# Canada's most stable stocks?



## james4beach (Nov 15, 2012)

I was looking through my portfolio today to see which stocks were holding up. There seem to be a few that have a good history of holding up: Metro, Enbridge, Fortis, BCE

@MrBlackhill

Take a look at the historical performance of: MRU, ENB, FTS, BCE

Very strong performance since 1996, with pretty much the lowest volatility you can get. That portfolio is pretty similar to my own 5-pack, and it also was reasonably stable through the 2020 crash.

This group of stocks also beats the pants off the S&P 500 over a quarter century.


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## Ponderling (Mar 1, 2013)

My criteria for get affluent slowly is to read the Sat GAM and hope to not see my holdings in the top gainers or top loosers for the week, and only sometimes hit volume list if it is a bank or insurance co holding.


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## agent99 (Sep 11, 2013)

I wouldn't count on those 4 stocks continuing to perform long term. I recall when Loblaws was a darling of the tsx. But then it ran into problems and stock dropped 50%. Same could happen to Metro. Enbridge has an aging pipeline network. One or two bad spills and they could be hit hard. BCE & Fortis may be OK. Owning just 4 or 5 stocks is not a good plan. Need at least 2 or 3 times as many to get decent diversification.


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## Covariance (Oct 20, 2020)

james4beach said:


> I was looking through my portfolio today to see which stocks were holding up. There seem to be a few that have a good history of holding up: Metro, Enbridge, Fortis, BCE
> 
> @MrBlackhill
> 
> ...


All of these stocks have a sharpe ratio less than 1 if I read the info on link correctly? The portfolio only gets there because of the low correlation, covariance among these assets.


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## james4beach (Nov 15, 2012)

Covariance said:


> All of these stocks have a sharpe ratio less than 1 if I read the info on link correctly? The portfolio only gets there because of the low correlation, covariance among these assets.


Well the portfolio's sharpe and sortino ratios are off the charts. So I guess the question is whether you think the relative relationship between those stocks can hold.

Metro is consumer staples, Enbridge is pipeline and energy, Fortis is a utility, BCE is a utility-like telecom. They are distinct sectors with different forces at play, so I think it's plausible that the portfolio may continue to have a great sortino ratio.



agent99 said:


> I wouldn't count on those 4 stocks continuing to perform long term. I recall when Loblaws was a darling of the tsx. But then it ran into problems and stock dropped 50%. Same could happen to Metro. Enbridge has an aging pipeline network. One or two bad spills and they could be hit hard. BCE & Fortis may be OK. Owning just 4 or 5 stocks is not a good plan. Need at least 2 or 3 times as many to get decent diversification.


Yeah, one should expand the portfolio further for a more reliable outcome.


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## Covariance (Oct 20, 2020)

james4beach said:


> Well the portfolio's sharpe and sortino ratios are off the charts. So I guess the question is whether you think the relative relationship between those stocks can hold.


Quite right. A selection of other assets with better individual characteristics can offer an even better portfolio. Again, as long as they are uncorrelated.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> I was looking through my portfolio today to see which stocks were holding up. There seem to be a few that have a good history of holding up: Metro, Enbridge, Fortis, BCE
> 
> @MrBlackhill
> 
> ...


In hindsight, I've noted that this small portfolio has had an incredible synergy. How long can this still hold in the future? No clue.

As for individual stocks, FTS, MRU, MKP (div reinvested), CNR, TIH, NWC and certainly a few others that I've noted somewhere.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> In hindsight, I've noted that this small portfolio has had an incredible synergy. How long can this still hold in the future? No clue.
> 
> As for individual stocks, FTS, MRU, MKP (div reinvested), CNR, TIH, NWC and certainly a few others that I've noted somewhere.


Both of those results are pretty incredible. I think if you can look at the fundamentals and have reason to expect them to continue to behave differently (perhaps their business areas are completely different) then I think there's something to it.

Everything we do in markets is, after all, hindsight data analysis. Even factor investing (which now has a huge academic following) is the same.

The tricky part is distinguishing the flukes from the reliable or repeatable patterns. My own approach to this is that once I was convinced enough in my back-tests, I started some experimental portfolios with real money. Put some real $ in it and try it out for a few years, and then you'll see if there's anything to it.


