# "5 Pack Approach"



## JackJac

In another thread James stated the following: 

"That's pretty similar to my 5 pack approach. I pick the largest XIU constituents and form an equal sector weight portfolio of: financials, utilities, industrials, energy, telecom. Currently this is RY, FTS, CNR, ENB, BCE. This portfolio has 3.7% dividend yield.

I decided on this construction due to the strong total returns, but it happens to also pay out a lot in dividends. In my case I reinvest all dividends (not DRIP, but redeploy periodically) so the dividends don't mean anything special to me."

canew90 replied: "They may not mean much to you, but look at the growth of the dividends with just those stocks mentioned, all star holdings in five sectors. IMO if one held nothing else they'd be fine."

*So if someone put 100K in RY, 100K in FTS, 100K in CNR, 100K in ENB, and 100K in BCE -- then this strategy, sans an apocalyptic event, would be just fine? Really?*


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## james4beach

I think if I was investing very large amounts of money, I'd expand the stock list and pick the two largest weight stocks from each of the named sectors, so it would become 10 stocks. This way, you limit your single stock exposure. The performance and dividend yield should be about the same.

That list would become: RY, TD, ENB, SU, CNR, CP, BCE, T, FTS, EMA


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## fatcat

i posted about this guy some time ago

*The 'blazingly simple,' must-have portfolio*
https://www.theglobeandmail.com/globe-investor/investment-ideas/the-blazingly-simple-must-have-portfolio/article4391968/

he used more than 5 stocks ([CN CP Enbridge Fortis RBC TD Bank and TransCanada) 
and returned a cumulative 305% over 10 years

i think james 10 above is fine but i would go south and add healthcare JNJ and consumer staples KHC/PG/UL and bring it up to 7 sectors

that leaves out materials, consumer discretionary and technology which is fine though i like QQQ for tech and healthcare


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## My Own Advisor

Agreed fatcat. 

I'd go with the top-2 in each sector (banks, lifecos, pipelines, utilities and CNR in particular) to feel mostly apocalyptic-safe. Get your JNJ, PG, KO, PEP, and other dividend kings from the U.S. for healthcare and consumer staples. 

Index invest everything else. 

I personally figure if the top stocks in Canada (banks, lifecos, pipelines, utilities, etc.) start all going under we have bigger problems to deal with...


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## like_to_retire

Why go to a foreign country for Consumer Discretionary and Consumer Staples?

Consumer Discretionary = CTC-A, CGX, GIL, TRI, MG

Consumer Staples = MRU, SAP, NWC, PJC.A, ATD.B, L, WN

ltr


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## Eclectic12

JackJac said:


> ... *So if someone put 100K in RY, 100K in FTS, 100K in CNR, 100K in ENB, and 100K in BCE -- then this strategy, sans an apocalyptic event, would be just fine? Really?*


Not sure what you are questioning ... a ten pack approach to beat the Canadian index has been written up for at least forty plus years. Then there's the contributor here who has been using a five pack approach for years.

http://canadianmoneyforum.com/archive/index.php/t-27161.html
http://canadianmoneyforum.com/archive/index.php/t-12691.html


I'd add some outside of Canada exposure but for Canadian exposure ... five or ten seems just fine.


Cheers


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## CrazyEights

I do like this approach. It is fairly simple, and i think i might mimic something similar. my difficulty is determining which account to put them in, especially when you have a decent cash account to work with. 
say you had 100K in cash account, 52K in tfsa, and say 50K in RRSP, how would you divy up the 5 pack across accounts. unless you put only 'international' (including US) stocks in RRSP, and the rest split between TFSA and Cash account?


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## londoncalling

I typically consider all my accounts when deciding on allocation. The only consideration would be how taxation would play a factor. This is especially important when moving to non registered accounts. If I was starting out today I would go with a 5/10 pack strategy.

Cheers


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## fatcat

like_to_retire said:


> Why go to a foreign country for Consumer Discretionary and Consumer Staples?
> 
> Consumer Discretionary = CTC-A, CGX, GIL, TRI, MG
> 
> Consumer Staples = MRU, SAP, NWC, PJC.A, ATD.B, L, WN
> 
> ltr


because in the case of johnson and johnson, 47% of their revenues are from outside the usa ... unilever is british and they are global (and there is no witholding tax on divys) ... coke is global and proctor and gamble is global as well

you get excellent international exposure and diversification by owning these usa and british giants


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## tygrus

I would probably lean my utilities and pipelines to those with more gas transportation and electric generation from gas. I worry about oil.


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## fatcat

tygrus said:


> I would probably lean my utilities and pipelines to those with more gas transportation and electric generation from gas. I worry about oil.


agree, pipelines and telco's are both facing some degree of disruption thats why i want more sector diversification


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## james4beach

Just in case people think that all my money is in 5 stocks, I should clarify. Most of my stock exposure is in just these 5 stocks, but I also have other investments. The 5-pack is within the stock category of my permanent portfolio. I also have bonds, gold, and cash/GICs.

Stocks (total 26%) : the 5-pack is 80% of this, and I have 20% in other stocks including US
Bonds (total 24%) : something like VAB
Gold (total 22%) : bullion funds - MNT, CEF.A, IAU
Cash-ish (total 28%) : savings accounts and GIC ladders


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## tygrus

james4beach said:


> Gold (total 22%)


Kinda high on the PMs. Expecting something?


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## Koogie

If you equate gold with FI, it is also a very conservative portfolio (25/75) for a young guy still in accumulation mode.

And although I do own some bullion (physical) I have never been a fan of the Permanent Portfolio, which I assume is what you are trying to ape here.


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## tygrus

Wouldnt buy my energy in any producer company. We saw what they did to dividends in the last downturn. I would buy energy indirectly through pipeline companies and midstream/downstreamers. ENB, ENF, TRP, IPL, ALA. Couple in the US of interest to is Enbridge Energy Partners and Spectra.

Also prefer to buy my banks with covered calls because those SOBs are so stingy with the dividends.


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## agent99

tygrus said:


> I would probably lean my utilities and pipelines to those with more gas transportation and electric generation from gas. I worry about oil.


Today, I spent some time trying to decide on buying "something" One thought was a steady dividend payer like FTS and EMA, but in a rising interest rate environment, maybe this is not the time to buy utilities? Fortis at $45.11 is at an all time high. If it dropped back to where it was about 4 years ago ($35) those dividends wouldn't look so good! Emera at close to $50, could pull back to it's 2012/3 level of $35 too. These dividend payers have been run up in the recent low interest environment so perhaps a correction is in the cards?

Similarly, I looked at adding one or two Preferreds. (I only have one perpetual and two splits). They are starting to trade closer to par. Tempting to buy and just collect the 5% dividends. But would need a long term view. This would be in place of corporate debentures which have benefit of short term maturity. 

Need some inspiration. Have $$ sitting doing nothing


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## tygrus

The rate hikes will be done in 6 months IMO. The US fed on its hands now. The BoC probably pulls off one, maybe two more than this whole thing rides for a number of years I bet. The biggest catalyst still in the horizon is if trump can pull off his tax reform. Since the GOP need a win, my bet is it gets done now. That could mean a lot more trade with canada - raw materials.


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## like_to_retire

fatcat said:


> because in the case of johnson and johnson, 47% of their revenues are from outside the usa ... unilever is british and they are global (and there is no witholding tax on divys) ... coke is global and proctor and gamble is global as well
> 
> you get excellent international exposure and diversification by owning these usa and british giants


For sure, no doubt all great foreign stocks (although it doesn't really address my question, and I believe Johnson & Johnson is Healthcare sector). 

I guess I didn't make my point very well. I always seem to read investors recommending Canada for financials, utilities, industrials, energy, and telecom. Then they concede that you must use foreign stocks for the remaining sectors. That's mostly what this thread has been about. I am always left wondering why Consumer Discretionary and Consumer Staples aren't included in the standard Canadian sectors, of which I feel I've indicated some good examples in my post. Look at Canadian Tire with 126% total return in the last five years, or MRU with 142% total return in the last five years, while offering tax credits on its dividends.

Myself, I exclude Materials, Information Tech, and Health Care in my portfolio for volatility reasons, but I assign equal amounts to Canadian individual stocks in the 8 sectors of Financial Bank, Financial Non-Bank, Energy, Telecom, Utilities, Consumer Discretionary, Consumer Staples, Industrial. I assign 3 stocks to each for a total of 24 Canadian stocks. I feel I'm diversified across sectors and don't require any foreign stocks. I think 3 stocks per sector suitable reduces a single companies risk.

Remember that with foreign dividend stocks, you have to overcome the advantage that the Canadian dividend tax credit offers, and also take a forex risk.

ltr


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## james4beach

tygrus said:


> Kinda high on the PMs. Expecting something?


My goal was actually 25% gold, so I'm a bit shy of the my target.



Koogie said:


> If you equate gold with FI, it is also a very conservative portfolio (25/75) for a young guy still in accumulation mode.
> 
> And although I do own some bullion (physical) I have never been a fan of the Permanent Portfolio, which I assume is what you are trying to ape here.


Yes, and I'm pretty close to an ideal permanent portfolio with 25% each. Sure, it's conservative, but I love the asset class diversification beyond just stocks & bonds. I've decided that this is an allocation approach that I can follow no matter what: whether employed, unemployed, retired.

I don't have a stable enough job/income to do an all-stock approach. It's just not possible for me; I have no pension and no job security. there will be years where I have to draw 20K to 30K out of my capital. My job also has some correlation to the stock market, so a 60/40 or 100% stock portfolio is just a bad idea for me.


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## fatcat

like_to_retire said:


> For sure, no doubt all great foreign stocks (although it doesn't really address my question, and I believe Johnson & Johnson is Healthcare sector).
> 
> I guess I didn't make my point very well. I always seem to read investors recommending Canada for financials, utilities, industrials, energy, and telecom. Then they concede that you must use foreign stocks for the remaining sectors. That's mostly what this thread has been about. I am always left wondering why Consumer Discretionary and Consumer Staples aren't included in the standard Canadian sectors, of which I feel I've indicated some good examples in my post. Look at Canadian Tire with 126% total return in the last five years, or MRU with 142% total return in the last five years, while offering tax credits on its dividends.
> 
> Myself, I exclude Materials, Information Tech, and Health Care in my portfolio for volatility reasons, but I assign equal amounts to Canadian individual stocks in the 8 sectors of Financial Bank, Financial Non-Bank, Energy, Telecom, Utilities, Consumer Discretionary, Consumer Staples, Industrial. I assign 3 stocks to each for a total of 24 Canadian stocks. I feel I'm diversified across sectors and don't require any foreign stocks. I think 3 stocks per sector suitable reduces a single companies risk.
> 
> Remember that with foreign dividend stocks, you have to overcome the advantage that the Canadian dividend tax credit offers, and also take a forex risk.
> 
> ltr


all good points ... 

i don't look at going outside of canada to buy healthcare and staples as a problem, i look at as an opportunity ... you get more diversification and more international exposure

sure you can get discretionary and staples in canada

but why do you force yourself into that box ?

holding only canadian stocks is a mistake in my opinion ... you have bet all your wealth on single economy

i think that international exposure is more important than the dividend tax credit and forex risk

usa multinationals (canada has no equivalent) are a great way to do that


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## Eder

Ya...international exposure has no more risk than Canada...

https://qz.com/1040731/tanzanias-pr...or-barrick-gold-owned-acacia-marks-a-new-day/

Think I'll stay close to home.


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## agent99

Eder said:


> Ya...international exposure has no more risk than Canada...
> 
> https://qz.com/1040731/tanzanias-pr...or-barrick-gold-owned-acacia-marks-a-new-day/
> 
> Think I'll stay close to home.


Interesting. I have some Barrick in my RRIF and some in XGD too. I bought it when the they bought out Equinox - a stock I had done very well on. That was my first mistake. 

Interestingly announcement didn't seem to affect stock price. In fact it went up today.


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## zylon

^^^ #22

News was out July 24
https://seekingalpha.com/news/3280752-acacia-mining-hit-tanzanian-demand-190b-unpaid-taxes

Price fell 5% that day.


http://stockcharts.com/h-sc/ui?s=ABX.TO&p=D&yr=0&mn=1&dy=10&id=p11650493241

ADDED:

Acacia Mining hasn't recovered yet.


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## agent99

zylon said:


> ^^^ #22
> 
> News was out July 24
> 
> Price fell 5% that day.


True, but ABX rebounded very quickly.


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## agent99

tygrus said:


> The rate hikes will be done in 6 months IMO. The US fed on its hands now. The BoC probably pulls off one, maybe two more than this whole thing rides for a number of years I bet. The biggest catalyst still in the horizon is if trump can pull off his tax reform. Since the GOP need a win, my bet is it gets done now. That could mean a lot more trade with canada - raw materials.


Interest rates ARE hard to predict. But they do have an effect on utility stocks prices, much like bonds. I certainly won't be selling the utilities we own, but hesitate buying at what might be the top of the market for a while. 

Correlation between utility prices and GOC 10yr. (Courtesy Bloomberg)








Problem is, what to buy? Maybe stay in cash for a while.


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## zylon

There's always hope for a favourable outcome.

Link: Govt, Barrick negotiations to commence next week


http://www.4-traders.com/BARRICK-GOLD-CORP-1408870/company/


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## JackJac

Eclectic12 said:


> Not sure what you are questioning ... a ten pack approach to beat the Canadian index has been written up for at least forty plus years. Then there's the contributor here who has been using a five pack approach for years.
> 
> http://canadianmoneyforum.com/archive/index.php/t-27161.html
> http://canadianmoneyforum.com/archive/index.php/t-12691.html
> 
> 
> I'd add some outside of Canada exposure but for Canadian exposure ... five or ten seems just fine.
> 
> 
> Cheers


Since I'm still relatively new to the investing world, I was questioning if James and others would be comfortable having all their savings/investments spread between 5 stocks, as seemed to be implied, until James clarified that he has investments elsewhere, as well.


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## Pluto

agent99 said:


> Today, I spent some time trying to decide on buying "something" One thought was a steady dividend payer like FTS and EMA, but in a rising interest rate environment, maybe this is not the time to buy utilities? Fortis at $45.11 is at an all time high. If it dropped back to where it was about 4 years ago ($35) those dividends wouldn't look so good! Emera at close to $50, could pull back to it's 2012/3 level of $35 too. These dividend payers have been run up in the recent low interest environment so perhaps a correction is in the cards?
> 
> Similarly, I looked at adding one or two Preferreds. (I only have one perpetual and two splits). They are starting to trade closer to par. Tempting to buy and just collect the 5% dividends. But would need a long term view. This would be in place of corporate debentures which have benefit of short term maturity.
> 
> Need some inspiration. Have $$ sitting doing nothing


Quite a few stocks are correcting/consolodating. CNR & CCL.B. for example. Have a look at the charts. A little too eary to buy CNR but, once it has more time to get rid of the weak holders, it should be a good buy. Similiar with CCL.


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## doctrine

JackJac said:


> *So if someone put 100K in RY, 100K in FTS, 100K in CNR, 100K in ENB, and 100K in BCE -- then this strategy, sans an apocalyptic event, would be just fine? Really?*


This is a great 5 pack. With 500k though, you might be able to diversify into a few other picks, depending on your total wealth; you don't want 10% of your wealth in a single stock. The second best in each of those sectors are also good picks - TD, CU, CP, TRP, T if you need to get your weighting down.


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## JackJac

doctrine said:


> This is a great 5 pack. With 500k though, you might be able to diversify into a few other picks, depending on your total wealth; you don't want 10% of your wealth in a single stock. The second best in each of those sectors are also good picks - TD, CU, CP, TRP, T if you need to get your weighting down.


Thanks. I'll consider taking this route when my GICs mature.


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## james4beach

Here's a potential downside of this approach. This only occurred to me today when AltaRed posted this in another thread.

My 5-pack, like the X-packs that many others have made, goes light on commodity sectors. The TSX Composite on its own is 32% in energy/materials but our X-packs reduce that exposure. Instead, we emphasize other sectors... many of which are on the expensive side.

It's often noted that the Canadian market doesn't appear to be as over-valued as the S&P 500. This is true for the broad TSX Composite, but might not be true for the stocks in our X-packs. *Our hand-crafted portfolios might actually have very high valuations similar to the US market with CAPE=30*.

If true, that's not a horrible thing, but it means that our X-packs might be more "bubbly" than the TSX Composite.


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## canew90

"They may not mean much to you, but look at the growth of the dividends with just those stocks mentioned, all star holdings in five sectors. IMO if one held nothing else they'd be fine."

Though I do feel that one would not go wrong investing in just those five stocks, it was not intended to be the only choice. Those stocks fall into the strategy of what I consider SAFE investing. "They have paid a dividend for many years and have a long history of growing their dividend (meaning their earnings have grown to support the dividend growth)". There are others (probably about 25-30 Cdn) as well as many more US stocks meeting that criteria and its my opinion that if one sticks to those stocks than in the long term they will do extremely well.
Buy or invest in them regularly or when their price drops. Keep the US in the RRSP. Max the TFSA. Don't sell as long as they continue to pay and grow the dividend. Investing can be that simple.


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## Pluto

james4beach said:


> Here's a potential downside of this approach. This only occurred to me today when AltaRed posted this in another thread.
> 
> My 5-pack, like the X-packs that many others have made, goes light on commodity sectors. The TSX Composite on its own is 32% in energy/materials but our X-packs reduce that exposure. Instead, we emphasize other sectors... many of which are on the expensive side.
> 
> It's often noted that the Canadian market doesn't appear to be as over-valued as the S&P 500. This is true for the broad TSX Composite, but might not be true for the stocks in our X-packs. *Our hand-crafted portfolios might actually have very high valuations similar to the US market with CAPE=30*.
> 
> If true, that's not a horrible thing, but it means that our X-packs might be more "bubbly" than the TSX Composite.


On the other hand, resource stocks, and other true cyclicals, may have no p/e at all at the bottom of their earnings cycle. Also when such companies eak out a little profit at or near the trough their p/e's can be 200 - 300. that doesn't mean they are overvlaued. It could mean they are a buy as their earninngs cycle is just beginning an upward trend. You can't value cyclicals with p/e's in they same way as valuing a non-cyclical with p/e's. Once cyclicals reach their earnings peak in a given cycle, their p/e's can be maybe 5-7. That doesn't mean they are undervalued. They could be a sell, not a buy. 

so Shiller's CAPE doesn't really work for cyclical stocks as these stocks may be undervlaued when their p/e is 250, and over valued when their p/e is 6.


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## Eder

Thanks for pointing that out Pluto...as with any metric Shiller's CAPE should be looked at in conjunction with all indicators. I like this article if anyone is interested...

https://seekingalpha.com/article/4085454-shiller-cape-ratio-misleading-right-now


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## Pluto

^ Yes, interesting article.


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## peterk

CrazyEights said:


> I do like this approach. It is fairly simple, and i think i might mimic something similar. my difficulty is determining which account to put them in, especially when you have a decent cash account to work with.
> say you had 100K in cash account, 52K in tfsa, and say 50K in RRSP, how would you divy up the 5 pack across accounts. unless you put only 'international' (including US) stocks in RRSP, and the rest split between TFSA and Cash account?





londoncalling said:


> I typically consider all my accounts when deciding on allocation. The only consideration would be how taxation would play a factor. This is especially important when moving to non registered accounts. If I was starting out today I would go with a 5/10 pack strategy.
> 
> Cheers


Consider not only annual taxation from dividends and portfolio changes, but retirement withdrawal too. Your "growth" stocks are best kept in TFSA, moderate stocks in unregistered, and lower returning "stable" stock in RRSP. Theoretically, of course. Luck of the draw whether growth turns out true or not, or stable stays stable.


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## james4beach

There's been a lot of talk in the forum about how the TSX isn't such a great index, and is easy to beat. At the same time people talk about American stocks being something you should "just index" with the S&P 500, and how the S&P 500 has performed so incredibly well.

I still think the TSX is fine for index investing. Look at the long term performance:

XIU, TSX index, 15 year returns
SPY, S&P 500 index, 15 year returns

XIU 15 year performance is 8.55%, and SPY is 9.01%. They're already very close. But now consider the currency impact. 15 years ago, the USD was about 1.55 and is down to 1.25 today. That amounts to more than -1% annual effect on the USD-based SPY.

End result is, *XIU returned 8.6% and SPY returned 8.0% max*, probably less.

So if the S&P 500 is considered one of the strongest and best performing markets in the world, how can XIU -- which outperformed the US -- be considered sub par?


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## james4beach

And I realize some people say that XIU is fine, but is still easy to beat. I'm not sure how easy it can possibly be when XIU already beats the strongest/best performing stock index out there (S&P 500).

Also, _what_ concerns about oil or commodities? It didn't stop XIU from beating the S&P 500 over the long term, despite a prolonged commodity bear market. Why would it be a problem now?


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## Eclectic12

james4beach said:


> There's been a lot of talk in the forum about how the TSX isn't such a great index, and is easy to beat. At the same time people talk about American stocks being something you should "just index" with the S&P 500 ...


Part of the "just index the S&P500" is that picking the best of the old Tips35 or the current 60 is much easier than figuring out the best of 500, from the articles I have read.




james4beach said:


> .... So if the S&P 500 is considered one of the strongest and best performing markets in the world, how can XIU -- which outperformed the US -- be considered sub par?


Articles that cover ten year slices for forty years where the best ten beat the TSX or TIPS index in all by a handful of times will suggest it is beatable.


Cheers


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## james4beach

Eclectic12 said:


> Articles that cover ten year slices for forty years where the best ten beat the TSX or TIPS index in all by a handful of times will suggest it is beatable.


Then that means investors following these approaches have also beaten the S&P 500 over 15 years, and in fact all the way back to 2000 (the TSX has beaten the S&P 500 for the past 17+ years).

My congratulations to everyone for handily beating the S&P 500 ! It means that these Canadian investors following simple stock picking approaches are beating most of the mutual funds and hedge funds in the world.

Do you see where my doubt comes from, though? Imagine if I were to go on TV and say, "my simple Canadian stock picking approach has beaten the S&P 500 for 17 years".


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## james4beach

By extension, if this is true (that a simple Canadian pack can beat the S&P 500 over 17+ years) then it suggests a major market inefficiency. It's possible, and _I hope it's true_, but it seems unlikely.


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## zylon

james4beach said:


> Do you see where my doubt comes from, though? Imagine if I were to go on TV and say, "my simple Canadian stock picking approach has beaten the S&P 500 for 17 years".


Excellent idea - I'd luv to see that !

How about *Venezuela*? Who can beat that?
Why, those folks must be rich !









source: http://www.4-traders.com/VENEZUELA-GENERAL-7453/?type_recherche=rapide&mots=venezuela

But how are investors there doing, *really*?
Can you not see the error in your analysis?


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## Pluto

james4beach said:


> There's been a lot of talk in the forum about how the TSX isn't such a great index, and is easy to beat. At the same time people talk about American stocks being something you should "just index" with the S&P 500, and how the S&P 500 has performed so incredibly well.
> 
> I still think the TSX is fine for index investing. Look at the long term performance:
> 
> XIU, TSX index, 15 year returns
> SPY, S&P 500 index, 15 year returns
> 
> XIU 15 year performance is 8.55%, and SPY is 9.01%. They're already very close. But now consider the currency impact. 15 years ago, the USD was about 1.55 and is down to 1.25 today. That amounts to more than -1% annual effect on the USD-based SPY.
> 
> End result is, *XIU returned 8.6% and SPY returned 8.0% max*, probably less.
> 
> So if the S&P 500 is considered one of the strongest and best performing markets in the world, how can XIU -- which outperformed the US -- be considered sub par?


Here is my latest test of this 15 year scenario:

XIU.t 15 year results compared to 15 year banks piplines telecom. 

fictional buy of 520000.00 of xiu on Aug 2, 2002. 
xiu total value today - 1.6 million. +222% Dividends since inception: 358,410 (included in total value).

Banks piplines telecom 13 stocks: -
Total value today: 2.75 million +450% gain. dividends received since inception: 764,130

One thing I take from this is why you are so complacant about holding resource stocks inside XIU? Most of them are not buy and hold type investments, they are 
trades. 
clearly, this portfolio of 13 everyday ordinary CDN stocks does very well. Unless I am missing something, it looks like it beats all indexes everywhere.


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## Pluto

I should add that the 13 stock portfolio over 15 years performed at a 11.74% compond rate of return which, I think, beats any index in any country.


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## like_to_retire

Pluto said:


> clearly, this portfolio of 13 everyday ordinary CDN stocks does very well. Unless I am missing something, it looks like it beats all indexes everywhere.


Pluto, I've promoted CDN stock portfolios over and over, and no one is listening. I suggest you leave people in peace with their international couch potato investing, regardless of the returns.

ltr


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## Eclectic12

james4beach said:


> Then that means investors following these approaches have also beaten the S&P 500 over 15 years, and in fact all the way back to 2000 (the TSX has beaten the S&P 500 for the past 17+ years) ...


Actually the articles were covering 1970 to 2010 ... but I digress.




james4beach said:


> ... Do you see where my doubt comes from, though? Imagine if I were to go on TV and say, "my simple Canadian stock picking approach has beaten the S&P 500 for 17 years".


The articles were "here's the list, here's the performance" where the worst ten year slice I can recall was the TSX beating the list for three of ten years. Definitely not the same coverage as going on TV but definitely published in a way that one could back test/track/evaluate.


