# Slicing and dicing TSX 60



## james4beach (Nov 15, 2012)

Various people have suggested that the TSX index isn't great and is easy to "beat". The main criticisms (as I recall) were that it's overly weighted into certain sectors, and has much volatile exposure in commodities, particularly mining. I like XIU and XIC personally, but I wish they had more balanced sector weightings.

Can I please get your feedback on this simple XIU slicing & dicing approach?

- Go through each XIU sector
- From each sector, pick the 1 or 2 largest provided they're large enough % of XIU
- Skip highly volatile sectors, namely pharma & mining
- Form a new portfolio with equal weight sectors

As an exercise, and to give it ugly market conditions, I got XIU's portfolio from 2007-12-31 and applied this methodology. What's nice about the simple/dumb methodology is that there is no hindsight bias in "stock picking". It produced the following portfolio with equal weighted sectors at 14% each


StockSectorWeightPerformanceSJR.Bcons discr0.07158.3%MGcons discr0.071204.8%Lcons staple0.143142.8%ECAenergy0.071-54.3%SUenergy0.071-25.8%RYfinancial0.071127.1%MFCfinanicial0.071-39.7%CNRindustrial0.071315.4%CPindustrial0.071242.8%RIM / BBtech0.143-91.5%BCEtelecom0.071132.6%RCI.Btelecom0.07170.6%

Notice that it has a few duds in it. This was 8.7 years ago, before the stock market crash. Other than discriminating against miners and pharma this is a very fair selection process... simply grabbing the largest from each sector. Dumb, but fair.

The result is very interesting. Over the following 8.7 years


 Slice-and-dice returned 81.0% cumulative = *7.05% annual return*
 XIU as per iShares returned 32.7% cumulative = *3.30% annual return*

This is a very significant performance gain over XIU, more than double the performance. We might say to ourselves, we just "got lucky" by de-emphasizing commodities. So I repeated the portfolio from 2008-01-01 to 2011-01-01 which is a period where commodities did well. The performance now approaches that of XIU, with the slice-and-dice returning -0.8% per year vs XIU +0.7% per year.

That second comparison is nearly within noise. Which again is very interesting; we haven't really missed out on commodities-boom gains. But when commodities are weak, there's a huge benefit.

Can I get your feedback on this kind of approach? How often would one reconstruct such a portfolio? Obviously this one from 8.7 years ago is pretty good... would you reconstruct it every X years?


----------



## james4beach (Nov 15, 2012)

I should add that there are similarities between this and the Two-Minute portfolio, and also ZLB which excludes highly volatile sectors.

It would be important to also examine a very strong bull market period, like 2003-2008


----------



## james4beach (Nov 15, 2012)

james4beach said:


> It would be important to also examine a very strong bull market period, like 2003-2008


Aw heck, I already have the SEDAR screen open. I pulled up the XIU's statements from 2001 year end, known back then as iUnits from Barclays Global Investors.

Here are the stocks you'd choose from XIU at 2002-01-01, again simply choosing the top weighted ones per sector, excluding health & miners

Consumer Discretionary
MG
TRI (an approximation; listed as The Thompson Corporation)

Consumer staples
L
WN

Energy
SU
ECA (approximation, listed as PanCanadian Energy Corp)

Financials
RY
TD

Industrial
BBD.B
CNR

Technology
NT (my old data approximates this at -50% return to 2008-01-01)
CLS

Telecom
BCE
T

Utilities
TA
ENB

The performance of this equally weighted portfolio from 2002-01-01 to 2008-01-01, annual return, is 8.0% vs XIU 10.9%

So it did not do well during the strong bull market of the TSX & commodities. I kind of expected that.


----------



## Market Lost (Jul 27, 2016)

I'm just not sure about equal weighting, I'd think that a cap weight might be more appropriate, but that's a small point. I'm also curious about having L as a consumer staples, as it is a retailer. WN is a good choice as it is a consumer staples, and if you have WN, then you would already be holding L.


----------



## doctrine (Sep 30, 2011)

I like the slicing and dicing approach, although to be fair I know most of the TSX 60 companies and I'd really have to hold my breath to invest in some of them, especially in technology and health care which are easily the two weakest sectors in Canada. 

