![]() | |||||||
![]() Copyright © 2022 Gal^Stad Investments Inc. |
![]() |
The Ottawa Citizen November 9, 2003 One year later, the results are in Three investment advisers with very different strategies show how their model portfolios weathered the bear market It was 12 months ago that the Citizen set loose three investment
advisers armed with $50,000 (on paper) to invest as they saw fit in model
portfolios of their choosing. They began in a bear market at a time when
many investors were holding on to cash and sticking with fixed-income
investments. We purposely chose advisers with markedly different approaches in their
investment philosophies. The three -- Joanne Livingston of Scotia McLeod,
Noral Rebin of CIBC Wood Gundy, and Benj Gallander of Contra the Heard --
realized they were at the mercy of the markets' whims with only their
professional judgment as protection. Ms. Livingston is a devotee of asset allocation, which involves setting
fixed percentages for her holdings and applying this as some stocks
improve and others weaken. She drew up her portfolio for a working couple,
aged 48, who are saving to supplement their retirement. Mr. Rebin opted for a middle-of-the road, conservative portfolio with
emphasis on producing income, growth and limited risk. "My portfolio will not be aggressive or ultra-conservative," he said at
the time. "It will be an average, middle-of-the-road portfolio, designed
to generate reasonable returns in a reasonable time frame." Mr. Gallander, author of Canada's most successful financial newsletter,
is the ultimate contrarian. He scours the markets for beaten-down companies in out-of-favour
sectors, where there is a strong balance sheet and good management in the
belief that come a turnaround there's a minimum 50 percent upside for a
canny investor. He has been plying this approach for 25 years with tremendous
success. "I have a very disciplined approach and I like companies that have been
around for at least 10 years, companies that have a track record,'' he
says. "The only way you can forecast where a company is going is to see
where it's been.'' So, how did our experts fare? While the figures speak for themselves,
there is not a one-investment style that fits all. Each investor must
adopt an approach suits that his or her financial situation. The S&P/TSX composite index rose 24.38 percent over the past 12
months, with the S&P 500 up 18.6 percent and the Dow Industrials up
16.72 percent. Mr. Gallander was the only one who managed to beat those
numbers with an increase of 44.75 percent. Mr. Gallander's portfolio also led the way in October, increasing 10.43 percent ($6,837) to bring his four-month rally to 58.5 percent
($26,713). Mr. Rebin's investments rose 3.76 percent and Ms. Livingston's
3.68 percent last month. Mr. Rebin chalked up an annual jump of 14.14 percent and Ms. Livingston, 11.30 percent. Within the portfolios the most inexpensive stock is Kelman Technologies
(65 cents) and the most expensive is Loblaw Inc. ($63.85). That provides
something for all readers from the ultra-conservative to the
risk-tolerant. Assuredly with $12,500 in cash, it will be worth watching Mr.
Gallander's investments in the next few months and the strategies of Ms.
Livingston and Mr. Rebin. Joanne Livingston We set out to generate an average annual rate of return of eight percent for our fictitious 40something couple. We considered current interest
rates, investment environment and came up with a mix that would provide
the best opportunity with the lowest level of risk. Setting a target is an important step toward achieving financial goals.