The key assumption built into it is that people are seeking out info, evaluating it then implementing it. There are lots of examples where people aren't interested, don't want to do the work, have governing factors, are intimidated, value other parts of life, are focused on a event etc. that result in skipping doing anything about it. 

From what I recall, where posters suggested top picks could do better than the TSX - for a long time your response was "Nortel would kill performance". Eventually when numbers were run, the response changed where your interest picked up, did it not?


Cheers


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## Eder

Most feel comfortable within the herd. When Argo first posted his 6 pack approach most heads exploded.


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## james4beach

Eclectic12 said:


> From what I recall, where posters suggested top picks could do better than the TSX - for a long time your response was "Nortel would kill performance". Eventually when numbers were run, the response changed where your interest picked up, did it not?


Yes you are correct on this. During the cold, dark winter, I pulled up every XIU financial statement back to 2000. I simulated my 5-pack method to figure out what would have happened if I consistently implemented my strategy. One of the holdings, Bombardier, had a -29% year followed by a -67% year!! What disaster, 1/5 of the portfolio crashing over 95%. But to my surprise, even with the occasional horrible crashes, my 5-pack method showed better long term performance than XIU. This showed me that it's fine even in the unlucky scenario that one of the 5 stocks utterly crashes, as Bombardier did.

Still, I keep asking myself if my back testing method is a good simulation of how I would actually run this portfolio, or if there is some effect (hindsight bias/survivor bias/flaw in rebalancing) that I am missing. So far the only flaw I can find is a *hindsight bias in sector selection*. We've selected sectors that have worked well in the past, but this doesn't mean these sectors will work well going forward. In a way, we're making a sector bet. I think that's a real danger but, then again, XIU also makes sector bets: financials & energy.

(For example, if it turns out that the tech or mining sectors dominates Canadian market returns in the next 20 years, many of us X-pack holders will be left in the dust)

I think it's good to critique one's own methods. As of today, I am convinced enough to have over 100K in this 5-pack. I just don't rule out that I may be missing something.


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## fatcat

james4beach said:


> Yes you are correct on this. During the cold, dark winter, I pulled up every XIU financial statement back to 2000. I simulated my 5-pack method to figure out what would have happened if I consistently implemented my strategy. One of the holdings, Bombardier, had a -29% year followed by a -67% year!! What disaster, 1/5 of the portfolio crashing over 95%. But to my surprise, even with the occasional horrible crashes, my 5-pack method showed better long term performance than XIU. This showed me that it's fine even in the unlucky scenario that one of the 5 stocks utterly crashes, as Bombardier did.
> 
> Still, I keep asking myself if my back testing method is a good simulation of how I would actually run this portfolio, or if there is some effect (hindsight bias/survivor bias/flaw in rebalancing) that I am missing.
> 
> I think it's good to critique one's own methods. As of today, I am convinced enough to have over 100K in this 5-pack. I just don't rule out that I may be missing something.


what you are missing is human nature ... it's fine to back test but all you are getting is numbers and investing is only partly about numbers, it's mostly about human behaviour

you are missing the value of diversification which calms the nerves since it spreads the risk

and most investors, as has been mentioned don't sit around watching their portfolios for maximum return, they forget, and they get busy and they often just don't care but they do care about their money not crashing to earth

the problem with the 5-pack, back tested up the yin-yang though it may be is that you have all your money riding on a very few stocks and inevitably are going to run into hard times with 1 or more of them that will create fear and perhaps the temptation to sell or hedge or tweak ... whatever

this doesn't show up in any back test


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## james4beach

By the way, I will point out that XIU _also_ survived the Nortel collapse just fine, even though NT was a huge % of the index. I still think XIU is a very solid long-term investm


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## james4beach

fatcat said:


> what you are missing is human nature ... it's fine to back test but all you are getting is numbers and investing is only partly about numbers, it's mostly about human behaviour ... the problem with the 5-pack, back tested up the yin-yang though it may be is that you have all your money riding on a very few stocks and inevitably are going to run into hard times with 1 or more of them that will create fear and perhaps the temptation to sell or hedge or tweak ... whatever


You're right, fatcat. This is what I'm missing. The human brain will fight my attempt to consistently implement this strategy, and any other strategy. For example, my method requires annual rebalancing. The simulation shows that at the end of 2011, after a +27% rise in BCE and -22% drop in SU, I would have had to sell BCE and buy SU. Absolutely the right move, but how difficult would that be?


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## fatcat

james4beach said:


> You're right, fatcat. This is what I'm missing. The human brain will fight my attempt to consistently implement this strategy, and any other strategy. For example, my method requires annual rebalancing. The simulation shows that at the end of 2011, after a +27% rise in BCE and -22% drop in SU, I would have had to sell BCE and buy SU. Absolutely the right move, but how difficult would that be?


yes exactly, your brain will tell you to rebalance and your heart will be convinced that oil is going in the tank ... but if SU is only one of the 60 stocks in your portfolio via XIU, you are going to likely react very differently than if it is 1 of 5


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## james4beach

That seems like a strong argument for index investing. You just hold the index, without much concern for what happens to individual securities.

If you try to roll your own portfolios, you may screw up the implementation of your strategy. Or simply forget about it, get too busy, and neglect it and fail to manage it.


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## Eder

I don't think SU belongs in any 6 pack...it is ,has been,and most likely will continue to be a pig. If you sold BCE in 2011 you're doing it wrong.


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## james4beach

I still suspect that much of the success of these X-pack methods comes down to sector selection. Could *ZLB* be the first ETF to accomplish this? Look at the sector exposure, it's quite even across: financials, consumer defensive, utilities, REIT, telecom. Energy and commodity stocks are notably absent, with minimal exposure*. *This is a common trait in all our X-packs*.

5 year performance of ZLB is 15.5% annual, vs 9.0% for TSX.

It's possible that sector selection and dropping commodities is the "magic" factor, in which case ZLB would be a good option.

_(*) note, they categorize CCL.B as materials and TRP and ENB as energy. It would be more fair to call CCL.B industrial and the others pipeline stocks -- which many X-packs do hold. I would argue that their actual commodity stock exposure is nil. There is a strong match here to the X-pack sector construction._


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## Pluto

^
Yes, ZLB makes more sense than XIU. ZLB could almost turn me into a ETF'er.


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## Pluto

james4beach said:


> You're right, fatcat. This is what I'm missing. The human brain will fight my attempt to consistently implement this strategy, and any other strategy. For example, my method requires annual rebalancing. The simulation shows that at the end of 2011, after a +27% rise in BCE and -22% drop in SU, I would have had to sell BCE and buy SU. Absolutely the right move, but how difficult would that be?


Its only the right move if you believe in that portfolio theory. I was brought up on a steady diet of put all your eggs in one basket, and watch the basket closely. Keep your winners until the trend and or earnings story changes for the worse. To keep balance add new money to the slower performers, instead of selling the winner. I know people are advised not to be too dependant on a winner, so trim it. but it doesn't make sense to me to trim the big performer(s) to buy the laggards. 

Lots of different strategies; its what makes the best sense to you.


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## james4beach

Pluto said:


> Its only the right move if you believe in that portfolio theory. I was brought up on a steady diet of put all your eggs in one basket, and watch the basket closely. Keep your winners until the trend and or earnings story changes for the worse. To keep balance add new money to the slower performers, instead of selling the winner. I know people are advised not to be too dependant on a winner, so trim it. but it doesn't make sense to me to trim the big performer(s) to buy the laggards.


Like you say, there are many different strategies out there and they call for different techniques.

If one implements my 5 pack approach without annual rebalancing, over the 17 year period I'm looking at, the overall performance drops by a whopping 1% a year.

The reason is that the portfolio gets way unbalanced after a few years of the bear market. By 2002, you'd end up with only 5% in the "industrial" sector and 32% in "utilities". Remember that they all started at 20%. The annual rebalancing _forces_ money back into the beaten-up industrial sector. It's very painful at the time, but you benefit from the tremendous performance of CNR in the next bull market.

My advice for anyone trying my 5-pack approach is: rebalance annually back to equal weight sectors, and make sure you go back to XIU to look at which stocks have floated to the top of the sectors.


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## Pluto

james4beach said:


> Like you say, there are many different strategies out there and they call for different techniques.
> 
> If one implements my 5 pack approach without annual rebalancing, over the 17 year period I'm looking at, the overall performance drops by a whopping 1% a year.
> 
> The reason is that the portfolio gets way unbalanced after a few years of the bear market. By 2002, you'd end up with only 5% in the "industrial" sector and 32% in "utilities". Remember that they all started at 20%. The annual rebalancing _forces_ money back into the beaten-up industrial sector. It's very painful at the time, but you benefit from the tremendous performance of CNR in the next bull market.
> 
> My advice for anyone trying my 5-pack approach is: rebalance annually back to equal weight sectors, and make sure you go back to XIU to look at which stocks have floated to the top of the sectors.


I see your point. 
Also it looks like the utility dividend payers didn't tank as much as other stocks indicating that some dividend stocks are less volatile. 
And speaking of cnr in the next bull market, that's an example of what I'd probably let run until the story changed instead of trimming it. (When do you sell? Peter Lynch: when the story changes.)


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## james4beach

I'm just sharing the mechanical technique I came up with. There are probably better ways to do this.

My 5-pack is up 15.5% in the last year (to 2017-08-04). In comparison, XIU is up 9.9%. These are all total returns.

The rebalancing I described helped make this happen. Suncor was up 28% up to the end of the year. It was by far the strongest performer in the pack, while BCE & FTS were the weakest. At the end of the year, SU got swapped for ENB due to XIU's rebalancing. Selling the strongest (SU) and rotating money into BCE & FTS worked out great, since FTS is now one of the strongest performers.


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## Eder

Pluto said:


> I see your point.
> (When do you sell? Peter Lynch: when the story changes.)


boink...don't sell winners...dump the dogs. No reason to pick 6 stocks & stick thru hell or high water. Argo ditched his IPL in favor of TRP I think. Peter Lynch was smarter than the herd. jmo


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## Argonaut

Yeah I like to sell losers rather than winners. Sold RioCan for CAP REIT, turned out great. Sold Inter Pipeline for Enbridge Income Fund about a year ago, IPL down 8% and ENF flat in that time (not including dividends). X-Pack is great, but you have to keep an eye on it. Not a silver bullet for the average Joe.

I've been working on some content in my free time that will help the average investor with these and other ideas. Stay tuned?


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## james4beach

Argonaut said:


> Yeah I like to sell losers rather than winners. Sold RioCan for CAP REIT, turned out great. Sold Inter Pipeline for Enbridge Income Fund about a year ago, IPL down 8% and ENF flat in that time (not including dividends). X-Pack is great, but you have to keep an eye on it. Not a silver bullet for the average Joe.


I agree, the X-packs need some maintenance including switching out stocks when needed.


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## JackJac

james4beach said:


> I agree, the X-packs need some maintenance including switching out stocks when needed.


So, James, there really is no such thing as a buy and hold strategy when it comes to stocks then, right? Therefore, wouldn't this notion of a "5-pack approach" be somewhat redundant then?


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## 30seconds

How is it redundant? It has fairly set rules of how to re balance and what to buy. 

Use the outlined 5 sectors in the TSX, check XIU for the top stock in the sector and buy. Re balance as required.


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## james4beach

I'm not sure what JackJac means by redundant, but yes there may be occasional changes to the 5-pack.

As 30seconds says, the rules are set (which frees me from making my own judgement calls). The good folks at S&P define the TSX 60 for us, and the XIU managers implement it. Then I piggy-back on their decisions and extract those top weight stocks from the 5 outlined sectors.

One might describe this approach as trimming or re-factoring the stock index, rather than a "stock picking" strategy. Personally I really wanted equal weight sectors, and this lets me do that while retaining the essence of the TSX 60.


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## JackJac

OK thanks for clearing that up.


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## MrMatt

Eder said:


> Ya...international exposure has no more risk than Canada...
> 
> https://qz.com/1040731/tanzanias-pr...or-barrick-gold-owned-acacia-marks-a-new-day/
> 
> Think I'll stay close to home.


International doesn't mean 100% in Tanzania, they're a miniscule fraction of the worlds economy for a reason.


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## james4beach

I've been happy to see my 5-pack perform well despite this irritatingly sideways period for the TSX in 2017. The benchmark XIU is +0.81% year-to-date. My 5-pack {RY,FTS,CNR,ENB,BCE} is up +4.61%. These are all total returns.


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## james4beach

Argonaut said:


> I've been working on some content in my free time that will help the average investor with these and other ideas. Stay tuned?


Yes Argonaut, please share any content you come up with. For those who may not know this, Argonaut had the original 5 pack but I believe is shifting towards a 12 pack.
http://canadianmoneyforum.com/showt...s-5-pack-for-TFSAs-amp-other-starter-accounts

Argo, if you start a blog or even just a simple page showing you current stock portfolio, I bet that many people would bookmark it and watch it closely. Or maybe you already have one?

While I have the chance here can I ask you something? In the past, I believe you had the opinion that just Canada + US exposure is enough for international diversification -- probably due to the large multinationals. Is that still what you do?


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## fatcat

james4beach said:


> I've been happy to see my 5-pack perform well despite this irritatingly sideways period for the TSX in 2017. The benchmark XIU is +0.81% year-to-date. My 5-pack {RY,FTS,CNR,ENB,BCE} is up +4.61%. These are all total returns.


i own all these except ENB, but i also own EMA, TD, BMO and Telus ... why not spread the risk, assuming you don't trade much ? ... i have traded less than 2x this year in total ... whats the advantage if you are holding long term ?


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## james4beach

You mean, increase the number of holdings? That might be worth doing. However I already own other TSX stocks. This 5-pack is 80% of my stock exposure and I have another 20% in other stocks, see the thread on my Lowdiv portfolio. All together that's 5 pack + 8 tsx lowdiv + 1 brk.b = 14 individual stock positions. If anything, it's already too many


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## fatcat

james4beach said:


> You mean, increase the number of holdings? That might be worth doing. However I already own other TSX stocks. This 5-pack is 80% of my stock exposure and I have another 20% in other stocks, see the thread on my Lowdiv portfolio. All together that's 5 pack + 8 tsx lowdiv + 1 brk.b = 14 individual stock positions. If anything, it's already too many


i have 13 canadian and 7 usa stocks almost evenly split by value ... haven't traded any of them seriously lately, i did sell ge and pg a couple months ago but still have 3 banks, 2 insurers, 2 telecom, 2 cons disc (sbux, dis) 3 cons staple (khc,ul, dol) 1 health jnj, then bam and brk.b, qqq, su ... it seems manageable to me, i get the challenge of picking 5 as proxies for the 20 but am too lazy i guess, i don't want to blaze any trails, just don't want to get poor 


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## like_to_retire

james4beach said:


> You mean, increase the number of holdings? That might be worth doing. However I already own other TSX stocks. This 5-pack is 80% of my stock exposure and I have another 20% in other stocks, see the thread on my Lowdiv portfolio. All together that's 5 pack + 8 tsx lowdiv + 1 brk.b = 14 individual stock positions. If anything, it's already too many


Regardless of the 14 individual stock positions, that 5-pack still represents 80% of your equities. That means each stock in the 5-pack represents 16%. By any convention, that's way too high. A rule of thumb is that it's wise to keep each position under 5%. Even with a 10-pack, each stock would still represent 8%. If it's too onerous to keep an increased number of positions, you may be better served (with respect to risk) by moving to the ETF route. Sure, the return may not be quite as good as individual stocks, but you wouldn't be dangling on a cliff edge all the time.

ltr


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## yyz

I would say that is true but james doesn't have as much in stocks so 5% weighting would be meaningless.


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## like_to_retire

yyz said:


> I would say that is true but james doesn't have as much in stocks so 5% weighting would be meaningless.


So you're saying this 5-Pack approach only works with small amounts invested? 

Has James pointed this out so newbie readers won't follow this tactic?

ltr


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## humble_pie

like_to_retire said:


> Regardless of the 14 individual stock positions, that 5-pack still represents 80% of your equities. That means each stock in the 5-pack represents 16%. By any convention, that's way too high.
> 
> A rule of thumb is that it's wise to keep each position under 5%. Even with a 10-pack, each stock would still represent 8%. If it's too onerous to keep an increased number of positions, you may be better served (with respect to risk) by moving to the ETF route. Sure, the return may not be quite as good as individual stocks, but you wouldn't be dangling on a cliff edge all the time.




LTR everything depends upon an individual's profile. His or her comfort zone is what counts, don't you think.

1) jas4 can't buy canadian ETFs. Long story, but the bottom line is he cannot.

2) the ratio of canadian common stock in jas4's total portfolio is still very low. I'd be surprised if it's over 20%, which is on the low side for a young person his age.

that being said, you were not here when jas4 first arrived but at that time he was all bonds all of the time. Ooh it was like pulling teeth. We had to inch the james very slowly, kicking & screaming in protest the whole time, into common stock markets. I believe it took the forum 2 or 3 years; but in the end we did manage to convert him somewhat.

3) i think capping a holding at 5% of portf is little-old-auntie theory. There are other posts right at this time (pluto i believe) describing how the investor lets his profits in a particular stock run. I myself have something like 10% in each of 3 stocks. Yup 30% of the entire portf in 3 stocks. I'm not buying more; but neither am i planning to rebalance.

4) lastly, jas4's 5-pack contains the biggest stocks from the TSX principal sectors. These are huge, slow, lumbering dowagers. They are grannykins. No way are they cliff-hangers.


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## fatcat

humble_pie said:


> 1) jas4 can't buy canadian ETFs. Long story, but the bottom line is he cannot.


actually thats less and less true, most of the good etf comanies are providing pfic data which allows qef election and thus can make accounting fairly straightforward ... after the first of the year i will buy some bond funds from ishares all of which provide pfic for the tax year now


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## Pluto

JackJac said:


> So, James, there really is no such thing as a buy and hold strategy when it comes to stocks then, right? Therefore, wouldn't this notion of a "5-pack approach" be somewhat redundant then?


Yes, there is a buy and hold strategy, but you don't hold if you made a mistake and one goes south on you. You get rid it it and move on. 
Reportedly, Buffett had 75% of BRK in 5 stocks at one time. Adam smith, in The Money Game, wrote, if I remember right, that he wouldn't hold more than six stocks in his personal account. that's because, he said, people who know what they are doing and concentrate in a few make the most money. 

I'm not advising people to do this, nor am I advising them not to. Use your own judgment. With 25000 to invest, 5 seems fine. With much larger amonts of money up to 20 seems fine for amateurs. But I support argo in his x pack approach because he studies this stuff; he is into it. He's not a cab driver who thinks he is Jessie Livermore. Plus I support some people using this approach because there is a tendancy for people to be over diversified by having a piece of hundreds of stocks in ETF's, and they seem to think that diversification solves all problems when often they doom themselves to very mediocre results.


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## james4beach

You all are raising some good points. In the second post of this thread, I added



james4beach said:


> I think if I was investing very large amounts of money, I'd expand the stock list and pick the two largest weight stocks from each of the named sectors, so it would become 10 stocks. This way, you limit your single stock exposure. The performance and dividend yield should be about the same.
> 
> That list would become: RY, TD, ENB, SU, CNR, CP, BCE, T, FTS, EMA


As most of you know, I'm a conservative investor, and I really don't lose any sleep having about 100K in just 5 stocks (about 20K each). The main reason is that these are the largest constituents of the TSX 60 index itself. If one of these 5 stocks crashes, then the TSX is tanking too. If two of these 5 stocks crashes, the TSX is outright crashing. *Virtually by definition, the TSX index will move about the same as this 5 pack, because they represent the largest cap weighted constituents*. (This is even more true if you expand the list to 10, as per my above quote, because at that point you've replicated a huge % of the XIU by market cap).

I don't think that holding a Canadian index ETF offers much more safety than holding this 5 pack. But yes it offers a bit more safety. What might be fine for 100K probably would not be fine for 500K. If I was doing this 500K, I'd expand into 10 stocks as described above -- top two weights from each of the named sectors.

Let me add, position management is important in this 5 pack. There was a time when one of the constituents (BBD.B) crashed 96% successively over two years. In other words, one of the five got wiped out. But because we're piggy backing on the index here, we benefit from the same thing the index has, where survivors float to the top of the weightings. BBD.B was expelled and replaced with CNR, and as you all know, this went on to become one of the best performers ever.

* This is an index replication/sampling methodology, it's not a speculative portfolio of hand picked stocks. *

More interestingly, even though 1/5 of the pack was completely wiped out (BBD.B down 96%) the overall resulting performance during those years still exceeded XIU's performance. As you might guess, XIU crashed along with it at the same time, and the 5 pack would have had equal sector weights, which was a benefit. This was all part of a back test, so I can't say that I lived this in real life but I have very carefully done this historical simulation to step through the 5 pack during 2000-2003. I am a very risk-averse person.


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## james4beach

fatcat said:


> actually thats less and less true, most of the good etf comanies are providing pfic data which allows qef election and thus can make accounting fairly straightforward ... after the first of the year i will buy some bond funds from ishares all of which provide pfic for the tax year now


My accountant has advised me to avoid PFICs at all costs. There's a lot of paperwork that goes with them, which will cost me, and the accountant has experienced that IRS reps are clueless about how to handle PFICs. I have been told that this can be a nightmare and it just isn't worth it.


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## fatcat

james4beach said:


> My accountant has advised me to avoid PFICs at all costs. There's a lot of paperwork that goes with them, which will cost me, and the accountant has experienced that IRS reps are clueless about how to handle PFICs. I have been told that this can be a nightmare and it just isn't worth it.


i have been filing them for a few years without problems ... the etf companies like blackrock provide all the data for certain of their etf's anyway ... but you maybe right james, the irs is hard to understand, i wish they would at least do us the courtesy of an assessment as the cra does


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## james4beach

fatcat said:


> i have been filing them for a few years without problems ... the etf companies like blackrock provide all the data for certain of their etf's anyway ... but you maybe right james, the irs is hard to understand, i wish they would at least do us the courtesy of an assessment as the cra does


It could be that my accountant had a bad experience with PFICs in the past. By the way, you can use the IRS web site to request a "transcript" and account history. They will send you something that's kind of like a Notice of Assessment. In any case, it's useful paperwork to have.


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## yyz

like_to_retire said:


> So you're saying this 5-Pack approach only works with small amounts invested?
> 
> Has James pointed this out so newbie readers won't follow this tactic?
> 
> ltr


No I'm saying a 5% weighting per stock is not needed with what I am guessing is a small overall 5 pack $ holding.If it was a 6 figure then sure but I'm guessing it's not near that much


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## Koogie

Whenever I see a whiz bang investing strategy that someone is following, I am always tempted to ask them how much skin they have in the game.
A lot different approach when you're playing with 5 figures than with 7 figures, for instance.


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## james4beach

I have about 100K in my 5-pack, so each stock position is around 20K.


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## like_to_retire

james4beach said:


> As most of you know, I'm a conservative investor, and I really don't lose any sleep having about 100K in just 5 stocks (about 20K each). The main reason is that these are the largest constituents of the TSX 60 index itself. If one of these 5 stocks crashes, then the TSX is tanking too.


OK, I'll give this one more try. I guess I still don't see the reason to allocate 16% (1 of 5 of 80%) to each of your 5 pack stocks. Certainly $100K is enough to expand that list to 10 stocks and reduce the risk of each stock to 8% (1 of 10 of 80%). I'm not implying that one of these blue chips will crash, but the risk of a bad year in a single stock is quite high. Two stocks in the sector would reduce the risk by 50%. That's huge. I thought you said you were conservative. I'm sure the 5-Pack has done well, but don't fool yourself with short runs of luck. Why assign so much risk to unsystematic company specific risk, which can easily be reduced through diversification.

Look at a few examples below for this 2017 year-to-date returns (YTD share price return).

Financial sector (non-bank) includes SLF.TSX down -4.31%, while it's partner MFC.TSX is up 4.94%.
Energy (pipeline) includes TRP.TSX up 4.18%, while its partner ENB.TSX is down -10.34%.
Telecom includes BCE.TSX up 2.02%, while its partner T.TSX is up 6.08%.
Utilities includes FTS.TSX up 10.88%, while EMA.TSX is up 3.39%.
Consumer Discretionary includes CTC-A.TSX up 10.17%, while CGX.TSX is down -17.61%.
Consumer Staple includes MRU.TSX up 6.77%, while SAP.TSX is down -8.59%.

Do you not see how easily you can be up or down if you depend on one company in a sector?