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## Covariance (Oct 20, 2020)

Drop CSU.TO and BYD.TO into the mix and see what happens


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## MrBlackhill (Jun 10, 2020)

Covariance said:


> Drop CSU.TO and BYD.TO into the mix and see what happens


Yes, but to temper down the hindsight of such observations, I use only stocks that have data before the dot-com bubble, so that it went through both the 2000 and 2008 crashes. BYD has had an amazing run during the bull decade of the 2010s, but it started with a huge drawdown in 2006. I've been holding BYD recently but decided to sell it recently.

CSU also has had an amazing run during the bull decade of the 2010s, and it even started in 2007 without being too affected. I sold half of my position recently, but couldn't get myself to liquidate it even though it's my most expensive holding.


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## OneSeat (Apr 15, 2020)

james4beach said:


> Everything we do in markets is, after all, hindsight data analysis. Even *factor investing* (which now has a huge academic following) is the same.


I'd heard of *factor investing* but didn't really know what it was - so looked it up. BlackRock exlains it very well and also offers several low cost ETfs covering the US market with different Factors. Looks fascinating for academics but from a practical point of view I noted the following - 
- over the 13 years they have been available all except one have under-performed the much lower cost total market ETFs
- the one exception was the QUAL etf (a growth etf) and it in turn under-performed the much lower cost growth ETFs
- in both cases with similar volatility.

Academic investigations can have worthwhile practical outcomes but I don't think this one will in the near future 🥺

Maybe you can apply it to TSX stocks and outdo BlackRock 🌝


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## james4beach (Nov 15, 2012)

OneSeat said:


> Academic investigations can have worthwhile practical outcomes but I don't think this one will in the near future 🥺
> 
> Maybe you can apply it to TSX stocks and outdo BlackRock 🌝


I (perhaps mistakenly) referred @MrBlackhill to another forum, called The Rational Reminder, where people are obsessed with factor investing.

If you read that you'll see that it has a cult-like following, spearheaded by a couple people at PWL Capital, who are disciples of Fama and French and seem to have little interest in anything else.

There apparently is a rather large group of people who are gaga about this heavily data mined "factor investing" stuff based on Fama's work. There are indeed some ETFs to get factor exposure. Is it worth doing? Well... even their own research shows that you might have to *wait 20 to 25 years to find out* if you've outperformed the market.

And after waiting a quarter century, even if you do outperform, the estimates are that the performance benefit may be roughly 1% CAGR, and probably less. This is assuming that the factors actually persist in the first place!

Factor investors think they're very smart though, and are very smug. I think they were quite unfriendly to @MrBlackhill . And goes to show that you can have an entire academic field of study dedicated to this stuff, tons of publications, which in the end produces an interesting... but still highly questionable theory.

As you said @OneSeat , basically no practical outcome. Or if I were to be more generous: practical, but with huge uncertainty.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> I think they were quite rude to @MrBlackhill


Yeah, there's a bit too many young people on that forum, fresh out of school or currently working on a PhD. And many just don't have any social skills, they just talk stats. Feels odd that I'm myself saying that because I like stats and I'm an engineer, but they are next-level. If you haven't read the fifteen 50-page academic papers that they've read, and if you haven't listened to the 168 podcast episodes of 1h30 each, then you're not in. You can't ask some questions. But there's some interesting information which can be found, and some are polite (the few who are in their 50s).

That being said, I believe in the outperformance of some factors like the Small Cap Value stocks, but it should be much more nuanced. An lump-sum investment in Small Cap Value stocks 20 years ago didn't even beat the market and it was much more of a wild ride. The only reason I'm shifting towards Small Cap Value stocks is just because of a personal belief - that growth is getting too much overvalued. And that's just me... timing the market...


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## OneSeat (Apr 15, 2020)

I went to a college reunion few years ago - only about 12 of us from US/Canada (I must have donated too much the previous year) - had a short lecture from a contemporary who had spent 40 years researching the mathematics of knots - lost me after 2 minutes - so I asked him what the practical applications were - "Well we actually haven't found any yet" !!!!!


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## Covariance (Oct 20, 2020)

MrBlackhill said:


> Yes, but to temper down the hindsight of such observations, I use only stocks that have data before the dot-com bubble, so that it went through both the 2000 and 2008 crashes. BYD has had an amazing run during the bull decade of the 2010s, but it started with a huge drawdown in 2006. I've been holding BYD recently but decided to sell it recently.
> 
> CSU also has had an amazing run during the bull decade of the 2010s, and it even started in 2007 without being too affected. I sold half of my position recently, but couldn't get myself to liquidate it even though it's my most expensive holding.


