# Slicing XIU may give something like ZLB



## james4beach (Nov 15, 2012)

I've gone on a data binge tonight, with interesting results. This follows up on my earlier half-baked idea of "slicing" XIU. I've now run a back-test of a little over 15 years. I've used a straightforward methodology and historical data allowed me to compute the resulting portfolio returns. I think the results are surprisingly good for a simplistic XIU slicing method that uses a tiny ~ 7 stock equal weight portfolio. Additionally, I think the result bares similarities to ZLB because
(a) it's closer to equal weight sectors (my slicing method *is* equal weights)
(b) like ZLB, I've dropped highly volatile, high beta sectors
(c) my calendar year performances look an awful lot like ZLB

Here is the slicing method: *Each year end, pick the largest weight stock in every XIU sector except: health, tech, materials. Create equal weights.*

Using historical XIU year end statements, the following portfolios emerged. Note that this doesn't require any judgement call; these stocks can be read robotically from XIU

```
Jan 1, 2001: Thomson Corp, L, Alberta Energy Company, RY, BBD.B, BCE, TRP
Jan 1, 2002: Thomson Corp, L, SU, RY, BBD.B, BCE, TRP
Jan 1, 2003: Thomson Corp, L, ECA, RY, CNR, BCE, TRP
Jan 1, 2004: MG, L, ECA, RY, CNR, BCE, TRP
Jan 1, 2005: MG, L, ECA, MFC, CNR, BCE, TA
Jan 1, 2006: MG, Shoppers Drug, ECA, RY, CNR, BCE, TA
Jan 1, 2007: MG, Shoppers Drug, ECA, RY, CNR, BCE, TA
Jan 1, 2008: SJR.B, Shoppers Drug, ECA, RY, CNR, BCE, TA
Jan 1, 2009: SJR.B, Shoppers Drug, ECA, RY, CNR, BCE, TA
Jan 1, 2010: TRI, Shoppers Drug, SU, RY, CNR, BCE, TA
Jan 1, 2011: TRI, Shoppers Drug, SU, RY, CNR, BCE, FTS
Jan 1, 2012: TRI, Shoppers Drug, SU, RY, CNR, BCE, FTS
Jan 1, 2013: MG, Shoppers Drug, SU, RY, CNR, BCE, FTS
Jan 1, 2014: MG, Shoppers Drug, SU, RY, CNR, BCE, FTS
Jan 1, 2015: MG, ATD.B, SU, RY, CNR, BCE, FTS
Jan 1, 2016: MG, ATD.B, SU, RY, CNR, BCE, FTS

Various replacement/approximations are used for old stocks:
TRI in lieu of Thomson Corp, ECA in lieu of Alberta Energy Company,
and Shoppers Drug Mart historical data is from my database, including takeover.
```
Using stockcharts.com I then computed the resulting equal weight total returns, rebalancing every year end. Stockcharts shows returns that include dividends. I think this is a realistic reconstruction of what would have played out in reality. Here are the resulting annual returns of both XIU and the Sliced portfolio


```
Year      2001     2002    2003    2004    2005    2006    2007     2008    2009    2010    2011    2012    2013    2014    2015  YTD 2016
------------------------------------------------------------------------------------------------------------------------------------------
XIU    -15.71%  -14.73%  23.63%  11.84%  23.51%  19.12%  10.84%  -31.09%  31.31%  13.84%  -9.31%   7.92%  13.07%  11.94%  -7.81%  13.42%
Sliced  -5.80%   -9.82%  15.80%  13.06%  16.86%  12.81%   9.92%  -16.63%  19.42%   6.02%   1.77%  10.66%  28.16%  28.22%   2.16%   7.50%

Relative +9.9%    +4.9%   -7.8%   +1.2%   -6.7%   -6.3%   -0.9%   +14.5%  -11.9%   -7.8%  +11.1%   +2.7%  +15.1%  +16.3%  +10.0%   -5.9%
```
If you now look at ZLB calendar year returns, I think you'll see the similarity. Or is it my imagination?

I've also plotted resulting total portfolio returns starting with $10,000 on Jan 1, 2001 and ending September 19, 2016. The data points are year ends only, except for the latest one which is today. You can see that this handily beats XIU... my simple slicing gives about 3x return vs XIU's 2x return.

In terms of annual rate of return (since 2001-01-01), it's
XIU 5.0%
Sliced 8.2%

*Plot:*


----------



## humble_pie (Jun 7, 2009)

^^


i don't know whether to applaud because this helps to explain why i'm so unimpressed with shuffling-along XIU, being an investor who's been heavy individuated TRI, shoppers, banks, bce, cn rail all the past decade & longer.

or i don't know if i should proffer a cup of hot cocoa & an oatmeal cookie & say in a motherly way, it's 4 am in oregon, i worry about you, please stop with the data splitting all night long & find a nice girl friend ...

.


----------



## james4beach (Nov 15, 2012)

Thanks that's thoughtful of you, but I did have a nice date last week  You're right though.


----------



## humble_pie (Jun 7, 2009)

very glad to hear u are mixing it up


----------



## mordko (Jan 23, 2016)

This is a great start but you need to solicit the help of at least a couple of PhDs to do this properly. http://canadiancouchpotato.com/2016/04/01/the-next-smart-beta-revolution/


----------



## Market Lost (Jul 27, 2016)

I think HP has a point....you're a bit obsessed. You must be an engineer or something.


----------



## My Own Advisor (Sep 24, 2012)

humble_pie said:


> ^^
> 
> 
> i don't know whether to applaud because this helps to explain why i'm so unimpressed with shuffling-along XIU, being an investor who's been heavy individuated TRI, shoppers, banks, bce, cn rail all the past decade & longer.
> ...


That was pretty funny


----------



## james4beach (Nov 15, 2012)

Yes, obsessed, of course. Yes I'm an electrical & computer engineer 

Guys I have 100K burning a hole in my pocket because the IRS doesn't let me invest in Canadian ETFs so I've been searching for a good way to replicate XIU for a _long_ time. A few evenings of hashing this out can save me lots of grief down the line.

More importantly, am I missing something in my approach? And what do you think about these calendar year performance figures, as well as the overall growth graph? I'm still a bit shocked it seems this easy. The portfolio didn't even drop so badly in 2008.


----------



## humble_pie (Jun 7, 2009)

james i think you might be onto something with il posto numero uno above. This might be a landmark methodology for busting up XIU & holding only its goldies but never its lagging oldies.

but wait. Didn't Argonaut do something similar a few years back? wasn't Argo saying buy the winners & ignore the rest? wasn't it Argo who was recently pointing out that pipelines are likely to do better in our times than suncor, even though SU in on the short list of leaders picked out in your january 2016 XIU extraction report?

speaking of the jan/16 leaders, isn't magna in that group? if so i would disapprove. Too cyclical plus - another Argo pensée - millennials aren't buying cars any more. They might still vote for hillary clinton but they won't be buying cars for her roads.

instead of cars i might include a major food industry among the goldies. Even though the big supermarket chains are priced high as the sky right now. Possibly one could substitute something food-related like beaten-down potash though.

don't forget that Eder with his daughter's successful three-pack has another version of Small is beautiful, Less is more.