I'm sure you know what you're doing, but it seems so easy to reduce risk in this case.

ltr


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## fatcat

like_to_retire said:


> OK, I'll give this one more try. I guess I still don't see the reason to allocate 16% (1 of 5 of 80%) to each of your 5 pack stocks. Certainly $100K is enough to expand that list to 10 stocks and reduce the risk of each stock to 8% (1 of 10 of 80%). I'm not implying that one of these blue chips will crash, but the risk of a bad year in a single stock is quite high. Two stocks in the sector would reduce the risk by 50%. That's huge. I thought you said you were conservative. I'm sure the 5-Pack has done well, but don't fool yourself with short runs of luck. Why assign so much risk to unsystematic company specific risk, which can easily be reduced through diversification.
> 
> Look at a few examples below for this 2017 year-to-date returns (YTD share price return).
> 
> Financial sector (non-bank) includes SLF.TSX down -4.31%, while it's partner MFC.TSX is up 4.94%.
> Energy (pipeline) includes TRP.TSX up 4.18%, while its partner ENB.TSX is down -10.34%.
> Telecom includes BCE.TSX up 2.02%, while its partner T.TSX is up 6.08%.
> Utilities includes FTS.TSX up 10.88%, while EMA.TSX is up 3.39%.
> Consumer Discretionary includes CTC-A.TSX up 10.17%, while CGX.TSX is down -17.61%.
> Consumer Staple includes MRU.TSX up 6.77%, while SAP.TSX is down -8.59%.
> 
> Do you not see how easily you can be up or down if you depend on one company in a sector?
> 
> I'm sure you know what you're doing, but it seems so easy to reduce risk in this case.
> 
> ltr


great post, i own FTS paired with EMA, i also own BCE paired with Telus, and I own SLF paired with MFC ... all are long term holds and i am glad i have done it that way because of the reasons you cite i see no reason to try to pair it down to 3 from 6

though i get the principle if indeed you are using a yearly rebalance strategy according to whatever rules you might want to follow 

but for long term low or no trading, i am happy to hold twins


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## My Own Advisor

Then if you're lucky you can own triplets!! AQN with FTS and EMA; RCI.B with BCE and T; GWO with SLF and MFC and the list goes on for various sectors. Avoid most cyclicals like oil and gas stocks and then you're good to go! No real need to re-balance other than buying more when assets are down in price and reinvest dividends. Let the income machine grow!


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## like_to_retire

My Own Advisor said:


> Then if you're lucky you can own triplets!! AQN with FTS and EMA; RCI.B with BCE and T; GWO with SLF and MFC and the list goes on for various sectors. Avoid most cyclicals like oil and gas stocks and then you're good to go! No real need to re-balance other than buying more when assets are down in price and reinvest dividends. Let the income machine grow!


Yep, it's exactly what I do. I have 24 stocks consisting of 3 stocks per each of the 8 Canadian sectors (Financial Bank, Financial Non-Bank, Energy, Telecom, Utilities, Consumer Discretionary, Consumer Staples, Industrial). I avoid Materials, Information Tech, Health Care as they are too volatile.

ltr


----------



## fatcat

like_to_retire said:


> Yep, it's exactly what I do. I have 24 stocks consisting of 3 stocks per each of the 8 Canadian sectors (Financial Bank, Financial Non-Bank, Energy, Telecom, Utilities, Consumer Discretionary, Consumer Staples, Industrial). I avoid Materials, Information Tech, Health Care as they are too volatile.
> 
> ltr


i agree but disagree on health care ... johnson and johnson gives me great divys and international exposure, it really is a classic defensive stock, it has been very good to me lately

also QQQ has been great for tech and consumer discretionary and healthcare also ... 

i avoid materials and pipelines and soon may dump my SU and have zero energy


----------



## james4beach

like_to_retire said:


> I guess I still don't see the reason to allocate 16% (1 of 5 of 80%) to each of your 5 pack stocks. Certainly $100K is enough to expand that list to 10 stocks and reduce the risk of each stock to 8% (1 of 10 of 80%). I'm not implying that one of these blue chips will crash, but the risk of a bad year in a single stock is quite high. Two stocks in the sector would reduce the risk by 50%. That's huge.


I see what you're saying. I will think about this some more. I was trying to avoid building up too many separate positions.



like_to_retire said:


> don't fool yourself with short runs of luck.


I'm not just looking at short runs. I did a through historical simulation of exactly what would have happened if I followed this approach going all the way back to 2000. That 17 years of data is pretty substantial, I would think, and alleviated my concerns about single stock exposure in a group of five. Like I said, I've already seen what happens when one of those stocks in the 5-pack totally crashes... it was OK.


----------



## james4beach

And I am taking this suggestion seriously. It's a bit more work, a few more trades, but I can definitely alleviate the concentration level in any one stock.


----------



## fatcat

james4beach said:


> And I am taking this suggestion seriously. It's a bit more work, a few more trades, but I can definitely alleviate the concentration level in any one stock.


pick twins in 7 sectors ... leave out energy, materials and consumer discretionary for a total of 14 stocks


----------



## Eder

I think for portfolios under 100k a TSX 3 pack with a drip is fine and easy to outperform index funds. Both my kids are using this strategy and beat the pants off me every year. Once they hit 100k I'll most likely start increasing their number of equities.


----------



## like_to_retire

Eder said:


> I think for portfolios under 100k a TSX 3 pack is fine and easy to outperform index funds. Both my kids are using this strategy and beat the pants off me every year.


Until they don't.

Assigning 33% to a single stock is too risky. 

If I'm going to take that much risk with a single stock, it will at least be with a very risky stock, so I can have a chance at being paid handsomely for my risk taking. I don't take that level of risk with blue chip. The reward isn't worth it.

But, I realize that everyone is different. 

ltr


----------



## james4beach

YTD return is +5.5% for my five pack vs +3.3% for XIU
1 year return is +14.0% for my five pack vs +9.5% for XIU

If it was implemented as the 10 pack (same concept with equal weight sectors) the 1 year return is +11.6%.



Eaglyeye said:


> what currently constitutes your 5-pack ? Is the return including dividends?


Currently it's RY, ENB, CNR, BCE, FTS. At the start of the year, ENB replaced SU.

Yes these figures are total returns.


----------



## Eaglyeye

james4beach said:


> YTD return is +5.5% for my five pack vs +3.3% for XIU
> 1 year return is +14.0% for my five pack vs +9.5% for XIU
> 
> If it was implemented as the 10 pack (same concept with equal weight sectors) the 1 year return is +11.6%.
> 
> 
> 
> Currently it's RY, ENB, CNR, BCE, FTS. At the start of the year, ENB replaced SU.
> 
> Yes these figures are total returns.


That is a good return. any particular reason for switching Suncor?


----------



## Pluto

^

Way to go. Keep plugging away at figureing out what strategy works for you. I think you are going to end up with a ton of money in a couple of decades.


----------



## james4beach

Eaglyeye said:


> That is a good return. any particular reason for switching Suncor?


Yes, it's just a mechanical strategy to re-factor the TSX 60. I start with XIU then I look for the largest constituent in each of these sectors: financial, energy, industrial, telecom, utility. I hold these stocks equal weight. Last year, the largest energy constituent was SU and now it's ENB.

What I like about this strategy is that it's mindless to implement and just piggy-backs on XIU. The portfolio hardly ever changes, but once every few years some stock gets replaced by another. Before this SU -> ENB change, the portfolio was static for 6 years (in back-testing). I only started investing this way a year ago.


----------



## john.cray

Good numbers James!

I initiated my XIC position this year and so far I am -0.23%. I am getting ready to implement my own X-pack of stocks (will start with 5) in equal weights.

One difference in my approach, that I've been thinking about, is the selection process of individual stocks. Like you say, you mindlessly choose the largest cap in the respective sector. It's tempting to use this approach since it's very easy. At the same time I've been trying to learn and apply certain key fundamental metrics of the value investing to the selection process.

I've been looking at ratios like P/E, P/B, Current Ratio and Debt to Equity and trying to choose the stock that provides the best value in their sector in that sense. The bummer is that most of those stocks come "too expensive", i.e. high P/E ratios, lots of debt, etc.

In that context I've been wondering if anyone else applies a similar value-based approach in their selection process? What metrics do you look at and what if no stock seems to match in a given sector, do you buy something anyway just to maintain diversification?

Regards,
JC


----------



## treva84

john.cray said:


> Good numbers James!
> 
> I initiated my XIC position this year and so far I am -0.23%. I am getting ready to implement my own X-pack of stocks (will start with 5) in equal weights.
> 
> One difference in my approach, that I've been thinking about, is the selection process of individual stocks. Like you say, you mindlessly choose the largest cap in the respective sector. It's tempting to use this approach since it's very easy. At the same time I've been trying to learn and apply certain key fundamental metrics of the value investing to the selection process.
> 
> I've been looking at ratios like P/E, P/B, Current Ratio and Debt to Equity and trying to choose the stock that provides the best value in their sector in that sense. The bummer is that most of those stocks come "too expensive", i.e. high P/E ratios, lots of debt, etc.
> 
> In that context I've been wondering if anyone else applies a similar value-based approach in their selection process? What metrics do you look at and what if no stock seems to match in a given sector, do you buy something anyway just to maintain diversification?
> 
> Regards,
> JC


I'm not sure if this will help you but this is my process. 

Dividend growing, not cut during a recession and at least 0.5% --> Wide moat --> Manageable debt (I look at debt to equity and interest coverage and then the predictability of cash flows) --> Valuation (a few approaches - relative sense using Price / Cash flow (dividends are paid from cash, after all) and Price / Sales or P/B (financials) as well as DCF estimates. Then I ballpark growth rate - i.e. something cheap may be a crappy investment if earnings decline while something expensive may be great if earnings continue to grow rapidly) --> Hurdle rate of expected 5-10 year returns (Dividend + Cap appreciation) 10% or higher.

Basically if a company doesn't meet my criteria along the process I stop looking and move on. I use a few nuances through out (i.e looking at ROE / ROIC / operating margins to get a feel for moat, effects of competition, where they are in business cycle, etc) but overall that is my general process.

Most of the companies I am looking at do not beat my 10% hurdle rate at present. Thus I just sit in cash and keep looking. I find this part the hardest, it's hard to do the research and get excited and then just sit on my hands and do nothing. 

However there are some that do meet my hurdle rate at preset - they are ENB, ENF, EMA and until recently TD and RY.


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## like_to_retire

john.cray said:


> Good numbers James!
> 
> In that context I've been wondering if anyone else applies a similar value-based approach in their selection process? What metrics do you look at and what if no stock seems to match in a given sector, do you buy something anyway just to maintain diversification?


The time honored dogs approach to value is to sort XIU by dividend yield. The highest dividends in the list often come from stocks whose share price has dropped for one reason or another and their dividend yield has subsequently risen. 

Remove all the old income trusts and obvious duds from the list and then pick the top five or ten. Repeat next year. The stocks that have recovered from their temporary malaise will have dividend yields that drop them in the list as new companies float to the top.

Over time it results in a buy low, sell high value play.

ltr


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## Benting

like_to_retire said:


> Until they don't.
> 
> Assigning 33% to a single stock is too risky.
> 
> If I'm going to take that much risk with a single stock, it will at least be with a very risky stock, so I can have a chance at being paid handsomely for my risk taking. I don't take that level of risk with blue chip. The reward isn't worth it.
> 
> But, I realize that everyone is different.
> 
> ltr


33% in one stock is risky ? What about my 60% TD and 40% RY, same sector too. Guess it all depends on the tolerance of individual.
To me, it is no risk, no gain. Actually, all these stocks in 3/5 pack in my opinion are solid and cannot really be considered as risky.
My $0.02


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## Benting

james4beach said:


> YTD return is +5.5% for my five pack vs +3.3% for XIU
> 1 year return is +14.0% for my five pack vs +9.5% for XIU
> 
> If it was implemented as the 10 pack (same concept with equal weight sectors) the 1 year return is +11.6%.
> 
> 
> 
> Currently it's RY, ENB, CNR, BCE, FTS. At the start of the year, ENB replaced SU.
> 
> Yes these figures are total returns.


Nice gain J4B.
One suggestion, you have all 5 in equal weight. What about compare this using the same weight* as XIU that you based.
*same weight means you take the top 5 and eliminate the rest and proportion them up.


----------



## james4beach

james4beach said:


> I think if I was investing very large amounts of money, I'd expand the stock list and pick the two largest weight stocks from each of the named sectors, so it would become 10 stocks. This way, you limit your single stock exposure. The performance and dividend yield should be about the same.
> 
> That list would become: RY, TD, ENB, SU, CNR, CP, BCE, T, FTS, EMA


I'm still considering adding this tweak and bumping it up to 10 stocks to reduce single stock exposure/volatility. See performance comparison in the graphic. Beware that the recent huge jumps in CP skews this result in favour of the 10 pack.









The only downside to the 10-pack is more trading fees. It's still a direct XIU unpacking and the same strategy & sectors.


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## Pluto

^
I think you are on a good track with this approach.


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## james4beach

Thanks Pluto.

An update on the 5 pack vs 10 pack approach. I've started looking back at historical results by following the 10 pack strategy. My early findings look very positive, as expected, the greater diversification (10 stocks instead of 5) smooths out and reduces the impact of big surprises, which is good.

I have to look at this more, but I'm nearly convinced that the 10 pack is a better idea overall. The only big criticism I still see of this method is that Canadian large caps have done amazingly well since 2000, but this may not always be the case. In the future we may find that large caps are laggards and that small or midcaps are the star performers.

If and when that happens, an approach like my 5/10-pack will underperform the broader XIC.


----------



## fplan

james4beach said:


> Thanks Pluto.
> 
> An update on the 5 pack vs 10 pack approach. I've started looking back at historical results by following the 10 pack strategy. My early findings look very positive, as expected, the greater diversification (10 stocks instead of 5) smooths out and reduces the impact of big surprises, which is good.
> 
> I have to look at this more, but I'm nearly convinced that the 10 pack is a better idea overall. The only big criticism I still see of this method is that Canadian large caps have done amazingly well since 2000, but this may not always be the case. In the future we may find that large caps are laggards and that small or midcaps are the star performers.
> 
> If and when that happens, an approach like my 5/10-pack will underperform the broader XIC.


James..you follow permanent portfolio. which has only 25% stocks..so @1mil .. you have 250k allocation for stocks.. so if you split even between can and us , we are looking at 125k each.. so 10 can companies @12.5k.. isnt it too much trading for that amount..if the total amount is less.. isnt it having more stocks will create trouble instead of advantage?..just my thoughts..


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## fatcat

james4beach said:


> I'm still considering adding this tweak and bumping it up to 10 stocks to reduce single stock exposure/volatility. See performance comparison in the graphic. Beware that the recent huge jumps in CP skews this result in favour of the 10 pack.
> 
> View attachment 16601
> 
> 
> The only downside to the 10-pack is more trading fees. It's still a direct XIU unpacking and the same strategy & sectors.


i have had 7 of those for the last 3 years or so and they are sort of the core of my portfolio ... i had 8 until i just sold BCE (RY,TD,SU,T,BCE,CNR,EMA,FTS)... just hold em and don’t rebalance or trade every year, just hold them until there is a compelling reason to sell ... these are all long term hold stocks ... just save the trade costs by not trading :tennis:


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## Eder

Peter Lynch let his winners run & pruned the losers...he didn't need to tout crap on BNN lol.


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## james4beach

fplan said:


> James..you follow permanent portfolio. which has only 25% stocks..so @1mil .. you have 250k allocation for stocks.. so if you split even between can and us , we are looking at 125k each.. so 10 can companies @12.5k.. isnt it too much trading for that amount..if the total amount is less.. isnt it having more stocks will create trouble instead of advantage?..just my thoughts..


This is a good point, actually. Within my context of the PP, those individual stock positions will be getting pretty small.


----------



## My Own Advisor

fatcat said:


> i have had 7 of those for the last 3 years or so and they are sort of the core of my portfolio ... i had 8 until i just sold BCE (RY,TD,SU,T,BCE,CNR,EMA,FTS)... just hold em and don’t rebalance or trade every year, just hold them until there is a compelling reason to sell ... these are all long term hold stocks ... just save the trade costs by not trading :tennis:


Agreed. Don't trade those. Simply buy more a couple of times of year to own more of them.

Own all of them except CP, for now.


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## james4beach

Just FYI everyone, with the weakness in ENB and strength of SU, it looks like Suncor is about to overtake Enbridge for #1 weighting in XIU, maybe as soon as today.

In the 5 pack that would put Suncor back in the energy slot. In the 10 pack, no change.


----------



## My Own Advisor

That's where the "24" pack is great, let alone the 10-pack or 5-pack. You don't have to move anything around, just buy more of the lower-priced stock(s) and wait for the tide to eventually turn yet again.


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## like_to_retire

My Own Advisor said:


> That's where the "24" pack is great, let alone the 10-pack or 5-pack. You don't have to move anything around, just buy more of the lower-priced stock(s) and wait for the tide to eventually turn yet again.


haha, exactly. Back when I had less stocks and I applied the little rules that I had designed, I had to sell and buy and knew it was tax inefficient, but ever since I climbed to 24, not much ever moves. I just add to the lowest as cash builds up. Far better.

ltr


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## fatcat

james, explain again the theory behind the "packs", 5 and 10 ...


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## james4beach

Everyone has their different X-pack, the original being Argonaut's.

Mine: it's a way to slice and keep the best parts of XIU. Or you could say it's an XIU sampling strategy, in either case, it's all based off XIU. The way I do it is focus on five sectors (financial, energy, industrial, telecom, utility).

In my 5 pack, you choose the single largest XIU constituent in each of those sectors. In the 10 pack, you choose the two largest in each sector. You end up with an equal sector weighted portfolio of the largest cap companies.

I did a back test on this back to 2000, and found that it performed much better than XIU. The reason I started doing this for my Canadian exposure is that due to US tax reasons, I can't hold XIU, so I looked around for a way to effectively do the same with minimal effort.


----------



## Eder

The idea of the 5 pack is to concentrate on the best stocks and eliminating junk. Do you feel ENB is a superior business than Suncor then rebalance, otherwise switch it out. Personally I don't think Suncor is in the same league as ENB or TRP but that's just my opinion...(I hold all 3)


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## james4beach

Eder: so you hold all of SU, ENB, TRP ?


----------



## john.cray

james4beach said:


> Just FYI everyone, with the weakness in ENB and strength of SU, it looks like Suncor is about to overtake Enbridge for #1 weighting in XIU, maybe as soon as today.
> 
> In the 5 pack that would put Suncor back in the energy slot. In the 10 pack, no change.


I am curious if you would actually execute the swap if Suncor does overtake. What if a couple of days later ENB takes the crown again - another couple of transactions? Isn't this unnecessary? Also, doesn't this approach, inadvertently put you in a situation to sell low (ENB) and buy high (SU)?

I am about to start my own 5 pack soon with the same 5 sectors as yourself in equal weights. I will assume a different approach though and will not take the largest market cap company per sector but instead try a more value-based approach - buy the unloved, or fundamentally cheaper. In this particular case - ENB.

Cheers,
JC


----------



## My Own Advisor

james4beach said:


> Eder: so you hold all of SU, ENB, TRP ?


Same. All three. 

Just like I own all three big telcos. 

And all 6 big banks. 

You don't have to sell or switch out, just buy the unloved every year. That's how to rebalance personally. But that's not a 5-pack or a 10-pack. That's 20-something pack.


----------



## james4beach

john.cray said:


> I am curious if you would actually execute the swap if Suncor does overtake. What if a couple of days later ENB takes the crown again - another couple of transactions? Isn't this unnecessary? Also, doesn't this approach, inadvertently put you in a situation to sell low (ENB) and buy high (SU)?


I might swap when I do the annual rebalance, but wouldn't do this change more than 1 time in a year. And if I go the 10 pack route, there would be no swap at all since these are both #1 and #2 in the energy sector.

Historical backtest has shown me that swapping in & out *very much* does help the performance. For example, it swapped out Bombardier once it started to suck around 2001/2002. It swapped IN the new giant, CNR. At the time of that swap, CNR wasn't too huge. The performance since then was spectacular.

Yes the procedure adds some churn and the risk of some inefficient trading, however, these swaps are pretty rare historically.

I've said this before but will repeat it, the method I suggest involves going back to XIU and monitoring (once a year) the constituents. How else will you ever notice the new up and comers? It is not about keeping a static portfolio, but by its nature, the portfolio ends up being very static.


----------



## like_to_retire

john.cray said:


> I am about to start my own 5 pack soon with the same 5 sectors as yourself in equal weights. I will assume a different approach though and will not take the largest market cap company per sector but instead try a more value-based approach - buy the unloved, or fundamentally cheaper. In this particular case - ENB.
> 
> JC


Yeah, sorting on dividend rather than the largest constituents will give you a value approach (see DOGS of the TSX).

ltr


----------



## fatcat

james4beach said:


> Everyone has their different X-pack, the original being Argonaut's.
> 
> Mine: it's a way to slice and keep the best parts of XIU. Or you could say it's an XIU sampling strategy, in either case, it's all based off XIU. The way I do it is focus on five sectors (financial, energy, industrial, telecom, utility).
> 
> In my 5 pack, you choose the single largest XIU constituent in each of those sectors. In the 10 pack, you choose the two largest in each sector. You end up with an equal sector weighted portfolio of the largest cap companies.
> 
> I did a back test on this back to 2000, and found that it performed much better than XIU. The reason I started doing this for my Canadian exposure is that due to US tax reasons, I can't hold XIU, so I looked around for a way to effectively do the same with minimal effort.


a couple things, first aren't you just stock picking but forcing yourself to pick from a subset of stocks on the tsx, namely the 60 highest market caps ? ... obviously for a conservative investor tending towards established names this is the group you are going to pick from anyway ...

since the past only partly predicts the future and looking forward all things are equal, i wonder if the trading costs, accounting costs and time are worth it going forward ?

you have just created another artificial / virtual etf, right ? ... a subset etf versus the whole etf which strikes me as an easier and more conservative choice 

i guess that it seems to me you are basically stock picking ... i have almost all the stocks in your list and i just hold them and don't trade much ... hmmm, i guess it's all about choice and perspective

and certainly you enjoy the math more than i do

second, blackrock provides all the pfic data for xiu, if elect qef, you have the numbers you need and your accountant can just slot the math in for you so i don't think it's correct that you can't own xiu at all

xiu pfic 2016 https://www.blackrock.com/ca/individual/en/literature/tax-information/pfic-stmt-2016-xiu-en.pdf

ps. one really good thing about the 5/10 pack is that, if (and thats a big IF) you follow it rigidly, it will remove emotional bias which is no small thing for all of us


----------



## Eder

james4beach said:


> Eder: so you hold all of SU, ENB, TRP ?


Yes, but right now I'm overweight ENB and may go deeper as tax loss season begins. I'm almost ready to dump SU to fund more ENB.


----------



## dubmac

My Own Advisor said:


> Same. All three.
> 
> Just like I own all three big telcos.
> 
> And all 6 big banks.
> 
> You don't have to sell or switch out, just buy the unloved every year. That's how to rebalance personally. But that's not a 5-pack or a 10-pack. That's 20-something pack.


hey advisor...
I own BCE and T as my telcos I'm happy with the gains. Also have 4 of 6 banks.
What about adding SJR.B as an unloved telco. Motley fool suggests that other telco's will be volatile as Freedom Mobile becomes more established and shakes up the sector. I don't own Shaw but wondering whether this player should join the ranks of the telco dividend payers and growers. thoughts?


----------



## Pluto

I bought Shaw a few months ago for the reason you cite, Freedom Mobile could inject some growth into it. I'll give it some time to see how it goes. Apparently Shaw is engaged in some agressive moves to get mor Freedom Mobile subscribers. Hope it works.


----------



## Eder

It's going to be a long term debt fueled growth that may test your patience.


----------



## dubmac

Eder said:


> It's going to be a long term debt fueled growth that may test your patience.


^ kinda thought so too.


----------



## james4beach

fatcat said:


> since the past only partly predicts the future and looking forward all things are equal, i wonder if the trading costs, accounting costs and time are worth it going forward ?


I am doing careful calculations on this right now, but so far, it appears to be worth it. 5 or 10 positions doesn't really create too much trading. I hold this in an isolated account -- away from gambits, options and journals -- so I can also use the brokerage's performance calculations to easily track and benchmark myself.



> you have just created another artificial / virtual etf, right ? ... a subset etf versus the whole etf which strikes me as an easier and more conservative choice


Yes that's right, it's a virtual XIU-subset etf. I have this debate with myself about whether the whole etf (XIU) is safer. At this point, I disagree that XIU is the more conservative choice. The TSX 60 has a lot of junk in it, and the sector weights are horribly skewed.

*I really like the idea of equal sector weights*. So although I love XIU overall, I think its propensity to extreme overweighting certain sectors is unhealthy and dangerous. So yes, though XIU is simpler to own, I am willing to do some work just for the equal sector weighting. Remember that the S&P 500 and even VT have pretty even sector weights.



> second, blackrock provides all the pfic data for xiu, if elect qef, you have the numbers you need and your accountant can just slot the math in for you so i don't think it's correct that you can't own xiu at all


I'm aware that I could hold a PFIC, but since I'm paying a US/Canada tax expert for all my work, and they specifically recommended that I avoid all PFICs, I'm going with their advice. They said that the paperwork costs (billable hours) and risk of IRS confusion/follow-up (billable hours) don't make it worthwhile. An additional advantage of holding these individual stocks is that the tax accounting work is easier, no funky RoC and reinvested distributions. I hate that stuff, and this is a non-registered account.

So by holding the 5/10 pack directly I am getting these upsides, pros
+ theoretically choosing the best stuff in the Cdn market
+ equal sector weights as opposed to lopsided sector exposure
+ better performance, if the 17 year pattern continues
+ no PFIC concerns
+ no complex ACB accounting, non-registered
+ direct stock ownership, cutting out the ETF middle man

Downsides, cons
- it's more work than holding XIU
- more trading and commissions
- risk of emotional or psychological mistakes
- risk of failure to implement precisely, maybe if life gets too busy



> ps. one really good thing about the 5/10 pack is that, if (and thats a big IF) you follow it rigidly, it will remove emotional bias which is no small thing for all of us


Yes, I absolutely agree and this is a huge appeal for me. This 5/10 pack is the core of my stock exposure, and this will let me pursue it without emotion or trying to outsmart the market. I just look at XIU's constituents once a year and rebalance if needed -- there is no room for funny business on my part.