Understand. Last couple of days have been hectic and in retrospect my comments are not as thoughtful and constructive as I would have liked here. A while back I did a lot of work on strategies that generate low drawdowns so let me elaborate on where I was coming from in my comments up thread. It's an area of interest with a goal that is easy to get excited about so it was worth the effort. Without getting all bogged down in theory, math, or sharpe ratios there are a couple of key take aways. A good summary is to say that security selection is critical as is an acceptance that like any active strategy one needs to have a well thought through point of view (forecast) of the future. That's one key take away. It's a forecast. Based on solid historical data, but in the end we are forecasting. The second take away was it's hard to get around to implementing the strategies that (probably) work. Quite simply if one is going to do all the work on security selection, capital market expectations, why not just invest in the securities with the best risk / return opportunity in the expected market conditions? it's difficult to implement a strategy that returns less even if it offers compelling protection against loss over long time spans. Hope that helps to see where I'm coming from on this topic.


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## londoncalling (Sep 17, 2011)

james4beach said:


> I (perhaps mistakenly) referred @MrBlackhill to another forum, called The Rational Reminder, where people are obsessed with factor investing.


One of the trusts I sit on has a portion of equity allocated to Factor Investing. I have a general understanding of it and know the metrics this fund's manager uses for our investments. I would be interested in seeing what else is there. The Rational Reminder is a closed group. I would like to expand my resources and opinions but would need an invite. If any one can assist please send me a private message.


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## james4beach (Nov 15, 2012)

londoncalling said:


> One of the trusts I sit on has a portion of equity allocated to Factor Investing. I have a general understanding of it and know the metrics this fund's manager uses for our investments. I would be interested in seeing what else is there. The Rational Reminder is a closed group. I would like to expand my resources and opinions but would need an invite. If any one can assist please send me a private message.


I didn't realize they closed the group to new members. Weird.

But I can give you a couple tips as well. There's nothing wrong with factor investing, but the tricky part is verifying that the funds you choose are performing as expected (capturing the factors they are aiming to capture). Not every manager who claims to do "factor investing" is going to succeed at it.

You can benchmark them against some of the popular factor ETFs such as
VTV - the Vanguard value ETF
IJS - iShares small cap value ETF
AVUV - a newer entrant, very popular at Rational Reminder, but limited history

One of the tricky things about factor investing (the part I really don't like) is that it's pretty open to interpretation, so different funds will do this differently. At times one factor ETF will outperform, then another one will.

If in doubt, you can always just hold IJS or VTV


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## MrBlackhill (Jun 10, 2020)

londoncalling said:


> I would be interested in seeing what else is there.


Read "Your complete guide to factor-based investing" by Larry Swedroe.

All this started with Eugene Fama who was awarded the Nobel Prize in Economics for his work. He is known for the Efficient Market Hypothesis and, most importantly, his work with Kenneth French on the three-factor model. Since then, he added two more factors for a total of five. Since then, academics have also been trying to identify other factors, and have proposed hundreds of them. Throughout all this euphoria about factors, Larry Swedroe proposed five key characteristics of a real factor that we can trust: persistent (holds across long periods), pervasive (shows up in different countries and sectors), robust (holds for various definitions), investable (can be implemented in the real world and survives trading cost), and intuitive (there are risk-based or behaviour-based explanations for its existence).

The best implementation has been made by Dimensional Fund Advisor. You can see the performance of a few of their funds focused on size and value.

And now Avantis offers a few ETFs related to that same methodology because Avantis has been created by DFA ex-employees. Those ETFs are AVUV, AVDV & AVES, which are expected to be Avantis' ETF copies of DFA's funds DFSVX, DISVX, DFEVX. I'd have to investigate why wouldn't we simply want to buy DFA products directly as they have ETFs now like DFAT which is backed by DFFVX's track record. Anyways.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> The best implementation has been made by Dimensional Fund Advisor


Well that's debatable. Dimensional has a powerful marketing division, and PWL Capital (who runs Rational Reminder) heavily endorses their funds. Dimensional also throws around their connections to Fama, who sat on their board.

But I'm not convinced that Dimensional is any better than low fee indexing. Take a look at this rolling return comparison of DFSVX (Dimensional's flag ship fund) versus IJS.