Many professionals avoid Canadian stocks in those sectors entirely and go with the US, if only going into the US indexes for those two sectors. While there can be spectacular returns, there are almost always spectacular falls (Nortel, Blackberry, Valeant, Concordia, amongst others, who were all at one time or another 1st or 2nd in their sectors). Bombardier is doing a good job of following their footsteps too - wouldn't touch it.


----------



## Nelley (Aug 14, 2016)

doctrine said:


> I like the slicing and dicing approach, although to be fair I know most of the TSX 60 companies and I'd really have to hold my breath to invest in some of them, especially in technology and health care which are easily the two weakest sectors in Canada.
> 
> Many professionals avoid Canadian stocks in those sectors entirely and go with the US, if only going into the US indexes for those two sectors. While there can be spectacular returns, there are almost always spectacular falls (Nortel, Blackberry, Valeant, Concordia, amongst others, who were all at one time or another 1st or 2nd in their sectors). Bombardier is doing a good job of following their footsteps too - wouldn't touch it.


You will not that those spectacular rise/falls you mention (which dominated the TSX) didn't pay a strong dividend yield-neither did Worldcom or a long list of once high flying stocks.


----------



## james4beach (Nov 15, 2012)

doctrine said:


> I like the slicing and dicing approach, although to be fair I know most of the TSX 60 companies and I'd really have to hold my breath to invest in some of them, especially in technology and health care which are easily the two weakest sectors in Canada.
> 
> Many professionals avoid Canadian stocks in those sectors entirely and go with the US


That seems sensible. Perhaps one can just take the XIU, pick the largest stocks per sector as I've done, but totally exclude tech & health. This would be the simple/robotic implementation, before doing fancier things like excluding specific stocks you dislike.

That alone would have boosted my 2002-2008 example and overall would have given this strategy consistent outperformance vs XIU.


----------



## james4beach (Nov 15, 2012)

Nelley said:


> You will not that those spectacular rise/falls you mention (which dominated the TSX) didn't pay a strong dividend yield-neither did Worldcom or a long list of once high flying stocks.


BBD.B was paying $0.12 a year in dividends or over 3% dividend yield as recently as 2014. It has plummeted spectacularly since then, so dividends are not useful to screen this.


----------



## agent99 (Sep 11, 2013)

James, I think you have too much time on your hands


----------



## james4beach (Nov 15, 2012)

Maybe too much time on my hands, but my real problem is that the I.R.S. makes it impossible for me to hold the ETF I want (XIC) non-registered, so I'm forced into the stock picking game. If I can get something that is pretty close to XIC or XIU, I'll be happy.

Here's the portfolio you get when you slice & dice the current XIU and pick just the top stock out of each major sector (excluding tech, health and mining) which I think are defendable exclusions

MG
ATD.B
SU
RY
CNR
BCE

Since these portfolios are easy to construct and back-test, I'm thinking of running a 15 year back test to see what happens. This is a nice period because it includes both a commodity bull & bear as well as the market crash.


----------



## Argonaut (Dec 7, 2010)

And then maybe you'll realize pipelines are better than big oils, and dump Suncor. And that Magna is too cyclical and/or in an uncertain/peak industry. 

And the portfolio will start to look familiar. All roads lead to Rome.


----------



## james4beach (Nov 15, 2012)

Can those statements be generalized back over 20 year history? And what core piece of insight (relating to Magma) generalizes to "any stock" so that we can apply that approach to any arbitrary stock?

This is where things get tricky: hindsight bias.


----------



## Argonaut (Dec 7, 2010)

I don't know that it's hindsight bias, but more looking towards the future. That's what stock selection is really: trying to predict the future. Nobody can do it with total accuracy, but you can play your percentages. I resist any stock selection method that picks something blindly based on criteria. One is not restricted from applying a little brainpower and foresight.

Millennials are really the last generation to buy cars in my mind, if we buy them at all. The Gen Z'ers aren't even getting drivers licenses these days. I also lump oil companies in with miners, they're both pulling a finite resource out of the ground. At least with pipelines they spin the cash to the shareholders before the well runs dry. Also why the Franco Nevada's of the world are better than pure gold miners, they're like a gold pipeline in a way.