----------



## fatcat

james4beach said:


> I am doing careful calculations on this right now, but so far, it appears to be worth it. 5 or 10 positions doesn't really create too much trading. I hold this in an isolated account -- away from gambits, options and journals -- so I can also use the brokerage's performance calculations to easily track and benchmark myself.
> 
> Yes that's right, it's a virtual XIU-subset etf. I have this debate with myself about whether the whole etf (XIU) is safer. At this point, I disagree that XIU is the more conservative choice. The TSX 60 has a lot of junk in it, and the sector weights are horribly skewed.
> 
> *I really like the idea of equal sector weights*. So although I love XIU overall, I think its propensity to extreme overweighting certain sectors is unhealthy and dangerous. So yes, though XIU is simpler to own, I am willing to do some work just for the equal sector weighting. Remember that the S&P 500 and even VT have pretty even sector weights.
> 
> I'm aware that I could hold a PFIC, but since I'm paying a US/Canada tax expert for all my work, and they specifically recommended that I avoid all PFICs, I'm going with their advice. They said that the paperwork costs (billable hours) and risk of IRS confusion/follow-up (billable hours) don't make it worthwhile. An additional advantage of holding these individual stocks is that the tax accounting work is easier, no funky RoC and reinvested distributions. I hate that stuff, and this is a non-registered account.
> 
> So by holding the 5/10 pack directly I am getting these upsides, pros
> + theoretically choosing the best stuff in the Cdn market
> + equal sector weights as opposed to lopsided sector exposure
> + better performance, if the 17 year pattern continues
> + no PFIC concerns
> + no complex ACB accounting, non-registered
> + direct stock ownership, cutting out the ETF middle man
> 
> Downsides, cons
> - it's more work than holding XIU
> - more trading and commissions
> - risk of emotional or psychological mistakes
> - risk of failure to implement precisely, maybe if life gets too busy
> 
> Yes, I absolutely agree and this is a huge appeal for me. This 5/10 pack is the core of my stock exposure, and this will let me pursue it without emotion or trying to outsmart the market. I just look at XIU's constituents once a year and rebalance if needed -- there is no room for funny business on my part.


all excellent points james, i completely agree that XIU's sector weighting makes it a product i would never own ... i wonder if the factoring out of the materials sector has been the key that makes your subset outperform ?

i also prefer equal weighting to cap weighting and try to maintain equal weighting in my stock holdings over all ten sectors, 

you do eliminate pfic issues, thats certainly true, for the new year, i am trying to decide on gic's versus bond funds which require pfics ... but then the gic's require fbar's ... you cannot win :-(

i disagree on the accounting though i use adjustedcostbase.ca and it is the bomb and easily handles your acb ... roc, splits, reinvested dividends, capital gains dividends and even options ... the non-premium version that i use is free ... the premium version gives a you all kinds of extra stuff including currency exchange and year end printouts, it's a great tool for adjusted cost base

as it happens i have 7 of the 10 stocks in your 10-pack and so far anyway, plan on just holding them for the foreseeable future

thanks james, we will look for updates


----------



## james4beach

fatcat said:


> for the new year, i am trying to decide on gic's versus bond funds which require pfics ... but then the gic's require fbar's ... you cannot win :-(


Yeah that's an ugly situation. Whether it's a bond fund or GIC, wouldn't you hold either in the same brokerage account? The brokerage account requires FBAR, so you have to do that either way.

I think GICs are the easier option, assuming they don't create a new account# in your FBAR. A nicely staggered 5 year GIC ladder is a wonderful thing.


----------



## fatcat

james4beach said:


> Yeah that's an ugly situation. Whether it's a bond fund or GIC, wouldn't you hold either in the same brokerage account? The brokerage account requires FBAR, so you have to do that either way.
> 
> I think GICs are the easier option, assuming they don't create a new account# in your FBAR. A nicely staggered 5 year GIC ladder is a wonderful thing.


well, the problem is, i would very much want to go outside the brokerage account to pick up better rates by shopping and then end up with a whack of new accounts to report

i am going to do a spreadsheet on the differences between an all-tdw gic ladder versus an outside ladder, i suspect the numbers will be significant

there is a business opportunity here for someone to help people track all these numbers


----------



## james4beach

Ah I see. I now use iTrade for all my GICs because there is much wider inventory available, plus you don't have to phone in to purchase them. So I have one non-reg container account at iTrade, that's one FBAR entry, which contains all my GICs and individual bonds. And yes, I took the FBAR hit to open that one, but I feel it's worth it because all my fixed income is centralized there.

One exception is Outlook Financial, which sometimes has better GIC rates, so I continue to buy GICs there.

Peeking at TDDI, now I see they have the same GICs. Hmm. Not sure what to make of that. Over the last couple of years, I've usually seen better availability at iTrade.


----------



## fatcat

james4beach said:


> Ah I see. I now use iTrade for all my GICs because there is much wider inventory available, plus you don't have to phone in to purchase them. So I have one non-reg container account at iTrade, that's one FBAR entry, which contains all my GICs and individual bonds. And yes, I took the FBAR hit to open that one, but I feel it's worth it because all my fixed income is centralized there.
> 
> One exception is Outlook Financial, which sometimes has better GIC rates, so I continue to buy GICs there.
> 
> Peeking at TDDI, now I see they have the same GICs. Hmm. Not sure what to make of that. Over the last couple of years, I've usually seen better availability at iTrade.


are the itrade rates that much better than tdw ? you have obviously found the td rates which are available right to anyone on the web, are itrade rates available open on the web ?

here are the cannex rates but that doesn't say which itrade is offering http://www.cannex.com/public/term02e.html


----------



## james4beach

fatcat said:


> are the itrade rates that much better than tdw ?


It's more that iTrade has far more GIC issuers available. Currently the top rates at iTrade are also available at TDW, so maybe it's not a big difference, but I've definitely seen more offerings at iTrade.


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## james4beach

I'm actually still with the 5-pack approach instead of the 10-pack. I agree the latter is better in theory because it's more diversified, but I'm currently in ENB and don't like the idea of selling that now, right as it (probably) hits a bottom.

Performance YTD at December 1:

8.4% in XIU
8.5% in the 5 pack (RY, ENB, CNR, BCE, FTS)
10.8% in the 10 pack (RY, TD, ENB, SU, CNR, CP, BCE, T, FTS, EMA)


----------



## My Own Advisor

That's pretty much half my CDN portfolio there....10-packer.

Add in a few others folks over time....BNS, BMO, TRP, PPL, RCI.B, SLF, AQN, INE, + 5-10 REITs and you're golden! Just need to diversify with some U.S. listed ETFs


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## james4beach

My Own Advisor said:


> That's pretty much half my CDN portfolio there....10-packer.
> 
> Add in a few others folks over time....BNS, BMO, TRP, PPL, RCI.B, SLF, AQN, INE, + 5-10 REITs and you're golden! Just need to diversify with some U.S. listed ETFs


After adding all those, are you sure you don't just end up with XIU ? Have you tried benchmarking your portfolio against XIU?


----------



## humble_pie

james4beach said:


> I'm actually still with the 5-pack approach instead of the 10-pack. I agree the latter is better in theory because it's more diversified, but I'm currently in ENB and don't like the idea of selling that now, right as it (probably) hits a bottom.
> 
> Performance YTD at December 1:
> 
> 8.4% in XIU
> 8.5% in the 5 pack (RY, ENB, CNR, BCE, FTS)
> 
> *10.8% in the 10 pack (RY, TD, ENB, SU, CNR, CP, BCE, T, FTS, EMA)*


*
*


jas4 you always have good insights, how might you account for the out-performance of the 10-pack vs the 5-pack?

does it mean that the runner-up to the XIU top holding in each category - for example, TD vs top holding RY - can be expected to substantially out-perform the top pick? as in CP will top CNR, telus will top BCE, etc?

if that would be the case, would it not make sense to create a 5-pack of secondary positions, since they are shown to be the winners?

(i'm partly joking here) (did your back-testing really go back enough years to prove that the 10 pack with its inclusion of secondary positions did, in fact, outperform the leading 5 pack?)

.


----------



## james4beach

humble_pie said:


> jas4 you always have good insights, how might you account for the out-performance of the 10-pack vs the 5-pack?
> 
> does it mean that the runner-up to the XIU top holding in each category - for example, TD vs top holding RY - can be expected to substantially out-perform the top pick? as in CP will top CNR, telus will top BCE, etc?


I know you're half joking, but it's just the randomness/volatility of which stock does better in any one period. For this YTD figure, the 10 pack did well due to outperformance of Suncor and Telus. Both of those _happened_ to be the runner up in their sector.

The bear market of 2008 is one example during which the top stocks in the sectors (i.e. 5 pack) did very substantially better than both the runner ups, and all the rest of the TSX 60. So it can go both ways. In 2008:
XIU -31.1%
5pack -20.2%
10pack -26.7%



> (did your back-testing really go back enough years to prove that the 10 pack with its inclusion of secondary positions did, in fact, outperform the leading 5 pack?)


No, I did not thoroughly back test the 10 pack the same way I did with the 5 pack. It feels like it's good to add more diversity, but I can't say for sure if it's actually helped since 2000.


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## humble_pie

^^

i think it's safe to infer that half-joking might be a good way to run a portf ...


----------



## james4beach

This has been a rough time for the 5 pack and its stocks are doing much worse than the TSX in the last few weeks. BCE and FTS for example have been falling quite sharply.

But that's the nature of any portfolio construction. Sometimes it will do better than the index, sometimes worse.

ZLB -- the low volatility fund -- is also doing worse than the TSX index this year so far.


----------



## 30seconds

I assume it is because the TSX is 36% financials and 19% energy and only 4.5% Teleco and 4% Utilities. My 5 pack is fairly balanced. I bought ENB high which has totally dragged my 5 pack down in the passed few months.


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## james4beach

That's a really good point. The TSX is way heavier in financials. XIU (TSX 60) is now over 40% financials!


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## My Own Advisor

My portfolio is now just under the index for 2018. Good time to continue DRIPping and buy when I can!!


----------



## Argonaut

james4beach said:


> This has been a rough time for the 5 pack and its stocks are doing much worse than the TSX in the last few weeks. BCE and FTS for example have been falling quite sharply.


Any outperformance from the TSX over these packs is likely due to the materials sector. Taking a look at the miners, they have done well this year -- Goldcorp is up over 11% YTD.

My pack has still outperformed the TSX every year since inception. I even backtested it to the year 2000, and the only year where the TSX had notable outperformance was in 2007. Commodity boom. Goes with my hypothesis where that's the only scenario where the TSX beats a pack.


----------



## like_to_retire

james4beach said:


> This has been a rough time for the 5 pack and its stocks are doing much worse than the TSX in the last few weeks. BCE and FTS for example have been falling quite sharply.
> 
> But that's the nature of any portfolio construction. Sometimes it will do better than the index, sometimes worse.
> .


Since my goal each year is to beat the S&P/TSX60 index with my stocks (I use a balanced sector approach), one of the indicators I watch with my spreadsheets are the ten individual Canadian sector's return (i.e. S&P/TSX Financial Index, etc, etc.)

I manually enter the sector closes on Jan 1st each year and then I can monitor how they do through the year. It's easy to download the close of each sector at any time and compare against my own sector's return to get a better explanation of why I'm doing better or worse than the index.

If I look at the TSX60 in my graph and table below you can see as of today that even though Materials are doing quite well with a 3.6% return YTD, that it only accounts for 9.7% of the index influence. Similarly, the huge Health Care return of 14.3% is only 0.5% of the index, so it has almost no effect. This year so far, the Energy sector will have the most effect as you can see.

View attachment 17617


ltr


----------



## 30seconds

Do you adjust your allocation based on the index?


----------



## like_to_retire

30seconds said:


> Do you adjust your allocation based on the index?


No, not at all. I divide my stocks equally among eight Canadian sectors representing Financial Bank, Financial Non-Bank, Energy, Telecom, Utilities, Consumer Discretionary, Consumer Staples and Industrial, so each sector is approximately 12.5%. I don't buy any stocks in Materials, InfoTech or Health Care as they're too volatile. 

I only monitor the index sectors so I can come up with an informed reason why I am doing better or worse than the index.

ltr


----------



## james4beach

Argonaut said:


> Any outperformance from the TSX over these packs is likely due to the materials sector. Taking a look at the miners, they have done well this year -- Goldcorp is up over 11% YTD.
> 
> My pack has still outperformed the TSX every year since inception. I even backtested it to the year 2000, and the only year where the TSX had notable outperformance was in 2007. Commodity boom. Goes with my hypothesis where that's the only scenario where the TSX beats a pack.


That's impressive! Could you share your current portfolio? Last I saw it was: CNR, T, TD, CAR.UN, ENF

Or maybe post an update in your earlier thread. Many people (myself included) are interested in your 5 pack since it's been an excellent long term performer
http://canadianmoneyforum.com/showt...s-5-pack-for-TFSAs-amp-other-starter-accounts


----------



## 30seconds

Interesting. How does your 8 pack compare to the 5 pack? J4B I assume you have done some back testing regarding this. I would be interested in adding "Non Bank Financial" to my portfolio. MFC would fit in well. 

I also have wonder should the likes of Suncor and ENB be different branches of energy? 

Consumer Staples IMO are best had from the US. Hard to compete with J&J


----------



## like_to_retire

30seconds said:


> Interesting. How does your 8 pack compare to the 5 pack? J4B I assume you have done some back testing regarding this. I would be interested in adding "Non Bank Financial" to my portfolio. MFC would fit in well.
> 
> I also have wonder should the likes of Suncor and ENB be different branches of energy?
> 
> Consumer Staples IMO are best had from the US. Hard to compete with J&J


Yeah, the 5 pack is simply too risky for me. I have 24 stocks in the 8 sectors (3 to a sector). That provides for a failure of one stock without a catastrophe. In a 5 pack - not so much. If I was going to take that much risk, I would want a chance at big returns.

I admit to shying away from straight oil in the energy sector, better to at least have the two pipes.

Lots of good Staples in Canada. MRU, SAP, NWC, WN, ATB.B, etc.......

ltr


----------



## 30seconds

like_to_retire said:


> Yeah, the 5 pack is simply too risky for me. I have 24 stocks in the 8 sectors (3 to a sector). That provides for a failure of one stock without a catastrophe. In a 5 pack - not so much. If I was going to take that much risk, I would want a chance at big returns.
> 
> I admit to shying away from straight oil in the energy sector, better to at least have the two pipes.
> 
> Lots of good Staples in Canada. MRU, SAP, NWC, WN, ATB.B, etc.......
> 
> ltr



Well with the 5 Pack you do rebalance. I do have more than one company in some sectors. It is a solid guideline to follow though.


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## fplan

assuming 1mil total investment amount , following balanced approach 60/40 ( 20 cdn) , only 200k will be in Canadian stocks.. when people pick 20 stocks , 10k each .. isnt it too much work to rebalance?..


----------



## Argonaut

like_to_retire said:


> Yeah, the 5 pack is simply too risky for me. I have 24 stocks in the 8 sectors (3 to a sector). That provides for a failure of one stock without a catastrophe. In a 5 pack - not so much. If I was going to take that much risk, I would want a chance at big returns.


Depends how you measure risk. A common way to do it is standard deviation of returns. With this method, the 6-Pack consistently has lower risk (stdev) than the TSX.

I agree with the concept of doubling the portfolio if the Canadian stock allocation calls for more than $100,000 though. 6-Pack becomes 12-Pack, etc. Lowers specific company risk.

Also depends on what you mean by "big returns". 6-Pack has beat the TSX with 8% annual alpha since 2011. That's pretty big. No guarantees for the future, but still.


----------



## like_to_retire

I guess my implication about the risk was more of a "putting all your eggs in one basket", than a measured analysis. Five stocks just doesn't seem like enough for me to feel comfortable. I suspect I wouldn't do much better in overall return with higher numbers of stocks, but I feel there's a lot less risk. My portfolio of stocks is large enough that I can accommodate that many stocks, so no problem there.

ltr


----------



## Argonaut

Adding stocks can lower risk, but it's not everything. The TSX Composite has ~250 stocks but I don't think it's particularly risk-averse. Too heavily weighted in Financials and Commodities.

Going equal-weight with holdings is a good way to lower risk. Having lower or negative correlating assets is another. This is why I think adding Gold to a portfolio is a better option than adding International/Emerging Market Stocks.

Your 8x3 stock approach sound interesting.. but how can you get 3 stocks from some of the sectors in Canada? Like Technology or Health Care? I feel these sectors are best grabbed in the USA. Unless that is what you're already doing and the 24 stocks are not all Canadian.


----------



## like_to_retire

Argonaut said:


> Adding stocks can lower risk, but it's not everything. The TSX Composite has ~250 stocks but I don't think it's particularly risk-averse. Too heavily weighted in Financials and Commodities.


Sure, agreed, but my point is that 250 stocks are a lot less risky for company specific problem than 5 stocks. If it's possible to own more than just 5, I would think it a good idea. With 5 you have 20% in one stock. That's not good.



> Your 8x3 stock approach sound interesting.. but how can you get 3 stocks from some of the sectors in Canada? Like Technology or Health Care? I feel these sectors are best grabbed in the USA. Unless that is what you're already doing and the 24 stocks are not all Canadian.


As I said in my post higher up, _"I divide my stocks equally among eight Canadian sectors representing Financial Bank, Financial Non-Bank, Energy, Telecom, Utilities, Consumer Discretionary, Consumer Staples and Industrial, so each sector is approximately 12.5%. I don't buy any stocks in Materials, InfoTech or Health Care as they're too volatile"._

ltr


----------



## james4beach

Just a heads up that ENB no longer qualifies for my 5-pack. Since I derive my constituents from the highest weights in XIU, we now have Suncor at 4.94% and Enbridge at 3.95% and so I will be rotating into Suncor in perhaps in June or December.

My current 5-pack is: RY, SU, CNR, BCE, FTS.

For a better developed portfolio along these same lines, check out Argonaut's 6-pack which is the original one:
http://canadianmoneyforum.com/showthread.php/132442-The-6-Pack-Portfolio


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## My Own Advisor

You could always move up to a 12-pack or better still a "24" James and that means you have a) no fees like XIU and b) no transaction costs to 'rotate' stocks. Just DRIP all top holdings of XIU and wake up wealthy in 20 years.


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## Synergy

ENB, FTS and BCE in a rising rate environment could be painful within a 5 pack.


----------



## james4beach

Rotating stocks is pretty rare with my methodology. In fact it might have been a fluke that Enbridge ended up in the portfolio when it briefly surpassed Suncor in TSX60 weighting after the big acquisitions. Other than this ENB/SU swap, my 5 pack has been constant since 2011 so there are minimal trades involved.

I'm rebalancing this week or next and it's back to the same portfolio since 2011:
RY, SU, CNR, BCE, FTS


----------



## john.cray

james4beach said:


> Rotating stocks is pretty rare with my methodology. In fact it might have been a fluke that Enbridge ended up in the portfolio when it briefly surpassed Suncor in TSX60 weighting after the big acquisitions. Other than this ENB/SU swap, my 5 pack has been constant since 2011 so there are minimal trades involved.
> 
> I'm rebalancing this week or next and it's back to the same portfolio since 2011:
> RY, SU, CNR, BCE, FTS


I've been keeping an eye on this approach since you shared it in the beginning. Just curious if you're willing to share: did you end up selling ENB at a loss now that you had to switch to SU?
Isn't this strategy prone to just this -- you sell the loser because its market cap is now less than the next company?


----------



## james4beach

john.cray said:


> I've been keeping an eye on this approach since you shared it in the beginning. Just curious if you're willing to share: did you end up selling ENB at a loss now that you had to switch to SU?
> Isn't this strategy prone to just this -- you sell the loser because its market cap is now less than the next company?


I haven't made the change yet but I likely will sell ENB at a loss.

Historically speaking, selling the loser has not been a bad idea. When I back-tested the method, I saw that it switched from BBD.B to CNR at the start of 2003 (a fantastic trade), and from ECA to SU at the start of 2010 (also a great trade). Here were cases of dumping terribly performing stocks and picking up the new leaders in their sectors -- absolutely the right move. The only time this goes wrong is when there's a hiccup and *two companies switch spots briefly, only to revert back*. But looking back at its history of switching stocks, it's usually been beneficial. As Eder wrote earlier in this thread: dump the dogs. This is a common approach in portfolio management for good reason.

Market cap based indexing (TSX 60) naturally gives high weights to best performing stocks. These hiccups and occasional back-and-forth swaps concern me, and are inefficient, but I think it's a small price to pay for generally staying invested in the best stocks. Hindsight is 20/20. At the time a swap happens, you can't know whether it's the new "normal" or a temporary glitch.

To avoid the false switches, I think what I should have done is only act once a year. The back-test _strictly_ evaluated this at the start of each calendar year, and maybe that's what I should have kept with. You certainly wouldn't want to switch one way and then switch back just 6 months later. However, if you hit your 1 year interval and see a different stock at the #1 cap weight, then yes, I'd say you should make the switch -- even if it means selling for a loss.


----------



## like_to_retire

james4beach said:


> To avoid the false switches, I think what I should have done is only act once a year.


The DOGS strategies all switch only once a year.

ltr


----------



## james4beach

like_to_retire said:


> The DOGS strategies all switch only once a year.


Thanks ltr. That makes sense and seems like the right way to proceed.

Ok then for consistency, re-evaluate the top weighting at the end of each calendar year. Clarifying then how this should have been done for the 5-pack:
At the start of 2017, SU was highest weight.
At the start of 2018, ENB was highest weight.


----------



## james4beach

Hmm, then by my own rules, this means ENB should be held through this year because it was the top weight at the start of the year. The next evaluation (and possibly selling to swap for SU) should not be done until the end of this year.

An interesting example of a technical methodology that I don't feel like doing, emotionally.


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## Tesscorm

Just want to chime in and say I've been cruising this forum and have found great info and have learned tons, in particular this thread has been of great interest. I hope to become a more active member soon but still have some learning to do.

In the meantime, thanks for taking the time to share your approaches and knowledge!


----------



## Tesscorm

Hope you all don't mind if I start with some questions. I do have some knowledge of investing so am not a complete novice but have some big gaps to fill.

When you backtest, can you tell me the sources/sites for your data? ie to backtest the 5 pack, where did you find the historical data for each index?

Also, and I apologize because this was probably mentioned somewhere in the thread, do you use XIU or XIC as a benchmark?

Tks


----------



## like_to_retire

james4beach said:


> I haven't made the change yet but I likely will sell ENB at a loss.
> 
> Historically speaking, selling the loser has not been a bad idea............
> 
> ............To avoid the false switches, I think what I should have done is only act once a year. The back-test _strictly_ evaluated this at the start of each calendar year, and maybe that's what I should have kept with. You certainly wouldn't want to switch one way and then switch back just 6 months later. However, if you hit your 1 year interval and see a different stock at the #1 cap weight, then yes, I'd say you should make the switch -- even if it means selling for a loss.


James, I've read through the thread and have commented multiple times, but have never been able to resolve the underlying theory of why you feel you should rebalance your 5 stocks on a repeating schedule - can you offer your reasoning?

I view the 5 Pack or 10 Pack approach as reasonable for an initial collection of Canadian stocks since it covers multiple sectors for diversification and it consists of our largest established blue chip companies regardless if they pay dividends or not. A great starting point. But your rebalancing on a repeating schedule looks a lot like "buy high / sell low".

Two situations. 
1. If a stock temporarily loses market value, it drops its market cap percentage in XIU and would be considered by many as a value play. 
2. Alternately, if a stock is doing well, its market cap percentage in XIU rises and may be considered by many to be a long term hold or an opportunity to take some profit. 
You are using these two situations to determine your scheduled buy and sell triggers. Sell low / buy high?

The DOGS theory is exactly opposite to your 5 Pack approach and has a proven track record for at least three decades. Yes, it's a dividend sorting mechanism, but its underlying market price driver is the same as your approach. 
1. A stock is out of favour or temporarily does poorly and its yield (dividend as a percentage of its market price) rises. 
2. Alternately, if a stock does well and its market price rises, then its yield drops. 
Buying the highest yield results in a value play while taking profit from those whose market price rises. 
Buy low / Sell high. That's an approach I can get behind and understand. It's the polar opposite to your approach or have I got this all wrong?

Can you comment?

ltr


----------



## james4beach

ltr: my method (originally stated as an XIU unpacking) is just intended to emulate/mirror XIU with a light-weight portfolio. The original intention is: "duplicate XIU but with even sector weightings". My hope is that it outperforms while doing so, but I wouldn't say outperformance is my primary driver. *It's still intended to be a passive strategy*. The whole process was borne out of my desire to hold XIU long term but with my US tax complications that make individual stock holdings far more desirable than an ETF. Along the way I also wanted a better sector construction than XIU has.

Why rebalance on a regular repeating schedule? Again because it's a sampling methodology and this is a sure-fire way to match the target portfolio to the original (XIU). When sampling & replicating an index, you _have_ to reconstitute. After all, the index itself is constantly changing -- a somewhat hidden detail to many of us.


----------



## james4beach

Tesscorm said:


> Hope you all don't mind if I start with some questions. I do have some knowledge of investing so am not a complete novice but have some big gaps to fill.


Happy to answer questions. Welcome to the forum, Tesscorm!