.


----------



## Argonaut (Dec 7, 2010)

I think substituting SU for a pipeline and MG for a REIT would give a nice little 7-pack. At this point we'll make big money from a bottle return with all these packs we're consuming.

ATB.D is a nice little stock, but the low dividend would reduce my aggregate yield too much for my personal taste. Not a bad choice for portfolios that don't care as much about this.

My recent hypothesis is that it's okay to double up on sectors if there's a couple good names. BCE and Telus rather than all one or the other reduces some unsystematic risk and likely won't drag returns. Anyway, when we do our bottle return we will probably see that the same brand names keep coming up. Pass me a can of CNR..


----------



## My Own Advisor (Sep 24, 2012)

Pass me a beer. Kidding. Kinda


----------



## mordko (Jan 23, 2016)

This is stock picking. Yes, you are diversifying between sectors but it's still a concentrated portfolio. Not a fan of backtesting, your profits won't be in the past. 

When you are picking stocks, you are trying to see if anything is undervalued. You are competing against professionals who are doing valuations that drive current prices. You need to know something about the company and the industry, more than them. You need to look at the fundamentals, but not only that. What really matters above all else when picking individual stocks is company management. Read reports, try to figure out if anything dodgy is going on, analyze how the management is rewarding themselves, is the strategy right, are there clouds on the horizon, see if there have been recent changes in senior management. 

Easy to be a genius investor in a strong market. Lately things have been made easy because bureaucracy and red tape have cut competition and protected large companies. But things change. It's easy to gamble, which is what it is when you are picking a few stocks just based on a bunch of numbers even if you call it a "method".


----------



## mordko (Jan 23, 2016)

And if you can't invest in XIC, why not simply pick something like VEO for all developed world, which has about 9% in Canada (I think)


----------



## james4beach (Nov 15, 2012)

Thanks, good suggestions upthread from everyone. I appreciate the feedback.

And mordko, didn't you get the memo? It's a bull market and we're all stock picking geniuses! It's _so easy_ to make money!


----------



## Market Lost (Jul 27, 2016)

james4beach said:


> And mordko, didn't you get the memo? It's a bull market and we're all stock picking geniuses! It's _so easy_ to make money!


I think there are a lot of people that didn't get that memo.


----------



## Argonaut (Dec 7, 2010)

mordko said:


> When you are picking stocks, you are trying to see if anything is undervalued.


I don't think I agree with that. When I pick stocks I want to own great companies in great industries for a long time. Whether something is undervalued or not is more of a concern for swing trading, or for those types of value investors who focus on that sort of thing.



mordko said:


> And if you can't invest in XIC, why not simply pick something like VEO for all developed world, which has about 9% in Canada (I think)


I shudder at the thought.


----------



## james4beach (Nov 15, 2012)

I really do want to invest as directly as possible in Canadian securities. An American ETF is not what I want.

I hold plenty of Canadian bonds directly too, but not enough Canadian stocks.

Argo your posts have been great, thanks for sharing your approaches and experience with all of this.


----------



## humble_pie (Jun 7, 2009)

Argonaut said:


> I think substituting SU for a pipeline and MG for a REIT would give a nice little 7-pack.



argo i'm curious, what do you see in MG right now

perhaps your sentence has an inversion though? i interpret it as literally meaning one should substitute SU *in* but pipeline *out* while also substituting MG *in* but a REIT *out*

on the other hand, you could be meaning the reverse ...

.


----------



## Eder (Feb 16, 2011)

If you want to win the world series you need to buy Barry Bonds at any price even though you know he was doping.


----------



## Argonaut (Dec 7, 2010)

humble_pie said:


> argo i'm curious, what do you see in MG right now
> 
> perhaps your sentence has an inversion though? i interpret it as literally meaning one should substitute SU *in* but pipeline *out* while also substituting MG *in* but a REIT *out*
> 
> ...


Sorry, English can be misleading in this case. I meant pipeline good, SU bad. REIT good, MG bad.


----------



## mordko (Jan 23, 2016)

Argonaut said:


> I don't think I agree with that. When I pick stocks I want to own great companies in great industries for a long time. Whether something is undervalued or not is more of a concern for swing trading, or for those types of value investors who focus on that sort of thing.
> 
> 
> I shudder at the thought.


If you are picking fully valued companies then on average, over long term you should get market return. Then you are better off with the index which would reduce your risk.

The only way to beat the index is to pick undervalued companies. And that does not mean low PE, it can be an expensive stock but with incorrectly valued long term performance of the underlying asset.


----------



## Argonaut (Dec 7, 2010)

mordko said:


> The only way to beat the index is to pick undervalued companies. And that does not mean low PE, it can be an expensive stock but with incorrectly valued long term performance of the underlying asset.


How can you make a blanket statement like that with such certainty? Stocks don't trade in the offices of old finance professors. They trade on the market, with buyers and sellers entering and exiting all the time. Indexers are so silly sometimes. Because they can't beat the market with their own picks, nobody can beat the market. And if you do, AHA!, you were just exploiting a temporary inefficiency!

The message is simple: Own great companies that are also great stocks (not always the same thing) in the right sectors. This is easier to do in Canada, one because we live here so we are exposed to the relevant noise, and two because the market here is easier to decode.


----------



## Market Lost (Jul 27, 2016)

Argonaut said:


> How can you make a blanket statement like that with such certainty? Stocks don't trade in the offices of old finance professors. They trade on the market, with buyers and sellers entering and exiting all the time. Indexers are so silly sometimes. Because they can't beat the market with their own picks, nobody can beat the market. And if you do, AHA!, you were just exploiting a temporary inefficiency!
> 
> The message is simple: Own great companies that are also great stocks (not always the same thing) in the right sectors. This is easier to do in Canada, one because we live here so we are exposed to the relevant noise, and two because the market here is easier to decode.


The interesting thing is that even Dan Bortolotti has written that there are a multitude of known strategies that will, over time, beat index investing. The problem is that most investors have no stomach for sticking with them when they returns lag the market. Even he seems to realize that index investing isn't inherently superior. it's just that the mindset of an index investor is a better way to stay invested over the long haul. In other words, slow and steady wins the race.


----------



## mordko (Jan 23, 2016)

^ Of course it's possible to beat the index. It's just that in addition to "strategies", it requires a lot of effort, information above and beyond what market analysts have (harder and harder to come by) and - like you say - a certain type of personality.


----------



## james4beach (Nov 15, 2012)

And stock picking requires stamina. One of my friends who has been forming successful portfolios for years, has now had two children in a row. It takes up all his time. Is he going to do the proper rebalancing etc? Nope... will he ever get back to it?