----------



## mordko (Jan 23, 2016)

15 year back testing may not be enough. Resource prices have been high, interest rates have been falling but there has been no deflation. Resource prices are low, deflation a possibility and there is an even higher chance that rates will climb. 50 year testing would be more appropriate.


----------



## Nelley (Aug 14, 2016)

Argonaut said:


> I don't know that it's hindsight bias, but more looking towards the future. That's what stock selection is really: trying to predict the future. Nobody can do it with total accuracy, but you can play your percentages. I resist any stock selection method that picks something blindly based on criteria. One is not restricted from applying a little brainpower and foresight.
> 
> Millennials are really the last generation to buy cars in my mind. The Gen Z'ers aren't even getting drivers licenses these days. I also lump oil companies in with miners, they're both pulling a finite resource out of the ground. At least with pipelines they spin the cash to the shareholders before the well runs dry. Also why the Franco Nevada's of the world are better than pure gold miners, they're like a gold pipeline in a way.


You must be in a large city-still impossible to function without a car in a great many places in North America.


----------



## agent99 (Sep 11, 2013)

Nelley said:


> You must be in a large city-still impossible to function without a car in a great many places in North America.


This is true, but Argo was saying that future generations won't BUY cars. We live outside a small city, but in future could get by with a couple of small leased electric cars for local trips. Then for longer trips, we would click on our smartphone and have a larger gas or long range (self driving??) electric/fuelcell car delivered to our doorstep. (of course, then we would have to own a smartphone  ) The cost of owning modern complex cars is getting higher and higher. I don't think I will ever BUY another car. Probably lease a less expensive brand and change it every 3 or 4 years.


----------



## Nelley (Aug 14, 2016)

agent99 said:


> This is true, but Argo was saying that future generations won't BUY cars. We live outside a small city, but in future could get by with a couple of small leased electric cars for local trips. Then for longer trips, we would click on our smartphone and have a larger gas or long range (self driving??) electric/fuelcell car delivered to our doorstep. (of course, then we would have to own a smartphone  ) The cost of owning modern complex cars is getting higher and higher. I don't think I will ever BUY another car. Probably lease a less expensive brand and change it every 3 or 4 years.


Supposedly the self driving cars are going to be gradually phased in starting with the large urban cores-Canada is a lot more urban than the USA so I don't totally disagree but still the end of people buying cars isn't in sight IMO-not even close. You guys are correct in that the heyday of the automobile has passed.


----------



## mrPPincer (Nov 21, 2011)

I live in a rural area and already people buzzing about in various alternately-powered bicycles is a common sight.


----------



## My Own Advisor (Sep 24, 2012)

I'm biased James because this is my approach.
http://www.myownadvisor.ca/have-you-considered-unbundling-your-canadian-etf-for-income/

"Can I please get your feedback on this simple XIU slicing & dicing approach?

- Go through each XIU sector
- From each sector, pick the 1 or 2 largest provided they're large enough % of XIU
- Skip highly volatile sectors, namely pharma & mining
- Form a new portfolio with equal weight sectors"

This is largely my very simple formula.

1. Own the top-3-5 stocks in these sectors: financial, energy, utilities, and telcos. 
2. Avoid buying materials. Too cyclical. Just me maybe....
3. Unbundle REITs.
4. Buy and hold and DRIP as much as possible.

Done 

No more money management fees. 

Index invest U.S. and international stocks.


----------



## james4beach (Nov 15, 2012)

That's awfully similar to my rule set, you're just holding the largest 3-5 instead of only the top one. To clarify, I put the cleaned up rules and results here: http://canadianmoneyforum.com/showthread.php/100322-Slicing-XIU-may-give-something-like-ZLB

"Each year end, pick the largest weight stock in every XIU sector except: health, tech, materials. Create equal weights."


----------



## My Own Advisor (Sep 24, 2012)

Yup. I suspect if you select the top weight - avoid tech, materials, and likely healthcare as well, I would think you would not only meet the index XIU or even XIC, but beat it. 6+ years in, this has been my experience. No complaints here.