> When you backtest, can you tell me the sources/sites for your data? ie to backtest the 5 pack, where did you find the historical data for each index?


Using SEDAR, you can pull up historical annual financial reports for all mutual funds and ETFs. It's not that easy to find, but they're in there, and I downloaded XIU annual reports going back to 2000.

One reason I've chosen this rather "dumb" XIU index replication/reconstitution method is that it allows me to do high fidelity historical backtesting. All I do is open up the historical annual report for any given year, look at the portfolio's list of securities as of December 31, and then use my (admittedly simplistic) method to pick stocks out of the indicated sectors.

So my method of forming a 5-pack is testable just based on historical annual reports. It's an advantage of a robotic and somewhat dumb method of unpacking XIU. This is in contrast to methods that look at dividends yields, P/E, or other intangible things like "does this company look solid". Good luck backtesting something like that.

like_to_retire mentions a potentially better method by looking at dividend yields, but I think that would be very hard to back-test. Probably impossible without some very serious data access that I certainly don't have. I wanted a method that I could at least calculate back a decade or more.



> Also, and I apologize because this was probably mentioned somewhere in the thread, do you use XIU or XIC as a benchmark?


I benchmark to XIU, but it wouldn't make much of a difference. Note however that iShares XIU (previously known as i60 within the family iUnits from Barclays Global Investors) is the oldest ETF in Canada and I have the best data for it. So I tend to use it, because I have historical numbers for it.


----------



## james4beach

Writing the above replies, it makes it even more clear to me that (keeping with the back-testing methodology) the portfolio has to be updated once a year. Therefore, I will not dump ENB mid year. Everything in the portfolio will be held to the end of this year, and re-evaluated then -- same as the historical backtest, otherwise I'm switching methodologies. 2018 started with { ENB, RY, CNR, BCE, FTS } and therefore must hold these until year end.

Incidentally, the last few years performances with my 5-pack were:
2015: -0.2%
2016: +20.3%
2017: +13.1%

This continues to outperform XIU, overall. It's interesting to me that despite my historically tested method, I still have to fight my own psychology (wanting to sell ENB) even though I have a well defined methodology. Stocks are an amazing mind game.


----------



## Eclectic12

That's one way to interpret what you wanted to do ... another is that you might not trust the back testing/methodology enough to stick to it regardless of environment/what is thought to be needed.


Cheers


----------



## john.cray

Tesscorm said:


> Hope you all don't mind if I start with some questions. I do have some knowledge of investing so am not a complete novice but have some big gaps to fill.
> 
> When you backtest, can you tell me the sources/sites for your data? ie to backtest the 5 pack, where did you find the historical data for each index?
> 
> Also, and I apologize because this was probably mentioned somewhere in the thread, do you use XIU or XIC as a benchmark?
> 
> Tks


Take a look at https://www.portfoliovisualizer.com/backtest-portfolio
I find it a great resource but not sure how accurate its data is as compared to SEDAR.


----------



## like_to_retire

james4beach said:


> ltr: my method (originally stated as an XIU unpacking) is just intended to emulate/mirror XIU with a light-weight portfolio. The original intention is: "duplicate XIU but with even sector weightings".


Yep, and I think it's a good idea, especially when you add in your sector weighing. As I said in my post above, it was the rebalancing that I was questioning. It seemed to smack of "buy high / sell low". You even admit you're hesitant to execute the trades that your own rules demand, and I agree with the hesitation because as the example of ENB's depressed market price it would be an ill advised sell-low situation in play for a stock that probably doesn't deserve to be sold at this time.



> Why rebalance on a regular repeating schedule? Again because it's a sampling methodology and this is a sure-fire way to match the target portfolio to the original (XIU). When sampling & replicating an index, you _have_ to reconstitute. After all, the index itself is constantly changing -- a somewhat hidden detail to many of us.


Yep, I realize the index rebalances and it's all outlined in the pdf called S&P/TSX Canadian Indices Methodology, and indeed _"The index is reviewed quarterly and all Index Securities that, in the opinion of the Index Committee, do not meet the Buffer Rules are removed."_ But these index rebalancing rules are a far cry from a stock in the index that is temporarily out of favour and suffers a drop in its market price and then capitalization percentage in the index. This drop is your trigger for rebalancing and as far as I can see it results in a sell low situation.

The thing is, your original premise of "duplicate XIU but with even sector weightings" is enough in Canada to better the index. It just ain't that hard to beat the index in Canada. I'm just wondering if your rebalancing rules aren't holding you back. I'm not offering an alternate rebalancing methodology, just that you might consider something else other than selling something you own that has now gone low and purchasing something that has now gone high.

ltr


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## james4beach

like_to_retire said:


> The thing is, your original premise of "duplicate XIU but with even sector weightings" is enough in Canada to better the index. It just ain't that hard to beat the index in Canada.


As an aside, I think one reason ZLB might turn out to be great in the long term is that it achieves broad TSX exposure with more even sector weightings and omitting resource/mining stocks...



> I'm just wondering if your rebalancing rules aren't holding you back. I'm not offering an alternate rebalancing methodology, just that you might consider something else other than selling something you own that has now gone low and purchasing something that has now gone high.


Fair enough. I wonder what other rebalancing methodologies might work. It may be worth investigating one of my favourite methods from electrical engineering, the hysteresis approach which is used to make a flaky switch more reliable and less prone to false triggers due to noise. This is along the lines of the problem we're facing here. Another would be to add more stringent criteria before displacing a stock from the portfolio.

However at the end of the day, rebalancing is needed somehow. When BBD.B slipped out of the #1 industrial spot in 2002, it absolutely had to be replaced. It would have been a fatal portfolio mistake to keep holding onto it in lieu of CNR, which rapidly overtook it.

I agree with you that this is worth a closer look. My engineer's gut instinct tells me that enhancing the rebalancing methodology by adding some more stringent criteria (raising the bar needed to displace a stock) would probably enhance the returns. It could be that ENB should never have displaced SU in the first place.


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## like_to_retire

james4beach said:


> I wonder what other rebalancing methodologies might work. It may be worth investigating one of my favourite methods from electrical engineering, the hysteresis approach which is used to make a flaky switch more reliable and less prone to false triggers due to noise. This is along the lines of the problem we're facing here. Another would be to add more stringent criteria before displacing a stock from the portfolio.
> 
> However at the end of the day, rebalancing is needed somehow.


Well, even something as simple as rebalancing the sector weighting once a year after you've establish the initial 5 stocks. That way, you're adding to the stock(s) that have dropped during the year and so when purchased to shore up that sector, it will result in a value play (buy low).

That simple rule could extend your 5 stocks for years without having to replace any of them. Then at some point, just like every portfolio of stocks, one of them might be considered a real dud (something like it dropped its dividend - a sure sign of trouble ahead), and so you have to simply replace it with the next stock in the XIU list. 

ltr


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## james4beach

I personally don't like the idea of clinging to a stock once XIU says otherwise. It's definitely a matter of personal taste, but I'm in the camp of mirroring XIU (passive indexing) rather than diverging the portfolio from it.

Already in this methodology, even with the occasional swapping or dropping of stocks, the holdings more or less stay constant for years on end. For example, all 18 years have held BCE without any substitution in that sector. The financial sector had RY for 17 years with one temporary swap to MFC (oops). The industrial sector had CNR for 15 years straight.

The SU/ENB swap is a rare event. It doesn't sit that well with me either, but this doesn't happen too often in my construction methodology. In other words I'm not sure it's really impeding the portfolio in the big picture.

One would have to evaluate the tremendous benefit of picking up the new top performers quickly (great example is dropping BBD.B and picking up CNR) against the inefficiency of doing a non-ideal swap at non-ideal prices. Yes maybe things like the SU/ENB swap are non ideal, but perhaps there is _more_ benefit seen by the rotation into new high performers.


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## like_to_retire

james4beach said:


> I personally don't like the idea of clinging to a stock once XIU says otherwise. It's definitely a matter of personal taste, but I'm in the camp of mirroring XIU (passive indexing) rather than diverging the portfolio from it.
> .


I do see your point, and this is why I have always believed this low number method (i.e. 5) isn't very efficient because of the necessity to sell when a stock is low and buying when a stock is high. If you increased the number of stocks to 20 - 25, then you would basically have _all_ the stocks. Sure, they'd rise up and fall down in the list, but it wouldn't matter with respect to the one's you owned because you'd have them all. Then the most you would have to do is rebalance your sectors once a year by buying more of the lowest price stocks in the weak sectors.

ltr


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## james4beach

I'm thinking of trying the following experiment tonight. What happens (over 18 years) if the rebalancing and replacement logic is modified in this way:

- take the top weighted XIU holding in each of these sectors,
- only allow a holding to be sold if XIU shows the portfolio value of the new stock exceeds the existing stock by at least 25%

The intuition behind this is that replacing a stock in the portfolio is a big deal, so we don't want to respond to just some noise. We want to replace a stock if the new one *significantly or definitively* pulls ahead, but not if the two are quite close (XIU weights them based on market cap so this is about competition in market caps).

Example: in 2017 the portfolio held SU. At the start of 2018, the XIU portfolio held $540 million of ENB and $496 million of SU. The top weighted XIU stock was ENB, _but do we allow it to replace SU_? The difference in portfolio value between these two was 9%, less than the 25% threshold for "significant". Therefore the current holding would not be allowed to be sold, and in 2018 the portfolio would continue to hold SU. We never buy ENB.

Metrics to evaluate this idea: what happens to the 18 year CAGR, and the # of replacements (turnover)?


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## james4beach

james4beach said:


> The intuition behind this is that replacing a stock in the portfolio is a big deal, so we don't want to respond to just some noise. We want to replace a stock if the new one *significantly or definitively* pulls ahead, but not if the two are quite close (XIU weights them based on market cap so this is about competition in market caps).


Here's a comparison of results. Using the initial method I suggested, where you simply pick the top weight stock in each sector at each year end (which as ltr pointed out is prone to selling a stock after a temporary weak year), the 17.5-year return was 9.1% CAGR with 9 stock changes over all the years.

Next I tried a smarter update strategy. Again it's done at each year end. This time, a new stock only replaces an existing one if its value in the XIU portfolio exceeds the existing holding by more than 25%. This allows an existing holding to stay whenever the market caps are quite close. The return increased to 9.6% CAGR with 6 stock changes.

While doing this I observed that when a new stock is replacing an existing holding for good, it's usually a very dramatic change in relative market caps. So now I increase that threshold to 50%. If the new holding is going to be a different stock, it has to be > 50% market value change versus the previous holding. Otherwise you keep the existing holding, a strong preference for keeping existing holdings.

The 17.5-year return becomes 9.6% CAGR ... did not increase further ... but the number of stock changes decreased to 4. Looking at these changes, all looked essential, not due to mere volatility. So I would say this looks optimal. The portfolio turnover has decreased as much as possible.

Some time, I will re-do my entire backtest from scratch with this "smarter" update methodology just to check that I got it right. But this is looking encouraging. By the way, this 9.6% CAGR long term return for my method (with smarter updates) compares to plain XIU's 5.9% CAGR in the same 17.5 years.


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## james4beach

This diagram shows the evolution of my 5-pack portfolio when using the smarter annual 50% change threshold. Note the continuity of the positions and no swap reversals due to volatility. This produced 9.6% CAGR with just 4 stock changes -- quite efficient. (Compare to XIU at 5.9% CAGR).









Changes like ECA -> SU are still needed, because without the eventual portfolio changes shown, returns would have been much worse.

like_to_retire: you described concern about selling a stock low and buying the new one high. I suggest an alternate way of looking at this. You're ditching a poorly performing stock and replacing it with a better performing one. That benefits the portfolio even if it means you sold at a low. I agree that you wouldn't want plain old volatility to trigger this, but I think I solved that now.

Thanks for helping me think about this, everyone. Once I confirm all this, I will update my methodology. I don't think ENB should have ever entered the portfolio.


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## like_to_retire

james4beach said:


> This diagram shows the evolution of my 5-pack portfolio when using the smarter annual 50% change threshold. Note the continuity of the positions and no swap reversals due to volatility. This produced 9.6% CAGR with just 4 stock changes -- quite efficient. (Compare to XIU at 5.9% CAGR).
> 
> View attachment 18842
> 
> 
> Changes like ECA -> SU are still needed, because without the eventual portfolio changes shown, returns would have been much worse.
> 
> like_to_retire: you described concern about selling a stock low and buying the new one high. I suggest an alternate way of looking at this, as per this diagram. You're ditching a poorly performing stock and replacing it with a better performing one. That benefits the portfolio even if it means you sold at a low. I agree that you wouldn't want plain old volatility to trigger this, but I think I solved that now.


Yeah, I agree this is a much better solution. I'm not disagreeing with you about ditching a poorly performing stock, my point was a stock temporarily out of favour was getting the boot from your system and it was resulting in a selling low situation. From your new backtest that seems to have been ameliorated.

Perhaps with cases like TA (that many were hurt by), you might need to add some sort of special common sense rule, that when a stocks yield gets ridiculously high or it cuts its dividend that you're allowed to immediately sell it and substitute the next stock in the list.

ltr


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## james4beach

like_to_retire said:


> my point was a stock temporarily out of favour was getting the boot from your system and it was resulting in a selling low situation. From your new backtest that seems to have been ameliorated.


Yes, you're absolutely right. I'm glad you brought that up because it had not occurred to me before, but once I looked at the historical data again I saw exactly what you said. I think the smarter update rule with 50% requirement will help reduce that shortcoming. For example, if TD overtakes RY (very real possibility as they're now within 3% of each other) it would be a shame to temporarily switch RY -> TD -> RY. The new requirements would prevent that kind of mistake, and the same with SU -> ENB -> SU which just happened.

Again -- I want to double check all of this but unless I made a mistake, I plan to adopt this as a new methodology and clearly specify the rules for updating the portfolio.



> Perhaps with cases like TA (that many were hurt by), you might need to add some sort of special common sense rule, that when a stocks yield gets ridiculously high or it cuts its dividend that you're allowed to immediately sell it and substitute the next stock in the list.


That might be a good enhancement too. Someone using that would still need to come up with a very specific criteria, and this is going to become difficult to test unless they have great historical data.


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## like_to_retire

james4beach said:


> That might be a good enhancement too. Someone using that would still need to come up with a very specific criteria, and this is going to become difficult to test unless they have great historical data.





james4beach said:


> That might be a good enhancement too. Someone using that would still need to come up with a very specific criteria, and this is going to become difficult to test unless they have great historical data.


I don't know if you have to be especially strict with yourself on this rule. You're allowed to make judgement calls that history tends to support. I followed the DOGs strategy for many years, and still follow it in my own modified way. That rule is in my list for sure. I don't act on rumours, only when the dividend is actually cut do I pull the trigger. 

Originally, when David Stanley published his Dogs of the TSX, I always felt it was restricted a bit by allowing a stock to cut its dividend without any change to his stocks until the anniversary update each year. When Ross Grant took over for him, this was a rule that he added. It was a winning change.

The rule is simply, that if a company cuts or reduces its dividend, then the stock is sold immediately and replace by the next one on the list. Many stocks that reduce their dividend will carry on to do a further cut in the next year or so. And those that cut their dividend usually have a much lower stock price by the year end. 

For example, TECK.b dropped their dividend from $0.44 to $0.15 in June 2015 and then again in Dec 2015 to $0.05 for a return from the time of the first drop to year end of -64%. Then CVE dropped from $0.27 down to $0.16 in Sept 2015 and then again in Mar 2016 down to $0.05. 

Then of course you know all about TA. Anyway, my point is that as soon as a company drops or cuts its dividend, it ain't a bad idea to dump it and replace it with another stock. You can backtest the theory, but I'll bet it's a good rule.

ltr


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## james4beach

I welcome anyone to use any variant of my method. I've described all the parts of it I've figured out so far, and it's easy for anyone to replicate this just by looking at the iShares XIU page once a year and maybe adding some enhancements as you describe.

Overall, this is much less work than my higher risk small cap portfolio. This 5-pack approach is more or less passive (it's _almost_ indexing) whereas that other portfolio is active stock picking.


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## james4beach

*Updates to my 5-pack method*

There was a great discussion in this thread that made me take a closer look at something I failed to clearly define earlier: the rebalancing methodology. like_to_retire and Eclectic got me thinking about this, and over the last couple of days I've been running historical simulations and clarifying the rebalancing rules.

Quick recap: my 5-pack aims to mirror XIU, but with equal sector weights. The top weight stock in each of 5 sectors (Energy, Financial, Industrial, Telecom, Utilities) from XIU is held in the 5-pack. For larger portfolios, you can do the same with the top two from each sector, a total of 10 stocks. Both the iShares web site and annual reports show the XIU portfolio, with weights.

*Rebalancing methodology*

Rebalancing should be done at the end of every calendar year. First, changes to the portfolio are identified. Second, stock changes (if any) are implemented and the portfolio is adjusted back to equal weights. The portfolio you create at year-end is then left alone for the entire next year.

Changes to the portfolio are identified as follows: for each sector (Energy, Financial, Industrial, Telecom, Utilities) identify the new candidate stock by looking at the top weight in XIU. If the new candidate is the same as your existing holding, then there's no change.

However if the candidate is different than what you currently hold, compare their market values in XIU's portfolio (a proxy for market cap). Replace your existing stock only if the candidate's market value exceeds the existing stock's by > 50%. This process ensures that we only respond to significant changes in the XIU portfolio, rather than minor changes in ranking due to natural stock volatility.

*Current and historical holdings*

The attached graphic shows what the holdings would have been since inception, using the rebalancing rules outlined above. The current holdings are: SU, RY, CNR, BCE, FTS









The last rebalance was at the end of 2017. The new Energy sector candidate was ENB because it had become the top weighted stock. Our existing holding was SU. As the candidate's market value did not exceed the existing stock's by more than 50%, the existing stock should have been kept.

In my actual portfolio, I made the mistake of selling SU and buying ENB. This should not have been done, so I will undo this in my portfolio and restore SU as the holding.

*Performance since 2000-12-31*

Over 17.5 years, my 5-pack portfolio as described would have theoretically had 9.6% CAGR, versus XIU's 6.0% CAGR. These are total returns including dividends.


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## james4beach

james4beach said:


> In my actual portfolio, I made the mistake of selling SU and buying ENB. This should not have been done, so I will undo this in my portfolio and restore SU as the holding.


I sold ENB and bought SU. The timing isn't great, but my thinking is that I'd rather get back on track with (the ideal) passive methodology than try to time the trades.


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## james4beach

Quick update, since my adjustments/trades on 2018-06-20, the 5 pack is performing fine, up 3.3% vs XIU up 1.0%. I think I'm back on track here and going forward, the portfolio should be more passive than before. I have 98 K invested in this portfolio.


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## james4beach

An illustration of how the 5 pack roughly follows the TSX Index, using my broker's Performance interface. Dashed blue line is TSX Composite, purple line is my 5-pack portfolio. I consider this method to be similar to index investing, with the big modification being equal-weight sectors.


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## Stiman

First of all, James, thank you for starting this thread. I have spent the better part of today reading every comment and doing a bunch of research and number crunching throughout.

The only questions I'm left wondering is:

1- What do you personally have for a ratio of Can/US/Global stocks. Someone earlier in the thread seemed to indicate a higher Can to US ratio. So I'm curious what you and other think.

2- Does anyone care to comment on an entry point for this approach? I'm currently using VCN but would like to switch to this strategy. I'm going to do some research and evaluate the 10-pack with various value investing metrics, but I'm wondering if people have a sense that this is a particular good/bad time to start this strategy?


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## dubmac

In my TFSA 1, I hold RY, ENB, REI.UN, and EMA. The only one keeping the return high is RY since it is 60% of total - the others are flat or neg (ENB). total around 51K
In TFSA 2, I hold CM, BCE, VDY (an ETF), and around 30K cash in a cashable GIC (waiting for deployment). total around 72K.

Question - to stay in a well diversified TFSA like in the OP, should I be looking to 
1. replace ENB with ENF?
2. buy an industrial CN or CP?
3. other - a proxy for US/Global equities?


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## james4beach

Stiman said:


> First of all, James, thank you for starting this thread. I have spent the better part of today reading every comment and doing a bunch of research and number crunching throughout.


You're welcome, glad it helped. Also take a look at Argonaut's approach
https://www.canadianmoneyforum.com/...s-5-pack-for-TFSAs-amp-other-starter-accounts
https://www.canadianmoneyforum.com/showthread.php/132442-The-6-Pack-Portfolio



> 1- What do you personally have for a ratio of Can/US/Global stocks. Someone earlier in the thread seemed to indicate a higher Can to US ratio.


While I'm not exactly where I want to be, my target geographic allocations for my equities are 50% Canada 50% US unhedged, and no global. If you're curious why I don't hold global, see this post from Argonaut that explains my views as well.



> 2- Does anyone care to comment on an entry point for this approach?


It moves almost the same way as the TSX index, I'd say it's equivalent to asking when to buy into a stock index. Sorry to say that I don't have an answer for that.


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## Stiman

Thank you for the answers, James.

I've since bought argonauts book on kindle and have started reading it. I've also started reading his 6-pack thread.


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## james4beach

Performance update on the portfolio (SU, RY, CNR, BCE, FTS)

Year-to-date return including dividends is -3.11%. In comparison XIU is -5.84% and XIC is -5.96%

So far this year, my 5-Pack is doing well despite the market turbulence. Yes I realize I'm cheating by showing numbers based on what I _should_ have held instead of what I actually held. The last couple pages in this thread explain that issue.

I also want to reiterate that this 5-Pack is the majority of my Canadian equities, but just part of my overall portfolio. I also hold some small and midcap Canadian stocks, the US index, bonds and GICs, and gold bullion.

My overall asset allocation targets are: cash buffer + 30% stocks, 50% fixed income, 20% gold


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## james4beach

5 pack performance still looking strong heading into December. I'll post a year end figure of course but so far the portfolio is +1.66% for the year versus XIC -3.71%, outperforming the TSX Composite by more than 5%.

This is due to the sector selection and being light on commodities. Same story as many of the other X-packs around CMF plus ZLB, all of which benefit from the same effect. The possibility still remains, though, that eventually we could enter a strong bull market in commodities which would flip things.


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## Pluto

^
Yep, good going. Avoiding long term holding of boom and bust type stocks should be an advantage.


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## james4beach

2018 was a good year for the 5 pack. The portfolio returned -4.8% for the year. In comparison, XIU returned -7.8% and XIC -8.7%

The 2018 result was significantly better than the TSX Composite. The official year end iShares numbers aren't out yet but I think they will be similar.


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## Stiman

Pardon my ignorance, but how are you calculating the YTD return on XIU and XIC?

I see XIU finished the year at 21.62 and started the year at 24.91 (86.8% of starting value, down 13.2%). The yield was 3.00%. 

Doesn't that mean that the total return is -10.2%? Are you using a website that gives you these numbers?


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## Eder

I get a CAGR for XIU in 2018 at -9.66% and -9.53% for XIC


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## james4beach

I used stockcharts.com which includes the dividends. You can also look at Morningstar:
http://quote.morningstar.ca/QuickTakes/ETF/etf_performance.aspx?t=XIU&region=CAN&culture=en-CA

This shows -7.82% for XIU in 2018. As with all mutual fund performance calculations, it assumes reinvestment of dividends.


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## My Own Advisor

Get the results from XIU/iShares:
https://www.blackrock.com/ca/individual/en/products/239832/ishares-sptsx-60-index-etf

As of December 31, 2018:

" 1y 3y	5y	10y	Incept.
-7.72	6.99	4.79	7.65	6.42"


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## james4beach

MoA, you're right and XIU performance was a bit better than what I saw earlier on Morningstar & stockcharts.

For the 2018 calendar year XIU was -7.7%
The 5 pack was -4.8% which is a pretty good outperformance


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## My Own Advisor

....and you got paid with tangible dividends, I suspect the yield was higher than XIU? Didn't do the math on that yet. 

That said, XIU is an outstanding CDN ETF.


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## james4beach

My Own Advisor said:


> ....and you got paid with tangible dividends, I suspect the yield was higher than XIU? Didn't do the math on that yet.
> 
> That said, XIU is an outstanding CDN ETF.


I didn't calculate the yield either but it was at least as high as XIU. And I agree, this is a great ETF. Simple structure, good quality holdings, very long history and has already successfully navigated through two recessions and a near total market collapse.

I reinvest all dividends.


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## james4beach

For anyone following this method: the portfolio (SU, RY, CNR, BCE, FTS) stays the same for 2019, according to the selection methodology in post 190.


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## james4beach

Here's a chart I pulled out of TDDI for a period where the account shown in purple is exactly the 5 pack I described in this thread. The graph shows how closely my 5 pack tracks the TSX Composite, even though it's just 5 stocks. Ignore the slight outperformance, as it underperforms in other periods.

5-pack is purple, TSX Composite is dashed line. Both are total returns including dividends.


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## cainvest

j4b, got any charts going farther back?


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## james4beach

cainvest said:


> j4b, got any charts going farther back?


Unfortunately this account has other things in it, notably, some market timing. So I can't show a proper comparison of just the 5 pack vs TSX. I displayed this period because it was purely 5 pack during the time frame without the other things present.


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## james4beach

An update late in the year... continuing to hold the portfolio described earlier.

My 5 pack is currently up 18.6% year-to-date, slightly beating XIC at 17.7%

The worst performer of the five is Suncor at 9.4%, best performer Fortis at 24.7%. But this is shaping up to be a great year any way you cut it. All five stocks are positive and whether it's 18% or 19% YTD, just a huge single year return in stocks.


