to judge. And even if you're right, that comment isn't helping me ...


It takes one to know one  Read these two theads, read them very carefully:

http://canadianmoneyforum.com/showthread.php/21425-T-TPH-Temple-hotel-inc

http://canadianmoneyforum.com/showthread.php/21122-Long-Run-Exploration-(LRE-TO)

Understand that people who picked those two stocks and invested in them are much more experienced than you and me. Some have sold with small losses, some are still waiting for the turn around, and some might still be buying. If you have a large portfolio and a losing stock is just a tiny portion of it - oh well, no big deal. But if someone puts most of their money in a few "winning stocks" and loses - they'd better know in advance that it was possible. 

> Isn't the point of the forum to ask question like I asked, as a way of "learning some more"?

Oh absolutely. It just the questions that you ask show that you haven't done your homework and expect someone to explain you the basics (if you read one book or a few articles/posts - you wouldn't be asking the next question )

> So tell me, what in my statement looks like "I don't have a clue"?

Hmm let's see... My TFSA portfolio of 7 Canadian stocks is down 2.5% while TSX is down more than 10% since last summer when I purchased most of them. So in a way, I'm beating the index, and I'm happy that I'm not losing more. So how would you call someone expecting "a stock" to return 8% either by growth or dividends or both in current market conditions and thinking that it shouldn't fluctuate? I wanted to say "you're delusional", but thought you might get offended - besides, most people on these forums sound like they are either delusional or clueless 

> Also feel free to tell me where you find a good financial advisor (and what you define as "good").

Let me google that for you: http://www.thestar.com/business/per.../how_to_pick_the_right_financial_advisor.html 

I would advise continuing with indexing if it's been working fine for you, maybe have a small portion of portfolio to try the stocks again. But I personally strongly believe that "experience is the best teacher" - so good luck either way


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## axelis (Jan 13, 2015)

Moneytoo said:


> It just the questions that you ask show that you haven't done your homework and expect someone to explain you the basics (if you read one book or a few articles/posts - you wouldn't be asking the next question )


You're probably right, my wife keeps telling me the same thing... 



Moneytoo said:


> Let me google that for you: http://www.thestar.com/business/per.../how_to_pick_the_right_financial_advisor.html


Would you really recommend that approach to pick the "right" financial advisor to someone who's got no clue like me? My wife says most people in that business who hold CFA or other accreditations are sales people who have very little knowledge of investing or tax strategies, etc... sure there may be some good ones, but if you don't have a clue like me, how am I going to tell the difference between someone who truly has my interests in mind vs someone who's just trying to sell me whatever gets him/her the best commission?



Moneytoo said:


> I would advise continuing with indexing if it's been working fine for you, maybe have a small portion of portfolio to try the stocks again. But I personally strongly believe that "experience is the best teacher" - so good luck either way


Thanks - I will most likely stick with that


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## Moneytoo (Mar 26, 2014)

axelis said:


> Would you really recommend that approach to pick the "right" financial advisor to someone who's got no clue like me? My wife says most people in that business who hold CFA or other accreditations are sales people who have very little knowledge of investing or tax strategies, etc... sure there may be some good ones, but if you don't have a clue like me, how am I going to tell the difference between someone who truly has my interests in mind vs someone who's just trying to sell me whatever gets him/her the best commission?


Well I suggested to pay for advice before I read that you've been an indexer for years  Indexers can do just fine without any knowledge whatsoever, but individual stocks are more punishing. So a complete noob might be better off paying high MERs for Mutual Funds than doing a 2MP... IMO of course


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

What Graham and Buffett called "cigar butt" stocks, were stocks of companies that were actually in bankruptcy. But which had sufficient assets that you could expect to be paid more per share than the stocks were selling for. If you could wait a year or 2 while the company was wound up or reorganized.

In the meantime there was a kicker. When a company is in bad shape, and the stock has gone from $50 to $2 a share, it doesn't take much good news to send it to $3 a share. In that case Graham recommends taking your 50% profit and getting out.

That is a cigar butt stock. Berkshire Hathaway was a cigar butt stock. It was a failing textile company that had assets built up over 100 years, but a money losing business. Buffet bought it cheap expecting to sell off the assets and glean a profit. He was left with an empty shell which he turned into an investment company.

Cigar butt stocks are the kind of thing you look for when you have a small capital and want to make large percentage profits with minimal risk. Once you get beyond a certain size they don't make sense. By the early sixties Buffett was big enough to buy whole companies, I think Berkshire was his last cigar butt stock. Now that he is worth $100 billion dollars, a $5 million dollar deal is too small to be of interest.

Over the years Graham and Buffett did various types of investments, all related to shopping for bargains, value investing and later growth investing in some way.


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## axelis (Jan 13, 2015)

Moneytoo said:


> IMO of course


Have you ever seen a show called "the good wife"?


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## Moneytoo (Mar 26, 2014)

axelis said:


> Have you ever seen a show called "the good wife"?


No, why?


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## axelis (Jan 13, 2015)

Completely off-topic, but there is a character that uses "in my opinion" in that series, specifically at the end (long story short). Was wondering if there was some reference to it, that's all


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## Moneytoo (Mar 26, 2014)

axelis said:


> Completely off-topic, but there is a character that uses "in my opinion" in that series, specifically at the end (long story short). Was wondering if there was some reference to it, that's all


Nah, I'm just opinionated and not humble, so never say "IMHO", just "IMO" lol


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