Who among us can sustain an analysis effort as a routine for 20+ years?


----------



## james4beach (Nov 15, 2012)

And therefore, if something like ZLB can accomplish some of the same core concepts (better sector balance, and no volatile/cyclic sectors) then I still see the appeal of an ETF over picking my own portfolio.


----------



## Market Lost (Jul 27, 2016)

james4beach said:


> And stock picking requires stamina. One of my friends who has been forming successful portfolios for years, has now had two children in a row.


Is there any other way to have them? :eek2:


----------



## Eder (Feb 16, 2011)

mordko said:


> The only way to beat the index is to pick undervalued companies.


I don't agree.


----------



## Eder (Feb 16, 2011)

Argonaut said:


> The message is simple: Own great companies


I agree


----------



## james4beach (Nov 15, 2012)

All of this is easy to say in hindsight, and much harder to say at the actual time. Of course once a company has already become a $65 billion giant, it's easy to say "just hold great companies like this one."

Some companies shift focus and industries over time. And then there's the tricky issue of large scale economic shifts, such as the ones that destroyed manufacturing, forestry, etc. Go back and look at the "blue chip" Canadian public stocks back in the 1990s to see how different the landscape looked.

It's one thing to come on a forum and say, "just identify solid blue chips like CNR" and a very different thing to identify the next up-and-comers, in real time, despite economic shifts that even the best economists and investment bankers missed. To the armchair analyst, all of this is so easy.

Examples from the 1997 Canadian index (according to an old CIBC fund on SEDAR)

- Agrium has had one of the strongest forward returns. Back in 1997 it wasn't on anyone's radar, barely 0.4% of the index. Classified as "industrial" back then, it was dwarfed by far more popular large caps in its sector: Bombardier, Magna, Nortel. Are you telling me at the time you would have passed up on BBD.B, MG, NT and instead invested in this unheard-of Agrium? No way. You would have invested in the big ones (the same way you invest in the largest caps today).

- Fortis, which is today obviously "great" was back then not even 0.1% of the index. Invisible to the investing public. Would you have spotted Fortis back then? How? This would be like investing in an obscure midcap stock today. Common wisdom would say that the mid/small caps are risky, unknown elements

As much as I like the idea of stock picking, it's just not very easy. Transport yourself back in time by looking at historical TSX Composite constituents, and honestly ask yourself: *what would you have picked back then?* How about some of the countless retail and manufacturing stocks, before those industries withered and died.

BBD.B is a great example. Top quality blue chip at the time, but in hindsight, a very poor investment. Which mega cap stocks today are a poor investment? Are you really going to critically review your picks frequently and identify them when they start to go south?

Hindsight is 20/20


----------



## mordko (Jan 23, 2016)

There were times when great companies used to turn into dust and be displaced by smaller competitors. Lately great North American companies have been able to carry on thanks to red tape, lobbism and other factors which made it hard to compete against them. That's one of the reasons the economy has been stagnating. This balance when state effectively kills competition will end sooner or later.


----------



## james4beach (Nov 15, 2012)

That's a great point mordko, I was just thinking that when studying the TSX from the 1990s. There was higher turnover in earlier days... new up and comers would unseat the giants. Lots of this in the 90s.

Not any more. *That itself is a market dynamic in play today -- the stagnation and momentum of giants*. It won't _always_ be in play.

Now think ahead to when this shifts again. Here we have all the pro CMF stock pickers, who have each loaded up on the largest, best established large caps they can find. (Why not? They've performed terrifically well since the 90s). And then when we enter the next genuine bull period, or the environment changes in a way that favours innovative new companies, the giants could get left in the dust.

So the way someone may successfully pick stocks today could be totally made irrelevant if there is a change in market dynamics. And that's a criticism of stock picking: it may work for a while, but it works until it doesn't any more. And nobody sends you a memo once it stops working. Clearly a lot of people have seized on what has worked post 2000. No doubt, there's a method that works today. 10 years from now? Who knows.


----------



## Argonaut (Dec 7, 2010)

You have to remember that the index is doing some stock picking as well. Something new and exciting in the investment world doesn't get added to the index overnight. By the time it gets added, the public will know about it. Right now the consensus around here to unbundling the TSX seems to be to eliminate some of the more cyclical stuff, i.e. pulling resources out of the ground. Aside from that we have similar holdings to the index. I reiterate, the index is not some magical thing, it's just a collection of stocks. It's also slow to remove the losers. Yellow Media was on there for a long time.


----------



## james4beach (Nov 15, 2012)

True, the index does change over time, and I like that effect too (I agree it's not magic). But something notable is that all of this unpacking, including yours, Eder, My Own Advisor, etc, focuses on the _largest_ cap stocks. And yes this all seems justified and sensible... the largest caps have indeed shown the best performance since 2000. These have been great strategies since 2000.

But I'm saying that may not always continue, and that's a risk to these strategies that may be under appreciated. Once we enter a phase where large caps no longer outperform, then something like the TSX Composite would likely outperform these large cap portfolios. In such a period, those who hold the giants they've been comfortable with since 2000 may see themselves underperform.

There is also a theory out there that global central bank stimulus favours large caps. If true, that would mean that large cap stocks are being inflated. For example, the Swiss Central Bank outright purchases S&P 500 large cap stocks, concentrating in the highest weightings. The Bank of Japan is practically a majority owner of many Nikkei stocks. This makes me wonder if global central bank money also flows into Canadian large caps, inflating them as they have done with large caps in other countries. Since large caps have the best liquidity and largest index weightings, pumping money into them does wonders for the general stock indices.

I'm not sure how great a risk that central bank issue is, but you can't ignore the risk when globally speaking, central banks are pumping huge amounts of money into large caps. Perhaps Canada is immune from that... I hope. The central banks have notoriously poor transparency so it's impossible to tell. Many "conspiracy theorists" insisted that central banks were buying the S&P 500, and then it emerged as fact only recently.

But for now, yes, the largest caps in Canada have the best performance. Picking them makes sense.


----------



## Argonaut (Dec 7, 2010)

Well I mean, the Canadian banks are trading at about 12x earnings, and these are the largest of the large caps. There's not some massive overvaluation going on there by this loose central bank policy. Granted, some of the large caps we like benefit earnings-wise from the loose policy. But so should the commodity stocks in theory.

I don't think there's an asset bubble in large caps at all. The asset bubbles to be worried about because of the idiot central banks are housing in major markets, and the bond market.


----------



## james4beach (Nov 15, 2012)

My opinion, I think there is an asset bubble in bank stocks; not sure about the rest of large caps. This is because credit markets have been significantly inflated by central bank stimulus & CMHC, but you've probably heard my theory already. I think the main "bubble" story in Canada is a huge run-up of credit in general, against an unsustainable backdrop of poor economy and poor employment. Year on year credit growth in Canada, and associated derivatives growth, has been insane in the last few years -- way way above economic growth, corporate earnings growth, household wealth growth, etc.