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## Pluto

^ That's excellent. So far, so good for the concnetrated portfolio.


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## like_to_retire

james4beach said:


> An update late in the year... continuing to hold the portfolio described earlier.
> 
> My 5 pack is currently up 18.6% year-to-date, slightly beating XIC at 17.7%
> 
> The worst performer of the five is Suncor at 9.4%, best performer Fortis at 24.7%. But this is shaping up to be a great year any way you cut it. All five stocks are positive and whether it's 18% or 19% YTD, just a huge single year return in stocks.


Yep, it's a good year so far. My 24 pack, with 3 stocks representing each of 8 sectors is up 19.9% year-to-date.

Again, even though you claim to be a conservative investor, as I have warned before, that anyone having 20% of their stocks in each of a 5 pack is looking for trouble. 

You may argue that these are usually the largest stocks in the index and if they are doing poorly, then so is the entire index, but I worry more about a single anomalous stock crash that would severely effect a 5 stock portfolio if it was a constituent, compared to an index that contained that stock along with 59 others. The 5 pack would suffer much, much greater.

I know you have done some back-testing in the past on scenarios such as Nortel and Bombardier compared to historical XIU returns, but the thing is that XIU returns ain't that great, and not hard to beat, and surely that is evident when you can have a complete failure of a single stock in a 5 stock portfolio and still match that index. 

I don't mean to poo-poo your fine work on this effort James. It's just that I would hope a novice wouldn't read these entries and decide this was a bonafide way to invest all their money in stocks. My advice, as it's always been is to at least extend these 'pack' portfolios to 10 entries.

ltr


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## james4beach

That's a great return LTR. A few responses to what you bring up

These aren't all of my Canadian stocks, and I have other investments. Quick example, the largest position CNR is 22% of the portfolio, which yes is highly concentrated, but CNR is just 4% of my overall investments alongside foreign stocks, bonds, GICs, etc. Even if CNR becomes worthless, it's not a big deal to me. However... it's good to spell this out because I don't want to imply that the 5 pack are *all* my investments.

I do share this concern about 5 stocks being vulnerable to a single blowup, but surprisingly, my historical backtest has not shown this to be the case. This construction appears to have handled several past blowups quite well, including Bombardier which crashed 90% in the early 2000s and Encana crashing 55% in the last bear. You would think that both would have a horrendous effect when there are only 5 stocks, but the rebalancing appears to have smoothed it out reasonably well.

And remember, it isn't a totally passive strategy. A horribly performing stock will get replaced with a better one; see methodology.

I absolutely do agree with extending it to 10 stocks, if it really is a large % of someone's overall investments. For me this just isn't a concern, as it's only a part of the big picture.


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## james4beach

Re-read your comments LTR and that's a good point that with the blowup, I end up similar to XIU. My counter argument to that would be that when one of the TSX majors blows up, the whole Canadian market is going down -- and I don't think you can avoid it by individual stock picking. In those conditions, like BBD.B's 90% drawdown, everyone is screwed.

I should also clarify that I am only hoping to perform about the same as XIU with this method, maybe a bit better. I really don't expect to dramatically outperform an index when I'm basically just emulating the index. In other words I see this as _very similar_ to holding XIU.

In my asset allocation, I am doing this 5-pack instead of holding XIU but it serves the same purpose. I have another strategy, elsewhere, that tries to stock-pick my way to greater riches.


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## like_to_retire

james4beach said:


> These aren't all of my Canadian stocks, and I have other investments.


Yep, and I get it, and it's the same with myself. I have a 50/50 asset allocation, so you can take my 24 stocks and divide a deleterious effect by half, so any one of them can go to zero and it wouldn't really be a problem. It's that pesky 5 stocks that continually bothers me. It's almost as if you need to tell novices that they shouldn't invest their total proceeds into 5 stocks, even though the returns have been great. Personally, I think the 5 stocks, if balanced yearly, will continue to outperform.

ltr


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## james4beach

I feel the same internal conflict LTR. On one hand I don't want to suggest that the 5 stocks can possibly be enough for *all* Canadian equities. It just doesn't sound right.

But yes, the returns have been great, including through bear markets. I think rebalancing is critical, though. Personally do I plan to increase the $ that I allocate to the 5-pack which means I will increasingly concentrate into these 5 stocks.

As much as I like XIU, currently I like this method a bit better, including the direct stock ownership vs ETF middle men.


----------



## humble_pie

one has to keep in mind that, in a classic 5-pack, most of the curated holdings are very large multinational companies which happen to be HQ'd in canada. The exceptions are telcos & reits.

because of their international operations, railroads, banks, pipelines & most utilities can be said to be akin to mutual funds/ETFs or else specialized sector funds. In that sense, their diversity gives them strength. CN rail, for example, has subsidiaries & affiliates that move freight all the way to tierra del fuego at the tip of south america.

my own view is that i prefer to rely on the good business sense of the corporation whose shares i hold - td bank for example - than on some computer program picking index components for an ETF. I also believe that TD or CN rail will be more astute & more efficient with their foreign subsidiaries than ever would be any high-paid manager picking foreign stocks for a mutual fund.

even argonaut himself - spokesman for the original 5-pack although not the inventor of the same - at one point embraced a 10 pack. Each of the 5 chosen sectors was to have 2 competitive holdings, said argo. Two banks, two telcos, etc. I remember argo saying that it didn't really matter which 2 as long as both were large, historic companies whose businesses had wide moats.

this sector doubling would help to allay some of the concerns LTR brings up, about wipeout of one holding in a 5-pack.

at the other extreme, one could even say that LTR's 24 stock portf also falls within the broad "5-pack" definition, since - if i understand correctly - LTR's 24 pack is constructed from carefully chosen sectors to ensure diversity, while always holding the best performing companies in each sector.

in addition to transparency & ease of management, a 5-10-20 pack benefits from simplified tax reporting, since the broker does all the work. One concise T5 tax slip each year will even be accompanied by a "Statement of Investment Income" from the broker, providing all the pertinent details.


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## james4beach

I continue to keep all my non-registered Canadian equities in my 5-pack. Inside shelters, I still use XIU and XIC.

My 5 pack is off to a strong start this year, one month in. The {RY, ENB, CNR, BCE, FTS} group has year to date total return 5.4% which is beating the TSX and I'm kind of in disbelief that the strength continues after the insane results in 2019.

Hoping that my pack also remains relatively stable during a downturn. Remains to be seen... as the market goes, the 5-pack goes.


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## like_to_retire

james4beach said:


> I continue to keep all my non-registered Canadian equities in my 5-pack. Inside shelters, I still use XIU and XIC.
> 
> My 5 pack is off to a strong start this year, one month in. The {RY, ENB, CNR, BCE, FTS} group has year to date total return 5.4% which is beating the TSX and I'm kind of in disbelief that the strength continues after the insane results in 2019.
> 
> Hoping that my pack also remains relatively stable during a downturn. Remains to be seen... as the market goes, the 5-pack goes.


You'll find that if the market is down, then the 5 pack will do well, and when the market is up you usually keep pace, so that over time you'll just slowly pull away.

ltr


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## james4beach

I certainly am happy with what I'm seeing so far. I don't have any plans to start using an index ETF non-registered, especially with the better tax handling of individual securities, plus directly receiving eligible dividends.

Inside the tax shelters though, I'm enjoying the index ETFs as there is no ACB headache to worry about, I can DRIP everything, and rebalancing is very easy with index ETFs. So that works out nicely as well.


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## Eder

My daughters 6 pack is up 33% y/y....wish I had the guts to emulate her account with mine.


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## james4beach

Eder said:


> My daughters 6 pack is up 33% y/y....wish I had the guts to emulate her account with mine.


Curious, what stops you from using the same method? Sitting on big unrealized cap gains?


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## Eder

I do the same with my TSFA...


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## like_to_retire

Eder said:


> ....wish I had the guts to emulate her account with mine.


You haven't offered your reasons for this statement?

ltr


----------



## james4beach

like_to_retire said:


> You haven't offered your reasons for this statement?


Well he said he does it in his TFSA.

I think it's a good idea to diversify techniques and not commit too heavily to just one. I don't want people to misunderstood my 5-pack... yes, it's all my Canadian non-registered but still only ~ 12% of my total investments. I have index ETFs in my tax shelters and of course lots of other bonds & foreign stocks for diversification.

I should have spelled this out earlier on because I gave the impression that just 5 stocks is enough diversification (20% concentration in a single stock). That was misleading. In my case, if you look at BCE for example, it's 20% of my 5-pack x 12% total investments = only 2.4% of my total investments.

So the 5-pack is heavily concentrated, but since I apply this as only part of a diversified portfolio, each individual stock is barely 2% of my overall total.

Perhaps what Eder is saying is similar to my own thought: maybe I should stop using XIU and XIC and adopt the 5-pack for all my Canadian equities throughout all accounts. I am considering it, but first want to see a solid bear market to stress-test my management skills. I only started doing the 5-pack in recent years, and haven't been through a bear market.


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## Eder

like_to_retire said:


> You haven't offered your reasons for this statement?
> 
> ltr



I am quite concentrated on 6 stocks in my investment account as well...about 65% of total at last glance.


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## like_to_retire

Eder said:


> I am quite concentrated on 6 stocks in my investment account as well...about 65% of total at last glance.


Why not add more stocks to reduce the risk?

ltr


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## Eder

I tend to think diversification for the sake of diversity is over rated and would rather own what I think are the best businesses rather than all businesses.


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## Pluto

james4beach said:


> So the 5-pack is heavily concentrated, but since I apply this as only part of a diversified portfolio, each individual stock is barely 2% of my overall total.
> 
> Perhaps what Eder is saying is similar to my own thought: maybe I should stop using XIU and XIC and adopt the 5-pack for all my Canadian equities throughout all accounts. I am considering it, but first want to see a solid bear market to stress-test my management skills. I only started doing the 5-pack in recent years, and haven't been through a bear market.


How did it do in December 2018? That was a fairly steep and deep correction.


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## james4beach

Pluto said:


> How did it do in December 2018? That was a fairly steep and deep correction.


Good point, let me look at that. For reference, XIC down -6.0% in December 2018. My 5 pack was down -6.4% so just about the same.

Actually let me widen that a bit because the more interesting period is Sept 1, 2018 to Dec 24, 2018 with the worst drop:
XIC -14.4%
5 pack -11.0% ... outperformed

So looking at the worst few months of 2018, seems the 5 pack did OK relatively speaking. But one position (Suncor) absolutely plummeted during that so it's not like it would be painless to hold; it's just that the overall portfolio result looks OK.


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## james4beach

And a bit wider still, August to year end 2018 this time using XIU

XIU -10.9%
5pack -8.0% ... outperformed


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## hfp75

why change from XIC to XIU for comparisons... 

shouldn't comparisons use the same comparators ?


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## Eder

Pluto said:


> How did it do in December 2018? That was a fairly steep and deep correction.


Daughter was down 6.11% December followed by up 8.73% in January.


----------



## humble_pie

james4beach said:


> My 5 pack is off to a strong start this year, one month in. The {RY, ENB, CNR, BCE, FTS} group has year to date total return 5.4% which is beating the TSX and I'm kind of in disbelief that the strength continues after the insane results in 2019.
> 
> Hoping that my pack also remains relatively stable during a downturn. Remains to be seen... as the market goes, the 5-pack goes.




that's a good-looking list ^^

sure it'll drop hard in a crash. It'll likely even fall in a serious downturn. But the only alternative is Don't Invest in Stocks, so by default the above grouping is looking steady-as-she-goes.


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## Benting

Eder said:


> I am quite concentrated on 6 stocks in my investment account as well...about 65% of total at last glance.


Well, I have only 3 stocks, 95% of my investment accounts....

Really easy to manage....


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## Benting

Eder said:


> I tend to think diversification for the sake of *diversity is over rated *and would rather own what I think are the best businesses rather than all businesses.


*Definitely !!! 
*


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## james4beach

Benting, as I recall, you were extremely heavily concentrated in a single bank stock. While I agree that diversification is overrated you still need to spread things out among at least a handful. Keeping a very high concentration among only a couple stocks is a recipe for disaster.


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## fstamand

Curious how the 5-pack approach is holding up in this downturn (not in a smart *** tone)
Looking at copying (and adding VAB or ZAG for stability)


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## Eder

I'd tell you but I never check stocks on down days...my guess is my daughters account is most likely -8% or so as someone wrote BCE & Fortis were only down 5%. Her dividend reinvestments will soften the blow though. In the long run it will spank most approaches by orders of magnitude and most likely she will retire in her early 50's. 

Running into bonds now is...well...none of my business.


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## james4beach

fstamand said:


> Curious how the 5-pack approach is holding up in this downturn (not in a smart *** tone)
> Looking at copying (and adding VAB or ZAG for stability)


Here are stats over recent days, from the high on February 19 to end of day today. My 5-pack is: RY, ENB, CNR, BCE, FTS

XIU is down 19.1% since Feb 19
The 5-pack is down 14.7%

My 5-pack is doing better than the index in this crash.


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## fstamand

Thanks, that's actually not bad! Not good but these stocks bounce back first


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## fstamand

Eder said:


> I'd tell you but I never check stocks on down days...my guess is my daughters account is most likely -8% or so as someone wrote BCE & Fortis were only down 5%. Her dividend reinvestments will soften the blow though. In the long run it will spank most approaches by orders of magnitude and most likely she will retire in her early 50's.
> 
> Running into bonds now is...well...none of my business.


Thanks! I forgot to mention I'm not buying bonds, just on my list when they go down again


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## james4beach

Checking up on the 5-pack again for 2020 so far, year-to-date at end of Q1. The movement of the individual stocks are (total returns)
RY: -19.33%
ENB: -22.20%
CNR: -7.83%
BCE: -4.13%
FTS : -4.42%

At equal weighting, that gives the 5-pack overall performance of *-11.6% YTD *whereas XIU is -21.1%

So far in 2020, that's very significant outperformance, through this market crash.


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## peterk

How does everyone feel about rebalancing the 5 pack? Is that an intended action of this equal sector portfolio?

Recently I sold off all my BCE and Telus, and half my CNR, to buy TD, SU, and MFC.

Been thinking about selling my EMA, too. Haven't yet though.


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## agent99

james4beach said:


> Checking up on the 5-pack again for 2020 so far, year-to-date at end of Q1. The movement of the individual stocks are (total returns)
> RY: -19.33%
> ENB: -22.20%
> CNR: -7.83%
> BCE: -4.13%
> FTS : -4.42%
> 
> At equal weighting, that gives the 5-pack overall performance of *-11.6% YTD *whereas XIU is -21.1%
> 
> So far in 2020, that's very significant outperformance, through this market crash.


We probably had this discussion before, but above just shows that you can do a lot better than the index by holding certain stocks - usually the dividend payers. Could be 5, but I would think that a dozen or so would be a safer bet. 5-pack probably OK for smaller portfolios, but be careful which 5!


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## agent99

peterk said:


> How does everyone feel about rebalancing the 5 pack? Is that an intended action of this equal sector portfolio?
> 
> Recently I sold off all my BCE and Telus, and half my CNR, to buy TD, SU, and MFC.
> 
> Been thinking about selling my EMA, too. Haven't yet though.


I would have thought that staying with utilities and telecoms would be better bet than buying insurance and energy companies. 

However, I am not into 5-pack, and wouldn't want to be. Not enough diversification.


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## james4beach

peterk said:


> How does everyone feel about rebalancing the 5 pack? Is that an intended action of this equal sector portfolio?


I balance mine once a year and most recently did this in January when I sold some CNR, trimming that sector and getting myself back to equal weights.

I think that rebalancing to equal weight is somewhat important to do occasionally because it reduces the sector risks. I saw a few instances pop up in my 20 year back-test. For example, the Industrials component crashed horribly in 2000-2002 and rebalancing meant one bought into the weakness (CNR basically). So it achieved 'buy low'. The exact same thing happened with the Financials component in 2007-2008.

Both of those past rebalances boosted the return, so I'm sticking with once a year rebalancing.


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## james4beach

agent99 said:


> However, I am not into 5-pack, and wouldn't want to be. Not enough diversification.


I should add my usual disclaimer that I own more stocks than just my 5-pack. I don't want people to think I'm actually this concentrated into just five stocks. This 5-pack is only 9% of my overall investments (stocks, bonds, gold).

For example the largest position in my pack is currently BCE but even this is just 2% of my overall investments. I do own some more BCE through index ETF holdings as well.


----------



## andrewf

agent99 said:


> We probably had this discussion before, but above just shows that you can do a lot better than the index by holding certain stocks - usually the dividend payers. Could be 5, but I would think that a dozen or so would be a safer bet. 5-pack probably OK for smaller portfolios, but be careful which 5!


 XDV and XIU have almost identical 10y performance. I'm not sure there is anything magical at work. Some sectors have been harder than others by the shutdown, and a different basket of 5 stocks could have underperformed.


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## james4beach

andrewf said:


> XDV and XIU have almost identical 10y performance. I'm not sure there is anything magical at work. Some sectors have been harder than others by the shutdown, and a different basket of 5 stocks could have underperformed.


Yeah, my own expectation is that the 5-pack will perform similarly to XIU long term. Not sure if anyone remembers my methodology, but I simply pick the largest weights directly out of XIU. It's basically an XIU replication technique.

One factor at play with these recent high returns is that the Canadian economy currently favours very large, established corporations in a somewhat anti-competitive environment. It's also a stagnant economy for about 20 years now, where those giants which entrenched themselves really just have to maintain their existing leads, riding their existing advantages from regulatory regimes.

So for example, big banks get special government assistance and beat smaller banks. Telecom giants have special advantages over small competitors, etc.

I don't expect this to always remain the case. However it does appear, as we enter another recession and possibly a depression, that those existing advantages for the biggest corporations will continue.


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## agent99

andrewf said:


> XDV and XIU have almost identical 10y performance. I'm not sure there is anything magical at work. Some sectors have been harder than others by the shutdown, and a different basket of 5 stocks could have underperformed.


No doubt the Total Return of dividend etfs has been equal or more likely worse than xiu. Says more about ETFS than about dividend stocks.
Reason to hold dividend stocks in retirement, is not the Total Return. It is the continuing cash flow that can be used for living expenses, even when stock prices are tanking. This time may (will likely?) be different. But by how much is the question. I am assuming a 50% drop in dividends.


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## Eder

Depends on which dividend stocks you chose to buy... 50% cut means you chose unwisely imo.


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## agent99

Eder said:


> Depends on which dividend stocks you chose to buy... 50% cut means you chose unwisely imo.


So you have stocks that you are 100% certain won't have on average a 50% dividend cut, even if we have a severe global recession or depression? Worse than anything we have seen?

It has already started. Companies are shut down, millions out of work, businesses failing, governments handing out bailouts to everyone, etc etc, Which stocks will survive this and maintain dividends? They must exclude the Canadian ones I have - 6 major banks, 4 major utilities, 2 large Telecoms, 1 major pipeline, 1 large REIT. You can guess the names. I won't be selling those but not counting on them for much income either.


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## Eder

I guess we will need to revist in a year or so. Of course by then everyone will be claiming to have bought BMO at $50 etc etc.


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## cainvest

Eder said:


> I guess we will need to revist in a year or so. Of course by then everyone will be claiming to have bought BMO at $50 etc etc.


So you think BMO will fall to $50 ...


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## agent99

$50.00? That's only another 25% down. Yield if div not cut 8.5%. Not hard to see that.

NOTE: I had added some links, but deleted them because they were not from reliable sources and were scare-mongering.


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## depassp

Any advice for when one should/could comfortably double from a 5 or 6-pack to a 10 or 12-pack?


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## like_to_retire

depassp said:


> Any advice for when one should/could comfortably double from a 5 or 6-pack to a 10 or 12-pack?


I don't see why there has to be an amount to switch to having two stocks per sector rather than one. You are simply reducing your company specific risk when you do so, and that's a good thing.

ltr


----------



## james4beach

depassp said:


> Any advice for when one should/could comfortably double from a 5 or 6-pack to a 10 or 12-pack?


The criteria I would use is the amount of concentration in any single stock. This will depend entirely on your own investing situation. As a rule of thumb, you might not want more than 5% or 10% of your total investments to be in any single stock.

In my own situation, my 5-pack is part of several others investments (including S&P 500, gold, bonds). One stock in my pack is only 2% of my total.

In contrast, if my only investments were the 5-pack, meaning that a single stock was 20% of my total, then I would definitely diversify that further. I wouldn't want 20% of all my investments in a single stock.

Might as well give a 5-pack update: in the recent rally, the 5-pack was weaker than the broad index. The gap with XIU has narrowed significantly, and YTD the 5-pack is -8.7% and XIU -10.0%. So the performance of the two are starting to look very similar.


----------



## londoncalling

The time to switch is rather subjective and dependent on how that switch were to occur. Are you in accumulation or withdrawal? Are you going to sell to do so? Registered vs. non registered? etc. etc. If I was in a registered account during accumulation I would pick away with new money. If its non registered I may want to generate a capital loss by selling and adding a similar stock. I may also decide to trim back a winner or possibly an underperformer as part of my decision. The options are plenty. I would tend to agree with the others that the decision is a more about diversification and unless the portfolio is very small would not matter too much. I think the better approach would be to assess your current pack determine the additional stocks and go from there. I do have some core positions (Banks, Telcos, Pipelines & Utilities) across Canadian, US and International. I hold many positions most of them small gambles making up 1 or 2%. In hindsight I would enjoy the simplicity of a pack portfolio, perhaps 6 pack Canada, a dozen US, and another 6 International. However, I am not sure if I would be as engaged in my portfolio if it was set up that way. some would argue that it should be boring and to set it and forget it. I enjoy the process of profiling and selecting stocks so I consider it part retirement planning and part leisure.


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## james4beach

Heading into a potential continuation of the bear market, maybe another crash, I checked up on my 5-pack. This is one component within my broader asset allocation, part of my overall 28% stock weight.

It's doing well. Down mildly today, better than the broad market and still considerably better than the TSX year to date. All looks good here.


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## MrBlackhill

Very interesting this 5-pack approach. Maybe I'd do a 10-pack just to have a backup for each of the 5 selected stocks, but still.

I've just backtested some 5-pack I did but instead of selecting the 5 biggest market cap for each of the selected sectors, I selected 5 stocks from different industries with high growth, high Sharpe ratio, high Sortino ratio, low drawdown and high worst year. This biggest risk is that these names have not necessarily proven themselves for more than 10 years and are not necessarily large caps and it's just a quick test based on historical returns, not potential future returns.

From TSX, this is what I ended up selecting. AQN, CJT, RPI-UN, CSU, BYD. Backtesting this selection on equal weight from Jan 2013 until Dec 2019, you get 38.62% CAGR, 12.06% stdev, best year 65.16%, worst year 13.81%, max drawdown -8.19%, Sharpe ratio 2.73, Sortino ratio 7.81.

Yup, Sharpe 2.73 and Sortino 7.81 on a 38.62% CAGR portfolio!

If you are wondering why I didn't include YTD with COVID crash, well it was just to have complete years, but COVID crash didn't really affect the portfolio except for a max drawdown of now -13.58%. Backtesting this selection on equal weight from Jan 2013 until Jun 2020, you get 39.34% CAGR, 14.23% stdev, best year 65.16%, worst year 13.81%, max drawdown -8.19%, Sharpe ratio 2.37, Sortino ratio 5.86. As expected, the Sortino ratio took a hit from the COVID crash. That's still solid returns.

All that being said, historical returns does not guarantee future returns. It was just to show one of the best combinations I've found so far on the TSX in a statistical point of view which is different than an investment analysis where you must do your due diligence to have a better idea on potential future returns.

Just to put things in perspective, that's AMZN as portfolio 1 in blue and my proposed 5-pack equal weight as portfolio 2 in red. See how stable it is.


----------



## james4beach

MrBlackhill said:


> I've just backtested some 5-pack I did but instead of selecting the 5 biggest market cap for each of the selected sectors, I selected 5 stocks from different industries with high growth, high Sharpe ratio, high Sortino ratio, low drawdown and high worst year.
> . . .
> From TSX, this is what I ended up selecting. AQN, CJT, RPI-UN, CSU, BYD. Backtesting this selection on equal weight from Jan 2013 until Dec 2019,


To do a proper back test, you have to see the world as it was back in time. In other words you have to simulate what you would have seen and known back then and only use knowledge available at that time. Otherwise you are adding massive hindsight bias. Did you extract those metrics at their readings on January 2013?

You also have to use the index that existed back then, not today's index constituents. For example CJT was only added to the TSX Composite in 2019 so it would not have showed up in your screening back in 2013.

I also suspect that AQN would have failed your screening since it had recently crashed very severely with a horrible drawdown, about 80% drop from 2006-2009 along with wretched performance since early 2000s.


----------



## MrBlackhill

james4beach said:


> To do a proper back test, you have to see the world as it was back in time. In other words you have to simulate what you would have seen and known back then and only use knowledge available at that time. Otherwise you are adding massive hindsight bias. Did you extract those metrics at their readings on January 2013?
> 
> You also have to use the index that existed back then, not today's index constituents. For example CJT was only added to the TSX Composite in 2019 so it would not have showed up in your screening back in 2013.


I've thought about this and I could start that analysis as of 2015, therefore with at least 2 years of data on CJT to take the decision and it would not have changed much, except maybe buying CNR instead of AQN.