As you can see here, their performance is virtually identical. At times, one outperforms, and then the other outperforms. They are virtually indistinguishable.

The implication here @londoncalling is that if you're going to do factor investing, there's no reason to get too fancy, or pay high fees. There are some very low fee factor ETFs -- like *IJS* -- which are great candidates.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> there's no reason to get too fancy, or pay high fees. There are some very low fee factor ETFs -- like *IJS* -- which are great candidates.


Yeah, well, if you don't want to pay fees then go for VBR. But otherwise you'd look for the ETF with the best factor loadings. Yet, even though the higher the loading on a factor, the better, we don't know what's the best combination of multiple factor loadings. So I agree with you about the issue of paying higher fees which may not be worth it.

What people on that Rational Reminder community don't get, is that the outperformance is very implementation-dependant, as you said @james4beach . So they are just basically trying to buy the ETF with the best implementation. That's a form of active management anyways. What they also don't get is that we don't know how to properly combine those factors. Each factor is very good at explaining the outperformance, but how to properly combine them is another game. And lastly, it all comes down to the basic concept that if you take on more risk, you should get higher returns... But that's true only on the long run, because the more risk you take, the longer your investing horizon should be. They don't get that they are actually timing the market (as I am!) because Small Cap Value has been a poor performer for over 15 years (when I said you need a long horizon!) and now SCV is _expected_ to bounce back. Or at the very least any value stock because every other stock in the US is greatly overvalued relative to those value stocks.

About taking risk for higher expected returns... Invest in small caps, or better, micro caps... Invest in value stocks... Invest in emerging market... etc...

But be careful! Be careful with the synergy between those factors, because for instance if you buy small caps (positive loading on size factor), but growth (negative loading on value factor), then that combination Small Cap Growth actually leads to the worst expected returns! And that expected outperformance should work out only if you hold many stocks with the same factor characteristics, but diversified.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> Take a look at this rolling return comparison of DFSVX (Dimensional's flag ship fund) versus IJS.
> 
> As you can see here, their performance is virtually identical. At times, one outperforms, and then the other outperforms. They are virtually indistinguishable.
> 
> The implication here @londoncalling is that if you're going to do factor investing, there's no reason to get too fancy, or pay high fees. There are some very low fee factor ETFs -- like *IJS* -- which are great candidates.


Just a note here. The performance is very similar, but explained by their factor loadings. DFSVX is doing a better job at capturing Small Cap Value than IJS. That's why we see that DFSVX was slightly better than IJS right after the dot-com bubble when people moved out of growth stocks to buy some value stocks. But then in the 2010s people started trusting growth again so DFSVX underperformed IJS because DFSVX is doing a better job at capturing Small Cap Value than IJS and this time it played against DFSVX. Now, if we believe that the market is overvalued, that growth stocks are getting too expensive, that a bubble is forming, then DFSVX should outperform IJS in the next 5-10 years.

That's why I say that my moving towards Small Cap Value stocks is timing the market. I have the personal belief that there's cycles from value to growth and back to value and so on. I believe it's simply behavior-driven, but the people on Rational Reminder don't like it when I talk about behavioral finance.


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## james4beach (Nov 15, 2012)

londoncalling said:


> The Rational Reminder is a closed group


I looked into this and although there's some kind of warning on the sign up page, it seems to be open to everyone.

They do manually approve new signups though. But I still think you can just enter your details and sign up for an account. Send me a private message after you create an account, I can contact their admins and tell them you're trying to join.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> I looked into this and although there's some kind of warning on the sign up page, it seems to be open to everyone.
> 
> They do manually approve new signups though. But I still think you can just enter your details and sign up for an account. Send me a private message after you create an account, I can contact their admins and tell them you're trying to join.


About 10 days ago, in a private chat with Benjamin Felix, he told me this "_Not long after you joined we stopped taking new users (nothing to do with you) to throttle the growth of the community._"

(The community is 1-year old and has now over 5000 members)


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## londoncalling (Sep 17, 2011)

Thanks all. @james4beach I will send you a pm when I sign up this weekend. I have some things to take care of this evening and don't need to be tempted with a new distraction.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> About 10 days ago, in a private chat with Benjamin Felix, he told me this "_Not long after you joined we stopped taking new users (nothing to do with you) to throttle the growth of the community._


As Ben would say: fascinating.


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