Banks are very exposed to credit conditions, but so is any company that is leveraged (and most are to some degree).

I'm worried about what happens on the "down" part of the credit cycle. Canada has been very overheated for a long time now.


----------



## My Own Advisor (Sep 24, 2012)

I think the biggest "bubble" story is low (prolonged) interest rates. Based on the forecasts of many actuaries, who are much smarter than I am - they are predicting low rates are here to stay for another couple of decades. 

So, what you have is an environment of growth fueled by cheap credit. We can thank the Boomers for this environment and as long as the Boomers are around, this environment will continue. 

As an investor, how do you intend to survive a low growth, sideways market for the next two decades? 

I wouldn't be relying on bonds for income for one. 
Secondly, I also wouldn't hug the Canadian index - because it's easy to cherry pick _for income_. I'll take my chances that many blue-chip stocks that have been paying dividends for longer than I have been alive, will continue to do so. If those companies fail, we're all doomed in Canada. My strategy in Canada therefore doesn't include hugging the index.
Third, index investing makes great sense in the U.S. market for the most part - it's huge and nearly impossible to pick long-term winners - there are also dozens of them. 

The banks are actually suffering to some degree in this environment. Nobody is saving. Interest rates are low and savers are being penalized severely.


----------



## Pluto (Sep 12, 2013)

james4beach said:


> I've gone on a data binge tonight, with interesting results. This follows up on my earlier half-baked idea of "slicing" XIU. I've now run a back-test of a little over 15 years. I've used a straightforward methodology and historical data allowed me to compute the resulting portfolio returns. I think the results are surprisingly good for a simplistic XIU slicing method that uses a tiny ~ 7 stock equal weight portfolio. Additionally, I think the result bares similarities to ZLB because
> (a) it's closer to equal weight sectors (my slicing method *is* equal weights)
> (b) like ZLB, I've dropped highly volatile, high beta sectors
> (c) my calendar year performances look an awful lot like ZLB
> ...


This research is good. You are on the path to becoming your own guru. (Many are brainwashed into believing that one can know nothing about companies, therefore just buy the index. I don't buy into that.). Keep slicing and dicing until you find the individual stocks you are confident in.


----------



## Pluto (Sep 12, 2013)

james4beach said:


> That's a great point mordko, I was just thinking that when studying the TSX from the 1990s. There was higher turnover in earlier days... new up and comers would unseat the giants. Lots of this in the 90s.
> 
> Not any more. *That itself is a market dynamic in play today -- the stagnation and momentum of giants*. It won't _always_ be in play.
> 
> ...


As far as large caps go, I'm not convinced it is capitalization that is attracting said stock pickers. Its more like a huge amount of assets, decent debt/equity, decent return on equity, a proven ability to survive downturns. Not to mention income. Most of the large cap investors are older, they realize they are not young enough to start over if they get creamed holding smaller companies that may not survive a recession. 

I think some relevant question is what did the balance sheet look like before these large caps became large caps? What did their return on equity look like? What did their year over year earnings look like over 10 - 20 years? maybe when they were mid caps, the profile looked the same as when they were large caps. You can look among mid caps for companies with the same winning profile. 

Too, maybe in 1900 the banks and insurance cos were among the large caps of the day and still among the large caps today. If so, that might be a clue.


----------



## humble_pie (Jun 7, 2009)

mordko said:


> This is stock picking. Yes, you are diversifying between sectors but it's still a concentrated portfolio. Not a fan of backtesting, your profits won't be in the past.
> 
> When you are picking stocks, you are trying to see if anything is undervalued. You are competing against professionals who are doing valuations that drive current prices. You need to know something about the company and the industry, more than them. You need to look at the fundamentals, but not only that. What really matters above all else when picking individual stocks is company management. Read reports, try to figure out if anything dodgy is going on, analyze how the management is rewarding themselves, is the strategy right, are there clouds on the horizon, see if there have been recent changes in senior management.
> 
> Easy to be a genius investor in a strong market. Lately things have been made easy because bureaucracy and red tape have cut competition and protected large companies. But things change. It's easy to gamble, which is what it is when you are picking a few stocks just based on a bunch of numbers even if you call it a "method".




yawn. These are the same tired old arguments the fund salesmen always put forth.

investors who buy individual stocks are gamblers, they say. They can't beat professionals with better resources, they say. Yawnyawn. Stock-picking investors are obliged to spend & days reading copious financial reports & studying every single aspect of all markets. Yawnyawnyawn.

in fact, when Eder bought the well-known Three-pack for his daughter - RY, BCE & a railroad - Eder probably spent no more than 30 minutes.

there's no need to pore over (note for dyslexic parties, it's pore over, not pour over) the RY financial statements because even the royal bank economists who write them don't fully understand what they're saying. There's only a need to keep an eye on a range of media, since the royal bank is 100% within the radar & every single reputable analyst in the land is going to have an opinion.

Eder's Three-pack is a buy-&-hold strategy, just like a couch potato. Except it consists of real stocks, rather than frankenfund proxy holdings for securities that have been loaned out or else were never held by the fund in the first place (ie the ETF holds only representational samples.)

as for myself, my records show that in the summer of 1982 i bought my first 157 shares of royal bank at $20.625. Because the stock has split twice since 1982, this purchase sets my original cost base per share at $5.16.

today one royal bank share trades at $81 plus change, for a capital gain of $76 over a cost of $5, rounding.

the above gain figure, spectacularly & awesomely high though it is, does *not* include any dividends.

by rough estimate, dividends for RY across the past 34 years would amount to another $70-$80 per share. In 1982, IIRC, roybank was coming out of a severe market bottom & was yielding something like 8% on a current basis.

in addition - in my case - conservatively selling puts & calls in RY across the past 34 years would realize at least another $50 per share.

investing doesn't get better than Eder's Three-pack. Or my roybank shares.


.


----------



## mordko (Jan 23, 2016)

^ Sorry, can't be bothered. It's long-winded (as per usual) and written in a semi-literate drivel style. Still, nice to see that you are racist not just to people but also to capital letters.


----------



## humble_pie (Jun 7, 2009)

^^


oh, but you should be bothered

it's your livelihood that's being affected

as you know very well, i never post drivel. As a matter of fact i never post as much as a single mis-placed comma or a mis-spelled word .each:

face it, mordko. The financial-plan-ETF-couch-potato salesmen are simply the old mutual fund salesmen who got the memo about MERs 10 or 15 years ago. Then they gobbledygooked up their sales products with expensive advertising, pretentious "mathematical modelling" & absurd "scientifically proven" claims. Old mutual fund pros like philip armstrong, who built betaPro canada, even used to write books about the brand-new fail-proof mystical perfections of index ETFs!

since these persuasive blandishments coincided with an influx of investors into DIYland, the mutual fund pros managed to brainwash a truly significant number of retail investors.

but alas their sought-after hegemony appears to be on the verge of drawing to its close. It's the robo-advisors who are going to do in the district financial stop-n-shops. It's obvious that the big banks will see to this.

investors with $500k-$600k don't need fancy expensive financial *plans.* They're going to obtain plans for near-free from the robots.

meanwhile, investors willing to learn the basics can set themselves up with a suite of plain individual stocks that will easlly approximate the index or (_style_ argonaut, doctrine, eder, atrp2, many others) do much better than the index. Exactly the way many cmffers have learned to unbundle their REIT ETFs. Next, they should be learning to unbundle their financial ETFs. And next, their telco ETFs ... 