Will that always continue? Hard to say. No crystal ball. Just I like my chances 

Curious....have you read up about BTSX? That strategy calls for selling every year (which I do not) but that's proven very successful as well over time.


----------



## james4beach (Nov 15, 2012)

Thanks. I haven't read up on BTSX.

I'm actually kind of excited about these XIU unbundling methods. Leaving out materials might even work well for me, as all of this fits within a permanent portfolio approach. I have gold (and silver) bullion exposure elsewhere, so leaving it out of my stock exposure is defendable.


----------



## james4beach (Nov 15, 2012)

My Own Advisor said:


> This is largely my very simple formula.
> 
> 1. Own the top-3-5 stocks in these sectors: financial, energy, utilities, and telcos.


For the 15 years I have this data for, your sector choices appear to be well justified. For example if I limit myself to only your sector choices, but still only choose the largest stock from each, this alone boosts the return. You're definitely on to something here.


----------



## humble_pie (Jun 7, 2009)

james4beach said:


> For the 15 years I have this data for, your sector choices appear to be well justified. For example if I limit myself to only your sector choices, but still only choose the largest stock from each, this alone boosts the return by early 1% annually. You're definitely on to something here.




jas4 there are a lot lot lot of folks in the forum who've been saying the same thing for years & years. Right in front of your nose. Hboy. Pluto. Eder. Warp. Yours truly. Others who have gone, my apologies for not having their names pronto.

another big advantage in *not* holding XIU or XIC is the simplified taxation. The broker collects & reports all dividends on one single tax slip. The dividends themselves - with the kind of stable senior stocks you are talking about - are predictible.

even better is the fact that capital gains can be precisely controlled. 

the greatest advantage of all is that the portf holds real stocks, not frankenfunds with loaned-out securities & proxy samples as holdings.

now for the cherry on the top, one should learn to sell options .each:

.


----------



## humble_pie (Jun 7, 2009)

My Own Advisor said:


> This is largely my very simple formula.
> 
> 1. Own the top-3-5 stocks in these sectors: financial, energy, utilities, and telcos.
> 2. Avoid buying materials. Too cyclical. Just me maybe....
> ...



it's important that investors stay within their own comfort zones, so yes to energy but no to materials & mines might be comfortable for one but not necessarily for all.

we're living through a gigantic cycle in energy, a major commodity collapse. I for one don't see much difference among the resource extraction industries - energy & mining - in terms of their cyclical behaviours.

perhaps it's worth noting that the global engineering & infrastructure firms - SNC lavalin, bird, aecon, genivar-with-its-new-name-that-i-can-never-remember - are all doing very well right now. 


.


----------



## james4beach (Nov 15, 2012)

humble_pie, I'm open minded to all of this. As you might have seen in the Strategies thread, I apply various passive strategies but I keep some room for experiments. I already have a small/midcap portfolio, but some large cap picks ... and indeed these are the largest caps ... might complement that well. I have precious metals exposure elsewhere, so I can live without miners.

Just FYI. My own optimizations based on risk vs return suggest that {Energy, Financial, Industrial, Telecom, Utilities} are a good selection, and this can even be selected robotically. Of course this is only the 15 years, and as mordko rightfully points out, that is not adequate as a serious back-test.

"Pick the largest stock from {Energy, Financial, Industrial, Telecom, Utilities}" in 0.20 weights each gives a return since 2001-01-01 of *9.0%* annual vs XIU's 5.0%. This method, again, is awfully similar to My Own Advisor & others.


----------



## humble_pie (Jun 7, 2009)

^^



i don't believe that anyone who dismisses 15 years back-testing as inadequate is rightful.

not when the industry sector they're selling so hard - ETFs arranged in couch potatoes - is barely 15 years old in canada.

like, where is the 50 year back-testing in canadian ETFs


----------



## Nerd Investor (Nov 3, 2015)

I screen and then rank on various fundamentals without setting much in terms of sector/industry parameters (except that I exclude REITs). I also don't limit the pool to the TSX 60 but look at anything with a market cap over $500M. 
I was curious, so just checked: Of my top 30 ranked, 16 of them fall under the Financial Services sector. It's one of the reasons I exclude Financials completely from my US stock selection screen.