If you have no way to measure, how will you know if you are on track to
achieving the initial goals? So while it may seem risky to put ourselves
on the line, it is imperative that we set the expectation and make the
ongoing changes required to meet that goal. So, to be here 12 months later with a yearend return of 11.3 percent
is heartening. Any time one can beat the forecast is cause for
celebration! Could we have increased our returns? Certainly, but that wasn't the
objective. Had the investor been a 30-year-old single male, with no
dependents, the portfolio would have been quite different. As it is, we exceeded the target by 41 percent without increasing the
risk to our client. We will continue to recommend an asset allocation model to ensure that
the couple continues to sell high and buy low. Of note was the significant
increase in the Canadian dollar over the last 12 months, which masked the
performance of all U.S. and international equities. At the start of the
year we invested at an exchange rate of 1.565 percent vs. current value
of 1.32 percent. This might not appear significant, but it cost those
equities 15.65 percent in returns! Swings in exchange rates are something
we have to live with, and to try to forecast where the Canadian dollar is
headed, vis-a-vis the U.S. dollar, is not unlike crystal ball gazing. So, we would not alter our model to exclude U.S. or international
companies on that basis. Investment outside of Canada provides the
long-term risk management that is required to ensure the continued success
of our model portfolio. All through the year we remained true to our
policy of selling the early profits from bonds to purchase stocks at lower
values. Our dividends were reinvested as they came due. We believe our
strategy provides a low risk way for the average investor to achieve solid
results for the long term. Let's see what Year 2 brings! Noral Rebin As I suggested when we first started this process 12 months ago, I
designed a middle-of-the-road conservative portfolio that the average
investor could understand, implement, maintain and sleep well with. The
portfolio was designed to generate reasonable returns in a reasonable time
frame. The total return was 14.14 percent. The three criteria I laid out last November were safety of principal, a
little growth and some income. So how have we done during this last year? Our investments rose 10.1 percent, which is good for a conservative portfolio. Dividends
contributed $2,028.20, which represents 4.1 percent, almost exactly what
a five-year guaranteed investment certificate (GIC) pays, but with better
taxation than interest income. So what about safety of principal? In the worst month, we were down about 4.2 percent from our original
purchase in an up-and-down year on the market, and that shows a strong
degree of stability. The reader may judge the results based upon the
criteria that we laid out. I feel good that we were able to provide a
clean, simple and conservative portfolio as part of this process. All
three portfolios have a different approach and flavour and, as I stated,
when we started there is no single right way to invest but we have
provided the readers the opportunity to see the risks and benefits of
three divergent styles. This should allow people to examine and learn so that they can begin to
choose that path that is right for them. Going forward, I will continue to follow the same investment course to
ensure a high degree of stability and to exclude volatility, the purpose
of a conservative portfolio. Benj Gallander I'm exceedingly pleased with the results, that's for sure. Our
investment letter has a 10-year annualized return of 25.2 percent and
this is obviously that much better. When you have a smaller portfolio
there is always the possibility of greater latitude in the returns, and
that's what happened here. We've owned eight stocks over the course of the year and we had just
the one loser, Stelco. Otherwise everything else has been up, which is
tremendous. We invested in companies and sectors that were out of favour, which is
typical of what I do: buying into Japan and the airline sector and copper
(Corriente Resources) and retail with Hudson's Bay Co., a lot of people
thought that was not the thing to do. But that's the methodology I use to
buy into sectors and corporations that are out of favour and to look for
grand slam returns. And that's what I've had. A year ago, it was far easier than now. Then, there were a lot of
sectors that were out of favour; hardly anybody wanted to touch Japan or
the airlines, techs were out of favour, too, so I bought into Corel. At
this point in time, the stock markets have moved so much there aren't many
sectors that are really out of favour and a lot of stocks that I was
looking at, well, they've doubled and tripled, so it is definitely far
more difficult now than it was a year ago. But over time I always find that there are companies that are unloved
and that seem to have reasonable balance sheets and, hopefully, strong
management and from which I can get a good return on investment. We'll be doing that in the months ahead with the cash we have in hand
and, hopefully, producing some good investment advice and returns for your
readers.
|
![]() |
![]()
Bi-weekly Column The Contra Guys Contra Books Buys & Sells Takeovers Links Years in Review 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 Archived Commentaries October 2009 July 2009 April 2009 October 2008 July 2008 April 2008 January 2008 October 2007 July 2007 April 2007 January 2007 October 2006 July 2006 April 2006 January 2006 October 2005 July 2005 April 2005 January 2005 October 2004 July 2004 April 2004 January 2004 October 2003 July 2003 April 2003 January 2003 October 2002 July 2002 April 2002 January 2002 October 2001 July 2001 April 2001 January 2001 October 2000 July 2000 April 2000 January 2000 Investing Glossary Investing Rules |
|||
![]() |