.


----------



## humble_pie (Jun 7, 2009)

^^


one more thing. I am not only *not* racist but i am one of the most middle-of-the-road solution-seeking peace-loving parties in cmf forum. Not that a poor pie's opinion on anything could matter.

may i challenge slanderous mordko to find one single post i have ever made that any reasonable person could describe as *racist*

.


----------



## Pluto (Sep 12, 2013)

mordko said:


> There were times when great companies used to turn into dust and be displaced by smaller competitors. Lately great North American companies have been able to carry on thanks to red tape, lobbism and other factors which made it hard to compete against them. That's one of the reasons the economy has been stagnating. This balance when state effectively kills competition will end sooner or later.


What are you talking about? 
"There were times...." Which times? When? When did those "times" start, and when did they end? Which great companies turned to dust? 

"Lately great North American companies....." Huh? What does lately mean? Days, months, years? Which companies? 

What does, "This balance when state effectively kills competition will end sooner or later." What does that mean? What balance? Is it really a sentence?

Are you sure your post isn't a semi-literate drivel style, or no style or substance at all?

You look like a malcontent who resorts to personal smears when you problematic theories are critiqued.


----------



## mordko (Jan 23, 2016)

^ Try this for starters: http://www.economist.com/news/brief...ds-giant-dose-competition-too-much-good-thing

"Personal smears"? Is that with regards to HP? HP told me that I can't comment on British affairs because I "don't have a drop of anglo-saxon blood". If that is not a racist statement then KKK is a well-known anti-racist organization.


----------



## Pluto (Sep 12, 2013)

"anglo-saxon" isn't a race.


----------



## humble_pie (Jun 7, 2009)

mordko said:


> ^ Try this for starters: http://www.economist.com/news/brief...ds-giant-dose-competition-too-much-good-thing
> 
> "Personal smears"? Is that with regards to HP? HP told me that I can't comment on British affairs because I "don't have a drop of anglo-saxon blood". If that is not a racist statement then KKK is a well-known anti-racist organization.




you've repeated this brainless accusation 25 zillion times. You've nursed your fake grudge until it's become a festering sore. For yourself, not for anyone else.

but i'll say it again. References to historic drops of blood have appeared in literature, song & story since the time of Homer. There's nothing racist whatsoever. Why don't you try getting over your hissy snit.

BTW it wasn't mordko's comments on british affairs i was objecting to. It was the omniscient bullying. It was the forcing of his unique views upon readers here - which we've seen over & over & over again - plus the screeching insults whenever another member begged to differ. Plus the mordko stated that he had only lived in the UK for 10 years. That's a laughably too-short period of time to suddenly proclaim oneself a dictator on matters britannic.

mordko, how many times have you screeched *BS* at longtime exceptionally well-respected forum members on here, when they merely begged to differ from your point of view? it's a repellant habit & it drains energy from the forum ...

.


----------



## mordko (Jan 23, 2016)

And common sense is not a country, so how come its foreign to you?


----------



## mordko (Jan 23, 2016)

Oh, not another screed about "well respected ancient member who therefore can instill blood purity rules etc, etc..." Multiple people have written to me with complaints about outrageous HP bullying, which predated my appearance here.


----------



## mordko (Jan 23, 2016)

HP, reread this thread and let's agree that you are an evil bully by nature and that its not a reaction to me calling you out on your BS every now and again.

http://canadianmoneyforum.com/showt...adians-(or-former-ones)-care-to-share-stories


----------



## humble_pie (Jun 7, 2009)

mordko said:


> There were times when great companies used to turn into dust and be displaced by smaller competitors. Lately great North American companies have been able to carry on thanks to red tape, lobbism and other factors which made it hard to compete against them. That's one of the reasons the economy has been stagnating. This balance when state effectively kills competition will end sooner or later.



what's "lobbism" though ?

.


----------



## humble_pie (Jun 7, 2009)

mordko said:


> Multiple people have written to me with complaints about outrageous HP bullying, which predated my appearance here.



no, they haven't. You've mentioned 2 dysfunctional malcontents in this forum, one of whom you tried to represent as a piteous "old man" when in fact he's a robust middle-ager who - by his own admission - drinks too much & likes to post when he's drunk (he would have made a good journalist) .:biggrin:

.


----------



## mordko (Jan 23, 2016)

Oh, yes they have. And apparently, many, many people have left because of your vicious bullying. And no, the gentleman who you are smearing above wasn't one of those who has written to me. 

By the way, talking about your endless boasting before I Joined, how is your amazing investment in VLT doing? How come you stopped bragging about that? What happens if you take that into account when calculating returns? Right, you don't calculate returns. Very wise.


----------



## mordko (Jan 23, 2016)

Here is something peculiar... People are writing to me to say "thank you" and how they appreciate my standing up to this bully. They themselves seem to be afraid. Having seen for myself how viscous you are when smearing poor people on this board as liars and molesters and alcoholics... Have a pleasant life.


----------



## humble_pie (Jun 7, 2009)

mordko said:


> Oh, yes they have. And apparently, many, many people have left because of your vicious bullying. And no, the gentleman who you are smearing above wasn't one of those who has written to me.
> 
> By the way, talking about your endless boasting before I Joined, how is your amazing investment in VLT doing? How come you stopped bragging about that? What happens if you take that into account when calculating returns? Right, you don't calculate returns. Very wise.



lol what's *VLT* though


----------



## humble_pie (Jun 7, 2009)

mordko said:


> Here is something peculiar... People are writing to me to say "thank you" and how they appreciate my standing up to this bully. They themselves seem to be afraid. Having seen for myself how viscous you are when smearing poor people on this board as liars and molesters and alcoholics... Have a pleasant life.




you don't think that cmffers have been e-mailing complaints about you to each other as well as to myself, ever since you arrived in the forum? the bully is yourself mordko. The liar is yourself. The party harping so incessantly on the *L* word is yourself. 

as for the alcoholics, they declare themselves happily, fully & transparently here in the forum. They seem to enjoy bragging about being drunk.

as for molesters, i don't recall ever posting about this issue. Perhaps molesting is part of your own personal repertoire, mordko?

.