----------



## james4beach (Nov 15, 2012)

I started my sliced XIU portfolio in September and will continue doing this next year. My return from 2016-09-29 to year end with my five, was 7.18% vs XIU's 5.46%.

I rebalanced on the last day of 2016 to get back to equal weight with 20% sectors. This portfolio is now 30K and I'm eager to see how the slicing continues in 2017.


----------



## peterk (May 16, 2010)

agent99 said:


> This is true, but Argo was saying that future generations won't BUY cars. We live outside a small city, but in future could get by with a couple of small leased electric cars for local trips. Then for longer trips, we would click on our smartphone and have a larger gas or long range (self driving??) electric/fuelcell car delivered to our doorstep. (of course, then we would have to own a smartphone  ) The cost of owning modern complex cars is getting higher and higher. I don't think I will ever BUY another car. Probably lease a less expensive brand and change it every 3 or 4 years.


We've just been through a decade or two of: rising gas prices, worse and worse commutes due to government overspending on unimportant things and underspending on infrastructure, lower job prospects for young people as boomers and gen-x fully saturated the job market and immigration accelerated, shrinking family sizes.

Perhaps the bottom is in?

Over the next decades I see: stable costs on gas and decreasing costs on car maintenance (reliability improvements), increased infrastructure spending and self driving cars making commutes faster and easier (car wins much more than bus wins in this situation) boomers and gen-x retiring, immigration slowing and jobs/salaries for Gen y,z increasing substantially as a result, increasing family sizes and need for personal vehicles.


----------



## bobsyouruncle (Dec 25, 2016)

Is this specifically for a non-reg account?

How does one discover and keep on top of who is the biggest in the sectors of Energy, Financial, Industrial, Telecom, and Utilities?


----------



## james4beach (Nov 15, 2012)

bobsyouruncle said:


> Is this specifically for a non-reg account?


Yes I'm doing this in non-registered but I don't think it matters, should work the same in a registered account.



> How does one discover and keep on top of who is the biggest in the sectors of Energy, Financial, Industrial, Telecom, and Utilities?


I look at the iShares web site at the current holdings of XIU. Another way is to use the tmxmoney web site. You can look at any index and get a spreadsheet of its composition: http://web.tmxmoney.com/indices.php?locale=EN


----------



## bobsyouruncle (Dec 25, 2016)

I read this thread, then read Argo's 5-Pack thread and came back and read through this again.

There definitely seems to be a consensus on picking Canadian stocks vs ETFs.

What benefits do you see over your picks, James (MG, ATD.B, SU, RY, CNR, BCE) vs Argo's picks (CNR, T, TD, ENF, CAR.UN)?


----------



## james4beach (Nov 15, 2012)

The ones I went with and now own are: SU, RY, CNR, BCE, FTS

I don't know Argo's methodology, but my methodology is simple to implement and I've back tested the performance going back 15 years. It's more a question of being comfortable with my methodology. I have reasonably good evidence that this methodology produces a well performing portfolio, at least over these 15 years.


----------



## bobsyouruncle (Dec 25, 2016)

james4beach said:


> The ones I went with and now own are: SU, RY, CNR, BCE, FTS
> 
> I don't know Argo's methodology, but my methodology is simple to implement and I've back tested the performance going back 15 years. It's more a question of being comfortable with my methodology. I have reasonably good evidence that this methodology produces a well performing portfolio, at least over these 15 years.


Is your plan to hold, or to change when there's a shift at the top?


----------



## james4beach (Nov 15, 2012)

I'm following the exact same procedure in my back testing: re-evaluate on the last day of each year. Look again at the top weight stocks in each sector. Rebalance as necessary and enter each new year with equal weights in whichever are the top stocks. They mostly stay the same, so there's very little turnover. On occasion one of them will lose its status as #1 in the sector, and then I would sell that position on the last day of the year. Examples would be ECA being displaced by SU in 2010, TA being displaced by FTS in 2011, BBD.B being displaced by CNR in 2003.