----------



## james4beach

MrBlackhill said:


> I've thought about this and I could start that analysis as of 2015, therefore with at least 2 years of data on CJT to take the decision and it would not have changed much, except maybe buying CNR instead of AQN.


But why would you even test CJT when it wasn't in the TSX index at the time?


----------



## MrBlackhill

I may have missed when did CJT got promoted from TSXV to TSX or something like that and where to find that information, but we have information on CJT since 2012 and from beginning of 2013 to end of 2014 it was promising. I do look at TSXV stocks and I do own TSXV stocks at the moment and some of them got promoted to TSX.

One could've start at year 2016 if you wish at that would be 4 years at 30% CAGR on a very steady climb.


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## james4beach

I understand, just pointing out that to really test how something would have done in the past, you need to make sure you are seeing the world as it was back then. That extends to the activity of "finding" the stock(s) to begin with.


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## MrBlackhill

Totally agree with that bias.


----------



## Eder

I did own CargoJet several years ago ...there was very little to suggest it is a 6 pack candidate...unless you are trying to pick the best returns using hindsight.


----------



## MrBlackhill

Ok, I get that you guys don't like my choice of CJT since it seems too much biased. I get that this is all hypothetical and that it is an idealised case. It is easy to talk about the good decisions we could've taken when looking at the past. What's hard is to take the good decisions in the present for the future. This next one I'll present seems realistic. There's maybe someone out there in Canada which has done this combination from this kind of analysis. I'm not saying that one should invest based on this kind of analysis. Please do you due diligence and invest based on your own style and risk tolerance. Statistical analysis of the past does *NOT* guarantee future results.

Here's another scenario that I hope you will find more realistic and less biased. Say we just had the crash in 2008 and now we are about to start year 2012. I'm an investor looking for best performers in the last 3 years (2009 to 2011). CJT cannot be part of the choice then. I look also at RPI-UN and from 2009 to 2011, it doesn't seems appealing.

I end up making these choices instead from the data I have from 2009 to 2011. Remember that I'm an investor looking for stocks that performed well after the crash. I'm looking for 5 stocks in 5 different industries/sectors which have had high CAGR in the past years, high Sharpe ratio, high Sortino ratio. I also want the combination of these 5 to give even better statistics and to have a decent stdev when combined.

I end up selecting these 5 from backtesting from 2009 to 2011.










Combined in equal weight from 2009 to 2011, this is the result of their backtesting.










Now, I'm convinced and go all-in in that 5-pack portfolio starting in 2012. Here's what would be my results as of today.



















That's 29% CAGR over more than 8 years. I'll take it. Also, who knows, maybe from my screenings I would've been interested by the rising CJT and RPI-UN to replace IFC and IIP-UN? After all, at the end of 2015, looking to assess if my 5-pack still has the best performers, I would've had enough data to decide to switch for CJT and RPI-UN, maybe?

I know that most of the time that's not what happens in real life and it's still an idealised case, but these idealised cases have to happen to some people, don't you think?


----------



## james4beach

I don't hate CJT by the way, in fact I hold it in my growth portfolio. I know that I confuse everyone by talking about my various portfolios. My 5-pack (BCE etc) is my big portfolio, most of my Canadian equity. But I have a much smaller growth/momentum portfolio too. It holds crazy things like WDO.

The reality is that there are a million ways to stock pick, and many of those million ways are pretty good approaches. As long as you have a reasonably sane stock picking approach, with sufficient diversification (minimum # of stocks and sectors) you'll be on good footing.

I would look at some practical things too, such as: how often will the portfolio be updated and refreshed? How much time and energy is involved in doing all this? Do you think you can keep doing that maintenance for 20 or 40 years? What's the plan when a stock turns into a disaster?


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## MrBlackhill

james4beach said:


> I don't hate CJT by the way, in fact I hold it in my growth portfolio.


I was not saying that you didn't like CJT, I was saying that I understand that you guys find that the first scenario that I presented was biased on CJT because back then it didn't have sufficient history for that kind of analysis.



james4beach said:


> The reality is that there are a million ways to stock pick, and many of those million ways are pretty good approaches. As long as you have a reasonably sane stock picking approach, with sufficient diversification (minimum # of stocks and sectors) you'll be on good footing.
> 
> I would look at some practical things too, such as: how often will the portfolio be updated and refreshed? How much time and energy is involved in doing all this? Do you think you can keep doing that maintenance for 20 or 40 years? What's the plan when a stock turns into a disaster?


Yes, that's why I don't like when people are opposing technical analysis to fundamental analysis. I'm just using both and also other strategies. In my opinion, there's never too much information and there's always something new to learn. At some point, the investor will find the tactics that seemed the best when looking only at a few key things in the fundamentals, in the statistical analysis of its history, in some technical indicators, in some trends and news.

I like pretty much that 5-pack approach. So far I'm holding more stocks in my main portfolio because I'm making experiments and playing around, but I feel like the 5-pack is less maintenance and still a very solid strategy. As I said, maybe I'd go for a 10-pack to reduce a bit the risk. Though, on the other side, I was even thinking of going to a 3-pack with only CJT, AQN and RPI-UN, but that would mean more risk and more watching. Still, it's pretty interesting to see that this 5-pack idea would've outperformed even an ETF like HQU (2x daily bull NASDAQ). I'm still not sure of my final strategy.

Personally, since I don't hold that much money at the moment, I'll rebalance every year and refresh every year if I find new stock ideas which seems better options than the current ones I own. On my personal portfolio, I'll be buying twice a year to reduce my commissions. On my matrimonial portfolio, I'll be buying monthly since it's bigger investments, but there will also be withdrawals.

For stocks turning to disaster, it'll depend of the stock's history and current context. I have a risk threshold for each.


----------



## james4beach

MrBlackhill said:


> As I said, maybe I'd go for a 10-pack to reduce a bit the risk. Though, on the other side, I was even thinking of going to a 3-pack with only CJT, AQN and RPI-UN, but that would mean more risk and more watching. Still, it's pretty interesting to see that this 5-pack idea would've outperformed even an ETF like HQU (2x daily bull NASDAQ). I'm still not sure of my final strategy.


Some of stocks you're listing are small cap and mid caps. These are inherently more volatile and I think you'll need more than 5 to get sufficient stability.

RPI.UN for example is less than $1 billion market cap and _very_ thinly traded. I would expect some massive volatility to eventually hit that stock, so be careful. For example the CEO himself owns 19% of the shares! Another company executive owns 5%. Potentially very dangerous.

Because things like RPI.UN have the tendency to absolutely crater (when large holders exit), you need more stocks in the portfolio to diversify against such disasters.


----------



## MrBlackhill

james4beach said:


> Some of stocks you're listing are small cap and mid caps. These are inherently more volatile and I think you'll need more than 5 to get sufficient stability.
> 
> RPI.UN for example is less than $1 billion market cap and _very_ thinly traded. I would expect some massive volatility to eventually hit that stock, so be careful. For example the CEO himself owns 19% of the shares! Another company executive owns 5%. Potentially very dangerous.
> 
> Because things like RPI.UN have the tendency to absolutely crater (when large holders exit), you need more stocks in the portfolio to diversify against such disasters.


Sure, smaller caps usually have higher volatility. Not sure where you see the volatility in this selection of picks, though. It has Sharpe & Sortino ratios way higher than even a low volatility ETF like XMW. I'm being cautious when it's getting close to micro cap, but small caps that have been there for more than a decade with a average volume*price over 500k$ are fine to me.

I remember you are also holding CJT like I do and it's only 5x the volume, 4x the cap of RPI-UN and I bet you are pretty happy holding CJT.


----------



## like_to_retire

MrBlackhill said:


> Not sure where you see the volatility in this selection of picks, though. It has Sharpe & Sortino ratios way higher than even a low volatility ETF like XMW. I'm being cautious when it's getting close to micro cap, but small caps that have been there for more than a decade with a average volume*price over 500k$ are fine to me.


I think James is just saying to be cautious about small cap companies as their volatility and lifespan might not be suited for a _Pack_ with only 5 stocks. I would caution the same. In fact, I continue to caution James about a 5 pack with large caps because each stock represents 20% - too much.

Generally the definition of small cap comes from its market value of its outstanding shares and not its Sharpe & Sortino ratios or even average volume. There are some discrepancies in definition, but my own definition of a small cap would be around 1 billion. 

I personally own a stock with a market cap of 1.5B (which some might define as the bottom of mid-cap), but that's an anomaly for me, because I like this stock in a sector that is quite thin on good companies, but then I have a 24 pack, which is 8 sectors of 3 stocks each, so that one stock is about 4%, rather than 20% for a 5 pack.

If you're going to assemble a 5 pack, use large caps to reduce the inherent high risk of that strategy.

ltr


----------



## james4beach

like_to_retire said:


> I think James is just saying to be cautious about small cap companies as their volatility and lifespan might not be suited for a _Pack_ with only 5 stocks. I would caution the same. In fact, I continue to caution James about a 5 pack with large caps because each stock represents 20% - too much.
> 
> Generally the definition of small cap comes from its market value of its outstanding shares and not its Sharpe & Sortino ratios or even average volume.


Yes exactly. Small caps are inherently volatile, even if they haven't shown volatility for the last few years.

And I hear like_to_retire's caution that my 5 large caps are too highly concentrated. It's a good warning. I just decided to compromise on this, because fewer positions are easier to manage. Additionally, I have many other investments besides my 5-pack. This pack is 10% of my overall investments so one of my 5-pack stocks at 20% weight is, in reality, 0.10*0.20 = 2% of my overall investments. Meaning that ENB is 2% of my overall, RY is 2% of my overall, etc.


----------



## MrBlackhill

like_to_retire said:


> I think James is just saying to be cautious about small cap companies as their volatility and lifespan might not be suited for a _Pack_ with only 5 stocks. I would caution the same. In fact, I continue to caution James about a 5 pack with large caps because each stock represents 20% - too much.
> 
> Generally the definition of small cap comes from its market value of its outstanding shares and not its Sharpe & Sortino ratios or even average volume. There are some discrepancies in definition, but my own definition of a small cap would be around 1 billion.
> 
> I personally own a stock with a market cap of 1.5B (which some might define as the bottom of mid-cap), but that's an anomaly for me, because I like this stock in a sector that is quite thin on good companies, but then I have a 24 pack, which is 8 sectors of 3 stocks each, so that one stock is about 4%, rather than 20% for a 5 pack.
> 
> If you're going to assemble a 5 pack, use large caps to reduce the inherent high risk of that strategy.
> 
> ltr





james4beach said:


> Yes exactly. Small caps are inherently volatile, even if they haven't shown volatility for the last few years.
> 
> And I hear like_to_retire's caution that my 5 large caps are too highly concentrated. It's a good warning. I just decided to compromise on this, because fewer positions are easier to manage. Additionally, I have many other investments besides my 5-pack. This pack is 10% of my overall investments so one of my 5-pack stocks at 20% weight is, in reality, 0.10*0.20 = 2% of my overall investments. Meaning that ENB is 2% of my overall, RY is 2% of my overall, etc.


Yes I know small cap definition comes from market cap, I used Sharpe & Sortino ratios just to point out the great risk-return of the 5-pack portfolio I was analysing.

I also agree that more stocks would be better to reduce risk. Though, when looking at Buffet's BRK picks, about 35-50% of its holding is in AAPL only. More than 75% of its holding is in the 7 first stocks.


----------



## FinancialFreedom

I haven't gone through all 14 pages, but just wondering if anyone has backtested this approach for the previous 10 years/25 years and compared the returns to the benchmark index? I see XIU has returned 6.5% over 10 years and 6.61% since inception.

I'm currently invested mainly in VGRO for the simplicity, but would love to add a small portion of my investments to another theory similar to this for a chance at slightly higher returns.

That being said.. is there even any easy way to back test theories like this or similar ones? I've always just trusted others that have said they've backtested, such as Canadian Couch Potato portfolios, but it would be interesting to be able to backtest my own portfolio ideas.

Edit: Also just got to the post where you mention this is all in non-registered accounts for tax purposes and you hold index funds in TFSA/RRSP. I'm not at a point where my TFSA is maxed yet so I guess I will be better off continuing to add to VGRO until both are maxed?


----------



## MrBlackhill

FinancialFreedom said:


> I haven't gone through all 14 pages, but just wondering if anyone has backtested this approach for the previous 10 years/25 years and compared the returns to the benchmark index? I see XIU has returned 6.5% over 10 years and 6.61% since inception.
> 
> ...
> 
> That being said.. is there even any easy way to back test theories like this or similar ones? I've always just trusted others that have said they've backtested, such as Canadian Couch Potato portfolios, but it would be interesting to be able to backtest my own portfolio ideas.



To backtest, use Portfolio Visualizer

The original posts talks about a 5-pack consisting of RY, FTS, CNR, ENB & BCE. And, yes, it definitely outperformed XIU. But I'll let James talk about his own experience.

What if the selection was different, but in the same industry? What about TD, EMA, CP, TRP & T? About the same results.

Backtesting doesn't guarantee future result, but I agree that it's good to see historical trends and past performance.

I guess selecting these as a 10-pack would've been more prudent.


----------



## james4beach

FinancialFreedom said:


> I haven't gone through all 14 pages, but just wondering if anyone has backtested this approach for the previous 10 years/25 years and compared the returns to the benchmark index? I see XIU has returned 6.5% over 10 years and 6.61% since inception.


If you mean my method, yes, I have back-tested it over about 17 years + 3 years forward testing in real life and it has outperformed XIU. But my original goal was not to outperform XIU, it was to roughly replicate XIU performance.

I still don't think my 5-pack will keep outperforming XIU. Instead, I see it as a replacement for it, using individual stocks instead of the ETF.



FinancialFreedom said:


> That being said.. is there even any easy way to back test theories like this or similar ones? I've always just trusted others that have said they've backtested, such as Canadian Couch Potato portfolios, but it would be interesting to be able to backtest my own portfolio ideas.


It isn't easy to back test. It's hard because you have to make decisions the same way you would have made them at that previous point in history, and when doing back tests we inevitably carry some hindsight knowledge and bias. In my case for example, the sector selection is tainted by hindsight bias.

Similarly with the Canadian Couch Potato, he's used certain allocation to countries but you'll notice he doesn't have a massive emerging markets weight. That is also hindsight bias. It's possible that if they started that method in 2003, he might have used a big emerging markets weight.

If the Canadian Couch Potato started doing this in 1989, he might have had a big Japan weight. But when we do this after the fact, everyone pretends they would have avoided Japan. Nope.... that's bias. Everyone in the late 80s invested heavily in Japan. Just like everyone today invests heavily in the USA.

Back tests have their limitations. There's always some hindsight bias.


----------



## james4beach

MrBlackhill said:


> To backtest, use Portfolio Visualizer
> 
> The original posts talks about a 5-pack consisting of RY, FTS, CNR, ENB & BCE. And, yes, it definitely outperformed XIU. But I'll let James talk about his own experience.


That still is not a correct back test because those particular stocks were not the stock picks ever since the start date. The portfolio changes over time, so you also have to back test the management process (which stock is held when). It's quite complicated.

Back testing index portfolios is much easier than back testing individual stock picks. With indexes, you just look at trailing performance.

With individual stocks you have to carry out the portfolio management operations, the buys & sells.


----------



## MrBlackhill

james4beach said:


> I still don't think my 5-pack will keep outperforming XIU.


I think you'll greatly outperform XIU.

XIU is being dragged down by stocks that became bad performers. At least SHOP helped a bit, but SHOP won't always be there.

While your selection always had a steady increase or a great dividend.

Meanwhile, ABX is still high in the XIU holdings because of its market cap. It has helped only during the crash. An index distribution only based on market cap is definitely oversimplifying.



james4beach said:


> That still is not a correct back test because those particular stocks were not the stock picks ever since the start date. The portfolio changes over time, so you also have to back test the management process (which stock is held when). It's quite complicated.
> 
> Back testing index portfolios is much easier than back testing individual stock picks. With indexes, you just look at trailing performance.
> 
> With individual stocks you have to carry out the portfolio management operations, the buys & sells.


I though you kept the same 5 stocks and same equal weight rebalanced every year? Sorry.

You can input a cashflow in PortfolioVisualizer, but since your portfolio and XIU are both low volatility, historical the 5-pack easily outperformed XIU.


----------



## james4beach

MrBlackhill said:


> While your selection always had a steady increase or a great dividend.


Dividends are not a factor in total returns. They are totally meaningless from a performance standpoint. Each dividend knocks down the share price.

See this video from Ben Felix: The Irrelevance of Dividends
And this one that describes that Dividends do not matter



MrBlackhill said:


> I though you kept the same 5 stocks and same equal weight rebalanced every year? Sorry.


Nope, it's impossible to pick a constant group of stocks and sit on them for 20 years. You have to do some kind of portfolio management, and my management procedure is described in post # 190. You can even see a coloured diagram of the change in holdings over the years.


----------



## MrBlackhill

james4beach said:


> Dividends are not a factor in total returns. They are totally meaningless from a performance standpoint. Each dividend knocks down the share price


I mean that the total return was a steady climb. Either it's a no dividend stock growth 5% or a 5% dividend stock with no growth. We've had this debate somewhere else. Post #133 and Post #144

In the first minute of your Ben Felix video, he points out "I do not mean that they are not an important component of total returns". I'm talking about total return stability. He's just saying that a good dividend doesn't mean a good stock, which is obviously true.



james4beach said:


> Nope, it's impossible to pick a constant group of stocks and sit on them for 20 years. You have to do some kind of portfolio management, and my management procedure is described in post # 190. You can even see a coloured diagram of the change in holdings over the years.


Well, it is possible, but most likely improbable since after many years you maybe find other stocks that - you think - are better options and should replace your current stock.

From your diagram, three of the 5-pack have been kept most of the time. Therefore, it has been possible for at least 3 of your 5-pack, that's just what I meant. So it could've been possible for 5 out of 5.

Selecting SU in 2009 when it crashed was the rational decision after its huge run, compared to EMA, but you could've also decide to stick with EMA with its 9% CAGR from 2001 to 2009 when seeing that SU had a few crashes in its history (1997, 2000, 2002) before its huge run. But since SU totally outperformed EMA from 2002 to 2009, well I totally understand the idea to switch to SU.

I was just trying to say that would could backtest and pick stocks that had a 20-year history of steady growth and stick to it unless there's some really bad event. As of now, FTS had a steady growth for over 20 years, big 6 banks had a steady growth for over 20 years, CNR had a steady growth for over 20 years so these are not going nowhere else unless something huge happens.

By the way, I think your 5-pack is awesome, I'm not challenging your decisions and I'm nowhere near a good position to challenge them, I just wanted to point out that how your experienced your 5-pack is one scenario out of many other possibilities. Some other scenarios would've been worst, some would've been better, but you never know and it depends on your strategy, your beliefs, your context and information at that moment, your personality and much more.

It is just not "impossible" that one stick to the same 5-pack during 20 years. Maybe not likely, but not impossible. Nothing would've stop someone to pick a 5-pack and keep being satisfied with its selection during 20 years, Did you do that? No. Will I do that? No. Can someone out there do that? Yes.


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## MrBlackhill

We may say that making a choice that will keep us happy during 20 years is a bit lucky but...

Not to make a bad joke, but after all, there's people out there still with their spouse after 50 years...

Ok, that's a bad analogy.


----------



## john.cray

@james4beach I wonder how you have done "proper" backtesting?
I mean where you actually program the algorithm/ruleset of stocks selection.

It looks like Quantopian now supports Canadian equities data, so I might give it a shot later to backtest your formula.
If I remember correctly it was simply: "Pick the highest market capitalization stock from each of the 5 sectors at the beginning of year/rebalancing time" ?


----------



## Eder

Why not go back to the criteria Argonaut originally posted to achieve a 6 pack that easily beats the performance of the TSX. This 5 pack thing of James is a more recent copy with different criteria. I'd link the original post but am too lazy...its there if you search though.


----------



## MrBlackhill

I tried to find the stocks with the most stable growth during 20 years.

Couldn't find 5 or more. Ended up selecting CNR, FTS, CAR-UN and MRU. Waiting to find more.

CNR and FTS are definitely the winners with CNR having the best growth and FTS having the least drawdown. MRU having the worst drawdown. CAR-UN having the longest drawdown.


----------



## james4beach

john.cray said:


> @james4beach I wonder how you have done "proper" backtesting?
> I mean where you actually program the algorithm/ruleset of stocks selection.


My algorithm can be found in post # 190. It's technical and based on looking at XIU (or the TSX 60), not based on earnings or fundamentals.

I did the backtesting by pulling up 17 years of financial statements for iShares XIU and applying my stock selection criteria to each Dec 31 snapshot of the portfolio. I pretended that I saw the XIU holdings on Dec 31 and made the portfolio changes in response.

I'm not familiar with the software you mentioned, but maybe it can do it.


----------



## john.cray

james4beach said:


> I'm not familiar with the software you mentioned, but maybe it can do it.


I thought you might have used Quantopian: The Place For Learning Quant Finance 
It seems to have only recently acquired non-us (including Canadian) stocks data.
It's a lot of fun to play with, if you have basic python skills and think you can "beat the market"


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## james4beach

john.cray said:


> I thought you might have used Quantopian: The Place For Learning Quant Finance
> It seems to have only recently acquired non-us (including Canadian) stocks data.
> It's a lot of fun to play with, if you have basic python skills and think you can "beat the market"


Neat, I have not ever played with those. I keep a proprietary stock database of my own, with data that I slurp from various places for about 800 stocks and ETFs.

Beating the market? Sure... give me a hundred tunable parameters and I will build you the most successful stock prediction system ever made. It will be totally useless garbage, though 

(for those curious about what I mean, see this article on over-fitting)


----------



## hfp75

The 5-pack (Ry/FTS/CNR/ENB/T) vs ZLB look to have the same performance over time.... as far as I can see unless I am missing something.... 

Simplicity says just buy ZLB no ?


----------



## like_to_retire

hfp75 said:


> The 5-pack (Ry/FTS/CNR/ENB/T) vs ZLB look to have the same performance over time.... as far as I can see unless I am missing something....
> 
> Simplicity says just buy ZLB no ?


But there's an MER cost, along with tax distributions of ROC, Other Income, Foreign Income, Capital Gain along with about half that's eligible dividends is there not?

Wouldn't it be easier to just own the stock at no cost and a simple T5 slip?

ltr


----------



## MrBlackhill

hfp75 said:


> The 5-pack (Ry/FTS/CNR/ENB/T) vs ZLB look to have the same performance over time.... as far as I can see unless I am missing something....
> 
> Simplicity says just buy ZLB no ?


Well, I'd say this thread is about the 5-pack approach which mostly points out how managing only 5 stocks can outperform the index.

But if you are looking for performance through ETFs, well that's another topic and there's many options, many even better than ZLB, even though ZLB is a very good choice.



like_to_retire said:


> But there's an MER cost, along with tax distributions of ROC, Other Income, Foreign Income, Capital Gain along with about half that's eligible dividends is there not?
> 
> Wouldn't it be easier to just own the stock at no cost and a simple T5 slip?
> 
> ltr


But ZLB is all Canadian holdings, I guess it simplifies? I'm a beginner stock investor and it's currently all in TFSA, so I still don't know in what kind of tax mess I'll get into when I'll buy international ETFs for one of my portfolios...

[EDIT] Nevermind, I just downloaded ZLB's distribution tax and yes there's all that. How come since it's all Canadian holdings? No? Ah, is that because these companies make money internationally?


----------



## james4beach

hfp75 said:


> The 5-pack (Ry/FTS/CNR/ENB/T) vs ZLB look to have the same performance over time.... as far as I can see unless I am missing something....
> 
> Simplicity says just buy ZLB no ?


You're right, they are similar. I think this is because both exclude commodities and resources so both are essentially holding the TSX, underweight commodity stocks. In other words, they have similar sector exposures. Both are very light on tech.

I have considered buying ZLB instead of my individual 5 stocks and I think one could make that substitution. ZLB is better diversified, which is a plus.

In my non registered account, I prefer to hold these individual stocks. I prefer the tax accounting with the individual stocks, since I don't have to deal with the ETF distribution mess. I really prefer keeping Canadian ETFs inside registered accounts only.

But there's also a hefty 0.39% fee on ZLB. For my 100K invested, assuming I make just 5 rebalancing trades a year @ $10 each, my "MER" works out to just 0.05% which is a fraction of the cost of ZLB.


----------



## hfp75

So, use ZLB in RRSP/LIRA/TFSA/ect and in the MARGIN/CASH acct use the 5-Pack ? Seems to make sense to me... simplicity has to be worth something... 

J4B have you done a backtest on your 5-Pack vs ZLB ?


----------



## like_to_retire

hfp75 said:


> J4B have you done a backtest on your 5-Pack vs ZLB ?


I've often wondered if backtesting includes taxation considerations? It sure makes a difference on net return.

ltr


----------



## MrBlackhill

james4beach said:


> You're right, they are similar. I think this is because both exclude commodities and resources so both are essentially holding the TSX, underweight commodity stocks. In other words, they have similar sector exposures. Both are very light on tech.
> 
> I have considered buying ZLB instead of my individual 5 stocks and I think one could make that substitution. ZLB is better diversified, which is a plus.
> 
> In my non registered account, I prefer to hold these individual stocks. I prefer the tax accounting with the individual stocks, since I don't have to deal with the ETF distribution mess. I really prefer keeping Canadian ETFs inside registered accounts only.
> 
> But there's also a hefty 0.39% fee on ZLB. For my 100K invested, assuming I make just 5 rebalancing trades a year @ $10 each, my "MER" works out to just 0.05% which is a fraction of the cost of ZLB.