----------



## andrewf (Mar 1, 2010)

As far as the 'bully' and I go, we tend to just ignore each other and things seem to go okay. New people seem to have to learn that lesson.


----------



## mordko (Jan 23, 2016)

andrewf said:


> As far as the 'bully' and I go, we tend to just ignore each other and things seem to go okay. New people seem to have to learn that lesson.


Not sure it's the best approach with bullies in general or with this one. We shall see.


----------



## humble_pie (Jun 7, 2009)

.

here's a piece of bullying from the mordko that includes a crackpot fiction.




mordko said:


> I am very skeptical when people claim amazing returns when they don't even know what that means, and don't do proper comparisons vs benchmarks (HP example above). There are plenty of studies showing that individual investors who don't benchmark invariably overestimate their own success.



the falsehood is that my valeant anecdote to which mordko is referring ... a lighthearted account of a put spread i put on 2 years ago ... after i & one other cmffer realized that valeant appeared to be smuggling drugs into the middle east via the balkans ... a LEAPs put spread that was to pay out $52k 18 months later when the company crashed ... this is all documented in the VRX thread ... the falsehood is that this profitable put spread has to be a failure because it doesn't measure up all tickety-boo to some fossilized benchmark ... but me i'm happy with the $52k ... i'm happy because there's no benchmark for smuggling on the ancient Silk road .each: 

and here's the crackpot fiction. Mordko claims that scholarly studies exist which prove that individuals who don't benchmark *invariably* overestimate their own net worth.

really? there are reliable data inputs which show cohorts of individual investors who (a) prove their net worth in an objective manner; (b) fail to benchmark; then (c) subsequently get caught - again by proven objective data - with their net worth pants down around their ankles?

are there any academic peer-reviewed journals in finance that would actually stoop to publish gossip such as the above?

or is the reference just another fairytale from just another fund salesman hoping to denounce stock pickers

.


----------



## james4beach (Nov 15, 2012)

Getting back to XIU slicing ... I bought equal amounts of RY, SU, CNR, BCE, FTS in my non registered account. I'll rebalance at the end of the year and keep this portfolio construction going. It will be interesting to see how it performs vs XIU as a benchmark.

What motivated all of this originally is that due to US tax complications, I can't buy mutual funds or ETFs non registered. I really would just buy XIC or XIU if I could. My ambition here is to hold a relatively small number of TSX stocks and get a total return that's higher than the TSX.

The two portfolios I now have in this non-reg account are:
1 - the top caps from XIU (very large caps) as per this thread, and
2 - smaller caps selected via T/A, and these are very low or zero dividend stocks (DIVZ)

The portfolios are nicely complementary. #1 is very heavy in large caps and dividend payers. #2 is mostly smaller caps and no dividends. Additionally, #2 tends to bring more commodity exposure (that is absent from #1). Turnover wise, #1 is basically a static portfolio with very few changes year to year, while #2 has more rapid turnover as T/A adjusts to stocks that strengthen and weaken.

Here's hoping that the blended return exceeds the TSX. I have reason to believe that it will, but only time will tell.


----------



## Pluto (Sep 12, 2013)

^ Hey, that's cool. I'm sure it will be competitive with the index. I'm curious about why you chose largest capitalization for you criterion, although there may be nothing inherently wrong with it. Are you dripping, or going to let them spit cash at you?


----------



## james4beach (Nov 15, 2012)

Pluto said:


> ^ Hey, that's cool. I'm sure it will be competitive with the index. I'm curious about why you chose largest capitalization for you criterion, although there may be nothing inherently wrong with it. Are you dripping, or going to let them spit cash at you?


I chose largest capitalization because that should get me the closest to index performance with few stocks, though I could also imagine getting the two largest capitalizations from each sector. I'm not dripping. Tax friendliness is of utmost importance here so I will just accumulate dividends in the cash slosh (until the next reinvestment) and I don't want to complicate my ACB life.

Can I get ideas on how to properly track performance? This single account has a number of things happening inside it

- occasional large FX gambits. Means big $ transfers in and out
- a few GICs
- strategy one, the DIVZ small cap stuff
- strategy two, the XIU slicing stuff with large caps

The total account value is easy to track, but not useful. I really want to track those two strategies vs benchmarks. How do the rest of you track things when multiple things overlap in an account?


----------



## Argonaut (Dec 7, 2010)

You can track performance using a Google Finance constructed portfolio. I have some gripes with it, but it tends to do okay.


----------



## humble_pie (Jun 7, 2009)

.

wondering how these 5 stocks can be dubbed *XIU sliced* though. 

or *something like ZLB* for that matter.

when what they are is *5-pack* all over again.

before argo's 5-pack, it was dmoney.

before dmoney, it was warp.

before warp, it was kcowan.

before kcowan, it was eder.

before eder, it was scomac.

before scomac, it was hboy.

before hboy, it was square root.


ever since cmf forum was founded, there has never been a single minute when one successful investor or another was not suggesting. * This.

*
start by buying the bedrock.
buy local-grown large cap canadian stocks.
buy dividend payors.
buy quality of management.
buy what you know.
start with these.
spice it up later on.


.


----------



## james4beach (Nov 15, 2012)

Sure, it's a 5 pack. And though initially I thought there was a connection to ZLB (only because of the resulting performance) I don't see that part of it any more.

Call it what you want  I'm just buying the biggest constituents of the TSX.


----------



## humble_pie (Jun 7, 2009)

james4beach said:


> I'm just buying the biggest constituents of the TSX.



so why so much noise, if you're merely re-inventing the wheel


----------



## andrewf (Mar 1, 2010)

I think only owning a small handful of the largest caps is an ill-advised idea. Why lose the diversification benefits? Have we not learned the lesson of Nortel?


----------



## humble_pie (Jun 7, 2009)

it's always possible to cherry-pick & tell investors they are going to lose everything because inevitably they will be foolish enough to pick nortel. Or worldcom. Or blackberry. Or enron.

but i don't recall the investors i mentioned in post No. 64 just upthread ever buying nortel. Or worldcom. Or blackberry. Or enron.

even if they did, some losses are a natural part of investing, just as are some gains. Serious investors have escape-loss disciplines. Parties who cannot tolerate gain/loss events should purchase GICs instead.

we've just viewed sequences of posts showing definitely how XIU can be slightly bested, at least in the kind of rising although volatile bull market we've known in this century. 

in the past we've had massive sequences of posts from argo - all now in the archives - showing the same thing. Showing how a carefully curated list culled from a core index can slightly best the index, in part because an index has to include a tail of losers.

.


----------



## james4beach (Nov 15, 2012)

andrewf said:


> Why lose the diversification benefits?


Because I'm not able to buy XIU or XIC in my non-registered account. I need a way to get something close to XIU with relatively few stocks.

In my back test, I encountered the situation where one stock crashed. For example in 2002, the largest stocks were { SU, RY, BBD.B, BCE, TRP } and Bombardier returned a disastrous -67%, an utter crash. *The equal weighted portfolio returned -12% which was still better than XIU's -14.73%* ... that's a nice result.