----------



## bobsyouruncle (Dec 25, 2016)

james4beach said:


> I'm following the exact same procedure in my back testing: re-evaluate on the last day of each year. Look again at the top weight stocks in each sector. Rebalance as necessary and enter each new year with equal weights in whichever are the top stocks. They mostly stay the same, so there's very little turnover. On occasion one of them will lose its status as #1 in the sector, and then I would sell that position on the last day of the year. Examples would be ECA being displaced by SU in 2010, TA being displaced by FTS in 2011, BBD.B being displaced by CNR in 2003.


That's easy and appealing. I like that methodology. It's simple for a beginner like me.

I think I'm going to throw my entire TFSA at this ($21k). 

9% over the past 15 years with a crash in the middle seems healthy enough to give it a try.

Did you account for reinvested dividends in your calculations?


----------



## james4beach (Nov 15, 2012)

Yes my numbers are total returns that include all dividends and assume they are reinvested. I suggest that you check my math before you put your own money into it  For example, here is the iShares financial statement for end of 2015: https://www.blackrock.com/ca/individual/en/literature/annual-report/annual-report-equity-en-ca.pdf

You can use these old annual reports to see what the TSX 60 looked like at each year end. Go to page 7 of that file. There you will find that on the last day of 2015, the largest holding from {energy, financials, industrials, telecommunications, utilities} were {SU, RY, CNR, BCE, FTS}

From here you can simulate what happened if you rebalanced to the strategy at the end of 2015 and held these stocks for all of 2016. For this I use stockcharts, which shows performance including dividends. Here is the Suncor chart, showing +26.00%: http://stockcharts.com/h-sc/ui?s=SU.TO&p=D&st=2016-01-01&en=2016-12-30&id=p17884945681

Now I calculate the average return for the five: 26.00%, 27.84%, 18.97%, 13.66%, 14.83% = 20.26%. For 2016 this is actually slightly worse than the XIU performance. There are also individual years, according to my backtest, where the group underperform by as much as a few percent. On average however they have outperformed.


----------



## DigginDoc (Sep 17, 2015)

Great post thank you. I have my wife's and my tfsas with some of these stocks and will continue to build a nonreg with them also. Mindful of the high prices and possible corrections of course. I got out of oil but watching James's and Argos picks still. My intention will be to leave them for my kids anyway, being 70 and just out of the hospital for a major op.
Cheers
Doc


----------



## james4beach (Nov 15, 2012)

Thought I'd add some updated statistics about the strategy I wrote about.

From 2001-01-01 to 2016-12-31 (16 years)

XIU annual return = 5.4% and this strategy = 9.5%
Annual returns relative to the index range from -9.5% worse than XIU to +15.8% better than XIU
Maximum drawdown (worst peak-to-trough loss) was approx -40% so it's just as volatile as owning the index

Finally, the annual rebalancing is critical. If you stop updating the portfolio and turn into "buy & hold", bad things can happen. Remember that the index is constantly updating its portfolio and this sliced portfolio takes its cues from the index. If you were to stop rebalancing this sliced portfolio, you would have ended up with BBD.B instead of CNR for industrial, and TA instead of FTS for utilities. This would have decimated your returns.


----------



## bobsyouruncle (Dec 25, 2016)

Can you order the most profitable sectors from best to worst? 

Perhaps you might find one or two of the sectors are severely hampering returns over the long term?


----------



## bobsyouruncle (Dec 25, 2016)

Also, when you guys talk about BCE, which BCE? I see a whole list of variations. 

The same is true of RY.


----------



## My Own Advisor (Sep 24, 2012)

james4beach said:


> The ones I went with and now own are: SU, RY, CNR, BCE, FTS
> 
> I don't know Argo's methodology, but my methodology is simple to implement and I've back tested the performance going back 15 years. It's more a question of being comfortable with my methodology. I have reasonably good evidence that this methodology produces a well performing portfolio, at least over these 15 years.


Stocks built to last. Well done Argo.