That's true, good point!

Anyone knows how that MER truely affects the returns? Say I buy an 100$ of an ETF with 1% MER and 10% CAGR. Let's say everything is applied only once per year. At the end of the year, will I get +10$ from CAGR and -1$ from MER or will I get +10$ from CAGR and -1.1$ from MER (because my investment now worth 110$). In the first case, it means MER can be substracted from CAGR. In the second case, it means MER must be compounded over the CAGR. I've read places saying your total return is CAGR - MER, but I'm wondering if it's just simplifying the truth...


----------



## james4beach

hfp75 said:


> So, use ZLB in RRSP/LIRA/TFSA/ect and in the MARGIN/CASH acct use the 5-Pack ? Seems to make sense to me... simplicity has to be worth something...


Maybe. I'm using the 5-pack in the non-reg margin account, and XIU in registered.



hfp75 said:


> J4B have you done a backtest on your 5-Pack vs ZLB ?


I haven't, but I think my 5-pack performance is closer to XIU than ZLB is. And I think ZLB has outperformed my pack.


----------



## hfp75

I have been using HXS & HXT for simplicity in my non-reg accounts for the tax simplicity/efficiency. I can see the advantage of 5-pack in a cash account if your not interested in a swap based structure.


----------



## james4beach

An update on my 5 pack (RY, ENB, CNR, BCE, FTS)

Year to date performance is -1.3% versus XIU -1.4% so they are exactly the same. Which is good, actually, because remember that XIU is getting a performance boost from SHOP.

I would consider matching XIU performance long term to be a success. I think I mentioned before that my trading costs on the 5 pack make it cheaper than holding XIU. So if I can hold essentially the same TSX 60 exposure, with lower costs, and with direct equity holdings, that would be pretty good. This also eliminates the securities lending of the ETF, which some people (including me) worry a bit about.

I also looked at stats on how badly the 5 pack fell during the crash, and this was interesting.

From January 1 to March 23 (the stock market low), the 5 pack was down -24% which was actually better than XIU -32% in the same period. And I measured the maximum drawdown of the 5 pack at -29% versus -36% for XIU.

That suggests that the 5 pack has roughly 80% of the volatility of XIU

So it appears that the 5 pack fell less severely than XIU in the recent crash. I would guess this is thanks to the weight in utilities, but also because these giant large caps tend to be a bit more stable than other TSX stocks. I would welcome other thoughts, because I don't have a great explanation of that but I like these results


----------



## james4beach

Last time I checked (see above) the 5 pack was performing the same as XIU. It's still tracking very closely but looking better now. YTD performance as of today is

5-pack: +1.3%
XIU -0.3%
ZLB -3.7%


----------



## james4beach

There's been a bit of a shift in markets recently with energy rebounding. I was curious if this changed my 5 pack's relative performance. *YTD* performance as of today is

5-pack: +1.8%
XIU: +1.7%
ZLB: +0.8%

It's nice to see that my 5-pack is tracking XIU quite well through this crazy year.


----------



## Retiredguy

Remind. Whats in ur 5 pack?


----------



## Eclectic12

Post # 304 seems to be saying the five pack is currently RY, ENB, CNR, BCE & FTS.


Cheers


----------



## depassp

Is there a reason you compare with XIU instead of XIC (or both)?


----------



## james4beach

depassp said:


> Is there a reason you compare with XIU instead of XIC (or both)?


My 5-pack is entirely based off XIU, so I think it's most helpful to compare to XIU. But there's not much of a difference between XIU & XIC performance in any case.

You can see some details on this page about how the 5-pack is constructed by mirroring XIU holdings. This is a passive indexing technique which does not involve making active decisions on my part.

Thanks to @Eclectic12 and @like_to_retire for helping me refine the technique.

I should mention a bit of history here because it might clear up confusion. I really like XIU as a core holding, and it's always been central in my asset allocation plan. My RRSP holds XIU, not my 5-pack. However, when I was a resident in the US, holding Canadian ETFs was basically forbidden for tax reasons. Holding individual Canadian stocks was allowed. So I came up with this 5-pack approach to mimic XIU, so that I could continue investing without disrupting my asset allocation plan.


----------



## depassp

james4beach said:


> However, when I was a resident in the US, holding Canadian ETFs was basically forbidden for tax reasons. Holding individual Canadian stocks was allowed. So I came up with this 5-pack approach to mimic XIU, so that I could continue investing without disrupting my asset allocation plan.


If you went back in time and started over without the Canadian ETF restriction, would you still go with the 5-pack?

XIU gives exposure to more sectors and the weightings are very different.

If you now don't have that ETF restriction, why not instead start to accumulate XIU, giving you exposure to the missing sectors? Your 5-pack can continue to grow and rebalance/swap as necessary.

Here are the sector weights of XIU (according to my broker's Fund Parser) as of today Nov12/20. The 5-pack is missing all the non-green sectors:


SectorWeightFinancials32.06%Basic Materials13.55%Industrials12.65%Energy11.79%Technology11.09%Telecommunications Services6.12%Consumer Non-Cyclicals4.37%Consumer Cyclicals3.83%Utilities2.84%Real Estate0.76%Healthcare0.71%Cash0.17%Unclassified0.06%


----------



## james4beach

depassp said:


> If you went back in time and started over without the Canadian ETF restriction, would you still go with the 5-pack?


These are very good questions. I do have a large XIU position inside my RRSP and continue adding to that... e.g. bought more XIU last week.

But in my non-registered account, yes I think I would still go with the 5-pack even if I started today without US tax complications. I appreciate you asking this question because it's making me re-think my reasoning.

Here's why I would still go with the 5-pack in* non registered:*

- I find tracking of ETF ACB stuff to be a pain non registered. Yes I know there is a web site for it, and yes I know the brokerage tracks it pretty well these days, but I have learned over the years that you really should not entirely depend on external sources for this. It has to be tracked by me, ultimately. And this is somewhat irritating. I love XIU, but its distributions do include ROC and even phantom reinvested distributions (2018). I do find this stuff a nuisance to keep in sync with. Maybe this is irrational on my part, but I don't enjoy it.
​Here's an example of that data. There are multiple ROCs in a year, so even the date of your trade (new addition) in relation to the ROC has to be taken into account. Then there's the potential reinvested distribution which can be very significant. Forget that one, and you will overpay taxes in the future.​​- going with 5 individual stocks is much easier to track. There are no wacky distributions, just dividends, and ACB is very straightforward... the ACB isn't constantly changing

- my overall fees for the 5-pack are actually lower than XIU's MER, considering all trade fees etc. e.g. two trades a year for adjustments works out to 0.02% fee compared to 0.18% for XIU

- based on the historical backtest (which I did very thoroughly) I think there is reason to believe that I could outperform XIU. It's not guaranteed or anything, but I think there is hope.

- 5-pack does have limited sectors, yes, but they are also equal weight. One of my complaints with the TSX 60 and Composite is the lopsided weights in financials and energy; now it's only financials. Note that the S&P 500 does not have this problem ... that index actually has much more even weights across sectors.




depassp said:


> XIU gives exposure to more sectors and the weightings are very different.
> 
> If you now don't have that ETF restriction, why not instead start to accumulate XIU, giving you exposure to the missing sectors? Your 5-pack can continue to grow and rebalance/swap as necessary.


No question that XIU is better diversified. It even has a tech component! But I feel fine about my current arrangement because my RRSP does have XIU, and I keep adding to it over time.

Most of my new money is going into XIU (in RRSP) and not my 5-pack.


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## Eclectic12

james4beach said:


> ... I should mention a bit of history here because it might clear up confusion. I really like XIU as a core holding, and it's always been central in my asset allocation plan. My RRSP holds XIU, not my 5-pack. However, when I was a resident in the US, holding Canadian ETFs was basically forbidden for tax reasons. Holding individual Canadian stocks was allowed. So I came up with this 5-pack approach to mimic XIU, so that I could continue investing without disrupting my asset allocation plan.


Sure ... though I recall several discussions of Argo's Five Pack happening before the leap was taken, with a shove from the IRS/US gov't.








Argo's Five Pack


Hey all, I see a lot of reference on this forum to "Argo's 5-Pack". I just want to confirm that this is referring to one of his posts back in January 2012 (http://canadianmoneyforum.com/showthread.php/10219-Canadian-dividend-paying-stocks), where the 5-pack is outlined as below and nothing has...




www.canadianmoneyforum.com







james4beach said:


> ... I find tracking of ETF ACB stuff to be a pain non registered ... I do find this stuff a nuisance to keep in sync with. Maybe this is irrational on my part, but I don't enjoy it ...


It's not irrational and I don't think many, if any, enjoy it.

The disconnect I see if when people learn it for the first time, they think it is incredibly difficult (it's simple math) and takes buckets of time to do (others with multiple ETFs post that they figure a conservative estimate is thirty minutes a year).


Cheers


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## AltaRed

Eclectic12 said:


> The disconnect I see if when people learn it for the first time, they think it is incredibly difficult (it's simple math) and takes buckets of time to do (others with multiple ETFs post that they figure a conservative estimate is thirty minutes a year).


Keeping track of each DRIP'd stock is a heck of a lot more work (at least 4 times in most cases) than the once a year check for an ETF re-invested capital distribution ACB adjustment or the once a year ROC ACB adjustment. In the time between Xmas and New Years, I check for re-invested capital distributions from BMO, Blackrock and Vanguard (many to most are zero) and make the adjustments for half a dozen ETFs. Come March, I take the ROC off the brokerage T3 Annual Income Summary and make those adjustments. Thirty minutes a year is probably generous!


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## james4beach

An update on my 5-pack. I looked at the performance since I started about 5 years ago. This is a large chunk (58%) of my Canadian equity holdings, and I *also* hold XIU as described above in post #312

Annualized returns, total return including dividends
My 5-pack performance has been 10.3%
In comparison, XIU performed at 10.7%

I will continue to hold the 5-pack in my non reg. The performance of these two are virtually identical and I have seen them taking turns beating each other. Virtually the same.

Though I don't care about dividends myself, the dividend yield is also quite high:
4.2% yield on the 5-pack
2.5% yield on XIU

That could be a pretty sweet deal for a dividend investor. You're getting the same performance as the TSX benchmark with 70% more dividends! That's actually a better deal than many of the dividend ETFs, where you get high yield but then underperform the index. Here at least you are matching the index performance.

Many dividend stock pickers have trouble keeping up with the TSX index performance, so maybe this 5-pack approach is a method to consider.


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## Eclectic21

AltaRed said:


> Keeping track of each DRIP'd stock is a heck of a lot more work (at least 4 times in most cases) than the once a year check for an ETF re-invested capital distribution ACB adjustment or the once a year ROC ACB adjustment ...


Agreed that there's more transactions but is it really that more time consuming?

After all, it's getting some numbers from the monthly statement then plugging them into a tracking spreadsheet or web based ACB tracking system.




AltaRed said:


> ... In the time between Xmas and New Years, I check for re-invested capital distributions ... Come March, I take the ROC off the brokerage T3 Annual Income Summary and make those adjustments ...


That's two passes whereas for the DRIP'd stock, it's one and done for me. 




AltaRed said:


> ...Thirty minutes a year is probably generous!


Agreed ... that is my experience when updating an ETF, several REITS and several DRIP'd stocks ACB.
Though I tended to wait until April or later when I had an ETF in a taxable account so that all could be done in a single pass.

Cheers


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## hfp75

This year I switched to the 5-pack in all accounts that have large holdings. I'm using RY, FTS, CNR, ENB & T - so far so good. No problems. I have 1 small account and I'm using ZLB as a proxy until its worth splitting up.

I have avoided investing in my cash account as I am a US citizen and reporting is such a PITA. BUT, if my understanding is right, the Canadian 5-Pack is US reporting friendly..... with respectable performance. 

I contemplated a REIT but I hear that they can be a PITA for US Expats..... good thing the 5-pack doesn't need a REIT !!!


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## james4beach

hfp75 said:


> I have avoided investing in my cash account as I am a US citizen and reporting is such a PITA. BUT, if my understanding is right, the Canadian 5-Pack is US reporting friendly..... with respectable performance.


This is actually a big reason I started doing this myself as well. Canadian ETFs are PFICs and have some unpleasant reporting requirements. So that's why I couldn't use XIU or XIC (in non registered).

As I understand it, the individual Canadian stocks don't have PFIC requirements. And you're right, REITs can be PFICs as well, so should be avoided.


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## hfp75

Later this year I will start building my cash/margin acct holdings up. I'll keep it a 5-pack until I hit ~$35,000 and then start a 10-pack - just to diversify. Goal is simple. for my 'stable portion' I might just run a GIC ladder &/or a small 3-6 yr bond port - I have never bought bonds before individually, but it cant be that hard. This plan will see me with no exposure outside Canada for that one account - Oh well. Also, it is my understanding that I can use my Canadian brokerage to buy US (NYSE) based funds. NO MF as I am not a US resident but I could buy SPY (NYSE USD) and leave it at that. Need to check the reporting requirements on that scenario.... but I think it should work.... I also need to check if my US divs from SPY would be withheld..... 


So much to do with so little time.


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## like_to_retire

hfp75 said:


> I'll keep it a 5-pack until I hit ~$35,000 and then start a 10-pack - just to diversify.


Smart, because the "5-Pack" is a disaster waiting to happen in my opinion. You need a minimum of 2 stocks per sector, and really should be 3 stocks to represent any sector, so that a single failure doesn't cause a huge problem.

Think of it. Each stock in a 5 pack represents 20%. Full stop. We don't need to go any further. The 5-Pack could be used for "walking around money", but shouldn't be seriously considered for anything else.

ltr


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## Eder

I've run my daughters 6 pack for years now....its 6 figures with a CAGR over that period of ~21%. Concentrated on the best in class on TSX will produce outsized returns if your horizon is appropriate.
Don't buy individual bonds...the juice will negate the returns. Don't buy a bond ETF...same reason.
Better to get an EQ account and buy a GIC there at least it matches Canada's imaginary inflation rate.


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## james4beach

like_to_retire said:


> Think of it. Each stock in a 5 pack represents 20%. Full stop. We don't need to go any further. The 5-Pack could be used for "walking around money", but shouldn't be seriously considered for anything else.


It can't be the whole portfolio. I would never put all my equity in the 5-pack. I have mentioned it before way back on the first page of this thread from five years ago: I have many other equities in addition to my 5-pack.

Each position in my 5-pack is about 6% of my overall equities and only 2% of my total investments.

So that's how concentrated I am ... each position such as ENB is just 2% of my overall. Everyone has to watch out for their concentrations and diversifications.


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## scorpion_ca

Eder said:


> I've run my daughters 6 pack for years now....its 6 figures with a CAGR over that period of ~21%. Concentrated on the best in class on TSX will produce outsized returns if your horizon is appropriate.


Would you mind to share the name of stocks in her 6 pack?


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## Eder

Atm she has Royal Bank,CNR,BCE,PBH,TRP, Brookfield Renewable Partners along some BEPC due to that split awhile ago.Hope no one takes any of these as a recommendation.


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## james4beach

Here's the YTD performance:

5 pack: +22.1%
XIU: +22.8%



like_to_retire said:


> Smart, because the "5-Pack" is a disaster waiting to happen in my opinion


I disagree about disaster waiting to happen. These are the largest weights in the TSX and they tend to be a stable bunch. In my historical back test, the worst disaster was Bombardier crashing 94% in 2001/2002... a total wipeout. But the 5-pack actually _outperformed_ the TSX in those years, thanks to its good sector diversification.

What you're missing is that if one of the top TSX holdings (like Bombardier in 2001) gets wiped out, then the TSX is in crisis and the whole thing is crashing. When the whole market is in crash mode, the largest caps are still more stable than the rest of the market. Add the equal sector weighting and you gain even more stability. The same was true during the 2020 crash, when my 5-pack didn't fall as much as the broad market.

So I don't lose any sleep over this. If the method was able to handle Bombardier crashing 94%, it's probably going to be OK.

Everyone should do their own research and come to their own conclusions though. I'm just saying that I'm comfortable with it.


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## james4beach

*Full year 2021* performance for my 5-pack (RY, ENB, CNR, BCE, FTS)

5 pack: 25.1%
XIU: 27.9%

That's a bit of underperformance versus my benchmark XIU but the performance is actually identical to XIC which was 25% as well. So the 5-pack continues to perform on par with the TSX. I did a bit of rebalancing on my positions and got them back to equal weights across the 5 stocks.


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## Covariance

james4beach said:


> *Full year 2021* performance for my 5-pack (RY, ENB, CNR, BCE, FTS)
> 
> 5 pack: 25.1%
> XIU: 27.9%
> 
> That's a bit of underperformance versus my benchmark XIU but the performance is actually identical to XIC which was 25% as well. So the 5-pack continues to perform on par with the TSX. I did a bit of rebalancing on my positions and got them back to equal weights across the 5 stocks.


Looks good James. As a matter of interest do you systematically consider the 5 components or is this more of a permanent, set and rebalance type strategy?


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## james4beach

Covariance said:


> Looks good James. As a matter of interest do you systematically consider the 5 components or is this more of a permanent, set and rebalance type strategy?


Thanks! I should add that it skews to the largest caps in Canada, by design.

Yes it's fully systematic and comes straight from the TSX 60 composition. The entire procedure is described in post #190 of this thread, linked below. This results in very low turnover, so positions are mostly long term, but there is a provision there to kick out a failing stock.

In this post you can also see the historical 5 pack composition. I think you will see that it was always a sensible looking collection of top TSX stocks. For example in 2005 it would have held: ECA, RY, CNR, BCE, TA









"5 Pack Approach"


I personally don't like the idea of clinging to a stock once XIU says otherwise. It's definitely a matter of personal taste, but I'm in the camp of mirroring XIU (passive indexing) rather than diverging the portfolio from it. Already in this methodology, even with the occasional swapping or...




www.canadianmoneyforum.com


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## Covariance

james4beach said:


> Thanks! I should add that it skews to the largest caps in Canada, by design.
> 
> Yes it's fully systematic and comes straight from the TSX 60 composition. The entire procedure is described in post #190 of this thread, linked below. This results in very low turnover, so positions are mostly long term, but there is a provision there to kick out a failing stock.
> 
> In this post you can also see the historical 5 pack composition. I think you will see that it was always a sensible looking collection of top TSX stocks. For example in 2005 it would have held: ECA, RY, CNR, BCE, TA
> 
> 
> 
> 
> 
> 
> 
> 
> 
> "5 Pack Approach"
> 
> 
> I personally don't like the idea of clinging to a stock once XIU says otherwise. It's definitely a matter of personal taste, but I'm in the camp of mirroring XIU (passive indexing) rather than diverging the portfolio from it. Already in this methodology, even with the occasional swapping or...
> 
> 
> 
> 
> www.canadianmoneyforum.com


Thanks James appreciate the link to the detail. Most interesting.


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## MrBlackhill

@Covariance Other documented strategies to beat the TSX are

1) BTSX (Beat the TSX, basically the Canadian "dogs of the Dow")

Sort the TSX 60 by dividend yield
Pick the top 10 highest dividend yields
Repeat every year






Beating the TSX - finiki, the Canadian financial wiki







www.finiki.org





2) The 2-minute portfolio, which is similar to this 5-pack approach, but instead it picks the top 2 in each of the 11 subgroups.









The simple stock-picking strategy that beats the TSX long term by playing good defence


It’s time to make changes to the Two-Minute Portfolio




www.theglobeandmail.com


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## Covariance

MrBlackhill said:


> @Covariance Other documented strategies to beat the TSX are
> 
> 1) BTSX (Beat the TSX, basically the Canadian "dogs of the Dow")
> 
> Sort the TSX 60 by dividend yield
> Pick the top 10 highest dividend yields
> Repeat every year
> 
> 
> 
> 
> 
> 
> Beating the TSX - finiki, the Canadian financial wiki
> 
> 
> 
> 
> 
> 
> 
> www.finiki.org
> 
> 
> 
> 
> 
> 2) The 2-minute portfolio, which is similar to this 5-pack approach, but instead it picks the top 2 in each of the 11 subgroups.
> 
> http://[URL]https://www.theglobeand...king-strategy-that-beats-the-tsx-long-term-by/[/URL]


Mr Blackwell; Thanks for this. In this case I'm intrigued with James portfolio for one of my projects which has a slightly different objective. From time to time I add market/beta exposure to use excess cash that's built up. As cash is zero beta it's a drag on performance so with a trade or two I put it work until I invest in a target name, or go risk off. Since late last year I switched to a 50/50 SPY/TSX for beta with the Canadian component meant to increase cyclical/commodity exposure. It's not really ideal because of the tech exposure that comes with the TSX. So, I've been assembling a carve out module. Hope this makes sense.


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## james4beach

Covariance said:


> It's not really ideal because of the tech exposure that comes with the TSX. So, I've been assembling a carve out module. Hope this makes sense.


Interesting concept. Well as you may have detected, I hand picked the TSX sectors I like, and didn't include tech. The main reason is that Canada does not have a mature enough tech sector to provide well established, mature or rock-solid tech companies.

At times I've asked myself if I made a mistake by excluding tech, but I think it was the right move. Look at how SHOP sticks out in the TSX as a single, abnormally high weight. I'm glad that I'm excluding it.


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## hfp75

Who won the tortoise or the hair ?


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## Covariance

hfp75 said:


> Who won the tortoise or the hair ?


The hare.


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## james4beach

Since the TSX peak of November 15,
XIU is down 3.3%... possibly due to the heavy position in SHOP which alone is down 43% at this point

Meanwhile my 5-pack over the same period is up 2%. It's definitely faring better during this market volatility. In the past two months, we seem to be seeing a rotation out of the "get rich quick" stocks. If things continue like this, my 5-pack should outperform the TSX this year.


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## james4beach

Crazy times in markets, but the Canadian stock market is holding up very nicely so far and the 5-pack is beating the market.

*YTD:* the 5-pack is +3.3%, vs XIU -0.3%
*1 year:* the 5-pack is +27.5%, vs XIU +22.5%

This outperformance may be happening because there's no tech in the 5-pack. And I like this stability during the market turmoil.

I have about 120K in my 5-pack.


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## james4beach

My 5-pack is still holding up better than the TSX index. Though, we should keep in mind that the whole TSX index has held up quite well this year and isn't crashing like American and European stocks.

This year so far (YTD), XIU down -1.7% while the 5 pack is up +4.6%


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## MrBlackhill

My favorite 6-pack doesn't seem to be afraid of anything.

Up +6.48% YTD.






Backtest Portfolio Asset Allocation


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



www.portfoliovisualizer.com


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## james4beach

MrBlackhill said:


> My favorite 6-pack doesn't seem to be afraid of anything.


Nice selection based on technical strength. Are you invested in this?

Here are YTD figures for the underlying stocks in your 6-pack, as of today's close.
MKP +6.6%
CNR -8.7%
FTS +4.0%
MRU +3.5%
PKI +12.0%
CGY +7.6%


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## MrBlackhill

james4beach said:


> Are you invested in this?


I'm trying to do better than this, with other stocks. So far it's a fail, haha... obviously!

I hold MKP.TO though. Not sure if the performance online calculator tools take into account the 5 free shares I've got recently for every 100 shares I held. (I know, "free" is not the right word, nothing's free)

My YTD performance on MKP is actually +15%.


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## james4beach

MKP looks like a nice one.

I'll post an update on my 5-pack too (RY, ENB, CNR, BCE, FTS). Year to date, as of today, the total return is +3.5% which is outperforming my benchmark XIU -3.9%

Outperforming by a lot this year, not too surprising as these are TSX heavy weights and it's reasonable to see some 'reversion to the mean' over multiple years. These 5 stocks were underperforming previously during the growth stock mania. I have about 100K invested in this 5-pack.

Let's also keep in mind that global (XAW) stocks are -16.1% so far this year. So experiencing +3.5% in my 5-pack feels really good in comparison. Even XIU is really doing great, in the big picture.


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## james4beach

I think things are gonna "get real" through the rest of this year. My 5-pack is holding up reasonably well so far

Year To Date performance
5-pack total return: +2.1%
XIU benchmark: -6.2%

I've got 110k invested in this. Good luck to us all... I think we're going to need it.


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## Franky Jr

Survey:
Are most doing a 5 pack or a more advanced version via a 6 or 12 pack (adding a reit or two)?


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## Thal81

I have a strong dislike for the 5-6-12 pack portfolios. People claim that if you do it you'll beat the TSX. Well duh! You're litterally cherry picking the winners in their respective sector for the last 10-20 years, so of course you beat the TSX in your backward looking simulation!

Now, if you hop in your time machine and go back to 20 years ago, would you have picked the same companies?


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## londoncalling

I know of several posters here that have been doing so for over a decade (not me). The whole point of the pack portfolio is to not own a lot of names and none of the laggards of the market. One forgets that when you buy a vanilla etf you own all the market. The winners and the losers. Those who follow the model find it easy to incorporate and easy to monitor. I find it to be more concentrated than I would prefer but most pack portfolios have done better than my DIY portfolio and most indexers. 

Argo's 5 pack goes back to 2012 and was posted in real time without the benefit of time travel.

Argo's Five Pack | Canadian Money Forum


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