I'm not saying this is the best idea out there, but it's an idea, and it's worked well back to 2000.


----------



## Pluto (Sep 12, 2013)

andrewf said:


> I think only owning a small handful of the largest caps is an ill-advised idea. Why lose the diversification benefits? Have we not learned the lesson of Nortel?


many think the lesson of Nortel is over diversification in etfs that include not just good companies, but also cyclicals that end up being a drag on performance. But not everyone sees it that way. 

Other people see the lesson of Nortel in the same way as the lesson of RCA in the 1920's. the latter, like Nortel, rose spectacularly, then plunged. Even as they plunged the fundamentals looked great. So obviously pure fundamentalists get creamed. The lesson for these people is don't be a pure fundamentalist, and augment your approach with technical analysis. One of the assumptions here is that with these super duper growth stories, the party always ends. The next assumption is that the fundamentals will not tell you when the party is ending. So you just use a simple trend line. When the upward trajectory is over, start selling regardless of what the fundamentals and analyst price targets claim. 

Part of my point is there is no single lesson of Nortel. There is more than one lesson. For some the lesson is over diversify and drag down performance for purposes of safety. For others the lesson is once you are on the rocket ship heading for the moon, and it tips, don't pray to the gods of fundamentalism, bail out and pull the rip cord.

I might add that none of these - RY, SU, CNR, BCE, FTS, fit the profile of Nortel. None of them are blasting off and doubling every 3 months. And if one of them did, that's your cue - when the price tips, don't pray, jump.


----------



## Argonaut (Dec 7, 2010)

humble_pie said:


> in the past we've had massive sequences of posts from argo - all now in the archives - showing the same thing. Showing how a carefully curated list culled from a core index can slightly best the index, in part because an index has to include a tail of losers.


Agree with your post. And it isn't even slightly. Portfolio doubled in the last five years, all while the TSX has merely collected its dividends with no capital gains. If we're going by time-weighted rate of returns, there's little likelihood the TSX can ever catch up. The only way would be if commodity stocks went on a massive bull run. Even then there's some commodity exposure in the 5-pack with a pipeline and rail. Either that or the TSX composition changes drastically, i.e. adds tons of technology stocks and they do extremely well.


----------



## james4beach (Nov 15, 2012)

Yes I can imagine a few situations where the TSX itself could actually outperform vs these kinds of picks

- very strong commodity bull market (esp materials & miners)
- new industry that emerges and TSX carries it, but the stock pickers miss out
- as you point out, tech or pharma industry grows and becomes a strong performer
- economy changes in a way that favours small or mid caps and they dramatically outperform

Any of these changes is possible. As mordko has pointed out, since 2000 there's been a rather stagnant economic situation that has favoured large caps in these sectors that argo & friends like. *This won't always be the case*.

The kind of stock picking we've been talking about here works fine in the current environment, as long as things stay as they are (Canadian economy's composition & TSX composition). But I think we should stil recognize that we are making assumptions here. These conditions won't always be like this.


----------



## james4beach (Nov 15, 2012)

Argonaut said:


> Portfolio doubled in the last five years, all while the TSX has merely collected its dividends with no capital gains.


XIU performance in the last five years is 8.1% annual return, which really isn't that bad. It's misleading to say no capital gains were seen in teh TSX.


----------



## Argonaut (Dec 7, 2010)

james4beach said:


> XIU performance in the last five years is 8.1% annual return, which really isn't that bad. It's misleading to say no capital gains were seen in teh TSX.


It's not misleading, it just depends on where you measure it from. I bought the 5-Pack Portfolio on March 1, 2011. If I would have bought XIU on that date instead I would be very disappointed. Check the returns since then. The TSX just happened to be lower exactly 5 years before now, which skews your 8.1% annual return.


----------



## james4beach (Nov 15, 2012)

Good point. And bigger picture, yes I agree with you, the 5 packs (both argo's method and others, and my own variant) have produced better returns than the TSX.

I'm just saying that various conditions have to persist for that to keep happening


----------



## My Own Advisor (Sep 24, 2012)

FWIW James, the last 5 years, I'm about 9% by "unbundling" XIU. 

Will those conditions persist....ah, well...time will tell


----------



## mordko (Jan 23, 2016)

Argonaut said:


> Agree with your post. And it isn't even slightly. Portfolio doubled in the last five years, all while the TSX has merely collected its dividends with no capital gains. If we're going by time-weighted rate of returns, there's little likelihood the TSX can ever catch up. The only way would be if commodity stocks went on a massive bull run. Even then there's some commodity exposure in the 5-pack with a pipeline and rail. Either that or the TSX composition changes drastically, i.e. adds tons of technology stocks and they do extremely well.


Or one of the five pack companies goes belly up. Which can happen to the best of them. And five years of awesome performance from a specific date is great but really does not prove a thing. Canada is too small a market, dependent on resources, investing in TSX alone is risky. People who index should buy the world. They Did rather well over the last 5 years.

And I am sure a lot of good thinking went into your pack and you may well be an amazing stock picker which is tremendous, but indexing is always going to be safer than buying 5 companies.


----------



## mordko (Jan 23, 2016)

When talking about the last 5 years, we should also keep in mind that our assets jumped in CAD partly thanks to CAD shedding 25 percent of its value.


----------



## james4beach (Nov 15, 2012)

I feel like we should have an entire "stock picking" vs "indexing" sub forum!

There really are strong arguments on both sides. But for most investors, I think indexing is the way to go.

Yes here in the forum we have some highly disciplined, expert investors who can pick stocks over the long term. We also have people (see the Money Diaries) with outlandishly high incomes well over 100K, net worths of several million, etc. We have a few people with CPA designations. Several engineers and mathematicians who can run the numbers and have the obsession to keep looking through numbers.

All of that is atypical. I still think that most investors are better off with index funds.


----------



## humble_pie (Jun 7, 2009)

james4beach said:


> Yes here in the forum we have some highly disciplined, expert investors who can pick stocks over the long term ...
> 
> I still think that most investors are better off with index funds.




oh dear, i believe you've missed the point.

the point is that a parade of long-term investors have shown that it's possible to succeed by investing in individual stocks with the utmost simplicity. A high school student can follow. Discipline is good but no experts required.

an example is Eder's three-pack, a classic triad (RY, BCE, a railroad) that he set up for his student daughter so that she would not need to pay any attention. This may have outperformed even Argo's 5-pack, but if so the outperformance would be due to the 2 heavy dividend hitters in the troika.

speaking of argo's 5-pack, it was created for a TFSA. It's my recollection that Argo is well-diversified, holds US equity as SPY in order to compress research time. This approach is 100% appropriate for young persons still in their 20s. Namely, build TFSA first, then embark on foreign securities.

.