Add in, over time, and make it a 12-pack or so:

3-4 banks
2-3 telcos
2-3 energy
2-3 utilities

Done 

Wait, that's part of my portfolio!!!


----------



## james4beach (Nov 15, 2012)

bobsyouruncle said:


> Perhaps you might find one or two of the sectors are severely hampering returns over the long term?


I already eliminated those sectors. They were health/pharma, materials, tech, consumer


----------



## james4beach (Nov 15, 2012)

My Own Advisor said:


> Stocks built to last. Well done Argo.
> 
> Add in, over time, and make it a 12-pack or so:
> 
> ...


Agreed that this can easily be expanded by adding more under each sector. And many of us have ended up with very similar portfolios: me, Argonaut, My Own Advisor, Eder, others too.


----------



## bobsyouruncle (Dec 25, 2016)

james4beach said:


> I already eliminated those sectors. They were health/pharma, materials, tech, consumer


But energy could be considered excessively volatile for reliable year on year growth, especially with the potential changes in the sector in the long term. I mean, has Suncor (for example) ever really recovered from 2008?

I'm thinking (perhaps) the numbers would be more stable without energy.


----------



## My Own Advisor (Sep 24, 2012)

Bobs, if you owned SU, you may have rode it down to $30. Maybe you even DRIPped a bunch of shares at $30. Maybe you were really wise and bought at $30 because it's not like folks are not going to stop driving cars or making iPhones out of oil-based plastics. The price is now $44. 

Using my portfolio as an example I now own more shares, at a lower cost, those additional shares pay more dividends and more dividends is more cash in my pocket. 

While SU has not reached any 10-year high around $70 it will, slowly, eventually, edge higher.

Just my thesis of course!


----------



## bobsyouruncle (Dec 25, 2016)

My Own Advisor said:


> Bobs, if you owned SU, you may have rode it down to $30. Maybe you even DRIPped a bunch of shares at $30. Maybe you were really wise and bought at $30 because it's not like folks are not going to stop driving cars or making iPhones out of oil-based plastics. The price is now $44.
> 
> Using my portfolio as an example I now own more shares, at a lower cost, those additional shares pay more dividends and more dividends is more cash in my pocket.
> 
> ...


Your approach is to depend on dividends for retirement, correct?

That being the case, I have a thought. I'm new to all this, so go gentle if this is completely stupid.

Since more shares pay more dividends, could there be an investment argument that it's better to start with more companies and reduce the number gradually at strategic times?

For instance:

1. You buy the top three dividend stocks in five to six sectors, banks, insurance, pipelines, telecommunications, energy, and utilities.
2. You spread your investments equally in these 15-18 stocks as you can.
3. When any of the future-proof stocks nose-dive, sell all your least liked stock that hasn't nose-dived and put the money in shares of company that's gone down.
4. Rinse and repeat over the years until you hold A LOT of shares in just a few of the stocks.​
Could that not be a potentially more efficient way of lots of dividend income in retirement?


----------



## My Own Advisor (Sep 24, 2012)

No stupid questions....

My approach is very much a "hybrid" one - mostly CDN dividend paying stocks for income, mostly U.S.-listed ETFs for growth/capital gains.

Over time, more shares pay more dividends thanks to dividend reinvesting. Then if there's a dividend increase, more cash on top of that. 

Yes, you could start with more companies and reduce the number gradually at strategic times - but that means selling and I'm not a fan, largely because it's very difficult to be strategic with stocks and selling incurs fees. Fees are bad. If I'm going to incur fees, it's to buy more shares that pay more money.

1. You buy the top three dividend stocks in five to six sectors, banks, insurance, pipelines, telecommunications, energy, and utilities.
*Yes, I do this.*
2. You spread your investments equally in these 15-18 stocks as you can.
*Yes, I do this.*
3. When any of the future-proof stocks nose-dive, sell all your least liked stock that hasn't nose-dived and put the money in shares of company that's gone down.
*When stocks nose-dive, I buy more. What doesn't nose-dive I keep because it's likely to go higher over time.*
4. Rinse and repeat over the years until you hold A LOT of shares in just a few of the stocks.
*Yes, possible.*
Could that not be a potentially more efficient way of lots of dividend income in retirement?
*Yes, possible.*

My plan is slightly different. Buy and hold many CDN stocks, buy more of the company that is tanking or out of favour (like SU a year or so ago) and hold the line with everything else.


----------



## bobsyouruncle (Dec 25, 2016)

My Own Advisor said:


> No stupid questions....
> 
> My approach is very much a "hybrid" one - mostly CDN dividend paying stocks for income, mostly U.S.-listed ETFs for growth/capital gains.
> 
> Over time, more shares pay more dividends thanks to dividend reinvesting. Then if there's a dividend increase, more cash on top of that.


Yes, that's a straight-forward approach, which is probably also a wise approach.

I'm just thinking, if you do the math purely on the dividend income (considering cost to sell as well), you'll always be ahead if you sell off stock that's high to buy stock that's low (adding extra money from savings would be purely a bonus at such a time).

E.g If the high stock is generating $5k/year in dividends, you could calculate and realize that if sold and invested in the lower stock that it would bring in $7k/year extra from the lower stock, meaning an overall increase of $2k/year in dividends.

Does that make sense?


----------



## Eder (Feb 16, 2011)

It does to Yogi Berra

Buy a stock, if it goes up, sell it, if it goes down, don't buy it.


----------



## bobsyouruncle (Dec 25, 2016)

Eder said:


> It does to Yogi Berra
> 
> Buy a stock, if it goes up, sell it, if it goes down, don't buy it.


I'm confused.


----------



## My Own Advisor (Sep 24, 2012)

It does make some sense, sure, but then I have to watch all these "high" stocks, figure out/guess the time to sell; figure out/guess a good time to buy lower-priced stocks.....this sounds like work.

I prefer to have my own DIY 20-30 pack of CDN stocks, buying something out of favour only a couple of times per year and let everything else be reinvested automatically for me regardless of the price.

This means dividends pay cash, cash with the dividend reinvestment plan buys more stock, more stock pays more dividends next month or quarter, more dividends pays....well...you know


----------



## Eder (Feb 16, 2011)

bobsyouruncle said:


> I'm confused.


You don't know who Yogi Berra was?

https://www.google.com/url?sa=t&rct...Mr0zQVA3EsPsPCj4g&sig2=CVp0jG3XpOytPydEtzbc8Q


----------



## GreatLaker (Mar 23, 2014)

bobsyouruncle said:


> Yes, that's a straight-forward approach, which is probably also a wise approach.
> 
> I'm just thinking, if you do the math purely on the dividend income (considering cost to sell as well), you'll always be ahead if you sell off stock that's high to buy stock that's low (adding extra money from savings would be purely a bonus at such a time).
> 
> ...


What if a stock is low for good reasons, like the underlying fundamentals of the company have degraded? Maybe it's a value trap (a company that looks like a value stock, but it's price continues to drop and never recovers). Remember companies like Blackberry, Nortel, Confederation Life, Bear Stearns, WorldCom, Enron?

When buying individual stocks always keep fundamentals in mind and don't get misled by momentum or high yields that are not supported by the company's results.


----------



## bobsyouruncle (Dec 25, 2016)

GreatLaker said:


> What if a stock is low for good reasons, like the underlying fundamentals of the company have degraded? Maybe it's a value trap (a company that looks like a value stock, but it's price continues to drop and never recovers). Remember companies like Blackberry, Nortel, Confederation Life, Bear Stearns, WorldCom, Enron?
> 
> When buying individual stocks always keep fundamentals in mind and don't get misled by momentum or high yields that are not supported by the company's results.


Well, as I would see it, you would be waiting for things like CNR, BCE, and RY to drop, and buying up their stock when they go low.

Even with only 15-18 of the top Canadian stocks, there are some which are more perennial than others.

Anyway, it's just a thought. It really is primarily for those chasing dividends as a primary income, and a way of potentially speeding up the growth of that income. 

I'm just getting into this stuff, but I'm quite sure if your knowledge and math were stronger than mine, you could do all the hard work in the beginning and set up alerts based on formula that tracks what and when to sell and buy based purely on the goal of increasing dividend income.


----------