----------



## mordko (Jan 23, 2016)

Let's assume for a second that it is indeed easy for anyone to outperform indexing simply by being disciplined. Indeed over specific periods of time, like 5 years, many fund managers have been demonstrating how it's done in a spectacular manner. Of course these managers are the best of the best, people educated in the field who are spending all their time researching the market. 

There is only one snag - over long periods of time similar to a persons working life, almost all funds except one or two underperform. 

Students should weigh their chances carefully.


----------



## Argonaut (Dec 7, 2010)

I think in some cases it requires much more discipline to stick to index investing. If I would have maxed my TFSA with XIU on March 1, 2011 instead I probably would have given up on that crap investment by now and dumped all my money in tasty GIC's yielding less than 1%. Or maybe I would have joined the couch potato cult and told myself everything-is-okay, I don't know.

And just to be clear, more research does not equal more returns. There is something to be said for keeping it simple.


----------



## mordko (Jan 23, 2016)

Again, putting all your money in XIU in 2011 would have been a spectacularly dumb move. It's a tiny fraction of the world market, focused on resources and in 2011 resource prices were very high. 

Very easy to fight a Strawman. An Actual CP portfolio with the focus on stocks looks very different. XWD doubled in the last 5 years, and that's not counting distributions.


----------



## Argonaut (Dec 7, 2010)

You're totally missing the point. Any unbundling of Canadian indexes is done for the Canadian portion of the portfolio. The investor can choose how much of their overall portfolio is in Canada. In my case, I chose my TFSA as harbouring my Canadian portion. And the high focus on resources is exactly part of the reason why it's better for some people to pick-and-choose on the TSX rather than take what it gives you.

Remember folks, it's okay to make money.


----------



## humble_pie (Jun 7, 2009)

My Own Advisor said:


> FWIW James, the last 5 years, I'm about 9% by "unbundling" XIU.



good move. No more frankenfund. The stocks that you see are the stocks that you own.

another benefit is better control of taxation consequences, not only capital gains/losses but also dividends. It's the share owner who decides when he wants to sell. Dividends for the tsx top 60 are generally predictable. No more taxable phantom dividends.

best of all, the broker aggregates all the dividend tax info on one T5 tax slip, which is furnished to investors in february of the tax reporting season. No more waiting for a collection of ETF T3s to drift in as late as april.

.


----------



## mark0f0 (Oct 1, 2016)

The 'problem' with slicing XIU is that typically the effect of 'slicing' is to remove the deeply inversely correlated precious metals sector from the index.

Works absolutely great. Until you get a year or two in which the golds dramatically outperform. Then it looks likes a horrible strategy.

This years' SPIVA reports seem to be slow in their production, but I expect they will show a significant reversal of the trend over the past few years of active managers doing better than XIU. Why? Because the gold equities have dramatically outperformed this year, and most active managers tend to under-weight them. 

It might be hard to believe, but every sector has its day in the sun. A strategy which excludes the gold equities is just dangerous IMHO.


----------



## humble_pie (Jun 7, 2009)

^^


there's nothing that says unbundlers can't also hold metals, energy & commodities.

there are a couple unbundlers in this thread who famously like gold & today's cut-price energy ... each:

.


----------



## Argonaut (Dec 7, 2010)

It's much better to hold gold as gold rather than the loser miners. Compare 10 year performance of GLD (essentially holding gold itself) to GDX (owning the gold miners). GLD is up 111% with GDX -26%.

The story in 2016 of gold miners is essentially phantom outperformance. It's the Barrick's and Goldcorp's of the world climbing a small way out of the hellhole that they fell in to. This is just a terrible industry to be in long term. By definition they deplete their source of revenue, and have to buy other companies or find more of a finite resource in order to continue. Would rather own the finite resource itself directly - gold coins, and/or GLD. Because the miners are so volatile, they can be used as a trade though.

By the way, the 5-Pack is still beating the TSX this year even though the loser Barrick and Goldcorp are doing well YTD.


----------



## james4beach (Nov 15, 2012)

I agree, gold bullion has consistently done better than mining shares. I'm ditching all my mining exposure and loading up more on MNT and CEF.A (these in CAD). I agree that GLD (in USD) is fine too.

For my TSX index substitute, the methodology I decided to go with excludes mining, tech, consumer, pharma sectors but otherwise it's the original concept I raised, picking the single largest stock from each sectors and equal weighting them. Like you Argo, my permanent portfolio carries a large gold bullion exposure and that gives me metals/mining.

I ended up with something similar to Argo's 5-pack. *SU, RY, CNR, BCE, FTS* and will re-balance/equal weight at year end. Using 15 year back testing, I like the performance and risk characteristics of the methodology, its low turnover, and response in weak markets.

Note that back testing doesn't use static stocks, but rather tests the portfolio construction methodology. For example back in 2001 it was ECA, RY, BBD.B, BCE, TRP and obviously it morphed over time. Of course I can choose a "better" stock in the current year, but the point of back testing is to make sure that my portfolio construction consistently works.

Now I have a clear, easy-to-implement methodology with a great 15 year track record.

I don't feel so happy joining the same over-crowded trade as all the fund managers out there: largest caps, under-weight commodities. Ugh, how unoriginal. As mordko points out, _this won't last forever_. Overcrowded trades work until they don't, and at that point the fund manager must be able to recognize the situation and adapt. I am also pursuing a small cap strategy that I hope protects me from this pitfall -- that one really targets the opposite end of the stock spectrum. I call that one LODIV and will start a thread on it.

And that still illustrates the argument for using XIC for the whole Composite index. These large caps will work great for a while, and then they won't, and then after 20 years you'll probably wish you just held XIC or XIU.


----------



## james4beach (Nov 15, 2012)

james4beach said:


> I ended up with something similar to Argo's 5-pack. *SU, RY, CNR, BCE, FTS* and will re-balance/equal weight at year end. Using 15 year back testing, I like the performance and risk characteristics of the methodology, its low turnover, and response in weak markets.
> 
> Note that back testing doesn't use static stocks, but rather tests the portfolio construction methodology. For example back in 2001 it was ECA, RY, BBD.B, BCE, TRP and obviously it morphed over time. Of course I can choose a "better" stock in the current year, but the point of back testing is to make sure that my portfolio construction consistently works.
> 
> Now I have a clear, easy-to-implement methodology with a great 15 year track record.


It's only been about 5 months since implementing this technique. Results are good so far, with 10.9% total return from my portfolio vs 9.9% XIU and 8.7% XIC.

This is now my primary Canadian equity exposure. I'm OK with its heavy concentration in just 5 stocks. For example in the back testing, Bombardier crashed in 2002 (down nearly 70%) and yet the overall portfolio still outperformed XIU that year.


----------



## latebuyer (Nov 15, 2015)

Just a note that zlb's performance has improved. It is still not on par with the canadian index though. I'm still wary of high utility stock concentration.


----------

