Join Fund Library now and get free access to personalized features to help you manage your investments.
Being a buy-and-hold investor can be unnerving at times. Last March was an example. Stocks plummeted as the realization of the economic impact of the pandemic hit home. Many investors, even the most disciplined, lost their nerve and sold, driving prices down even more.
It’s understandable in one sense. We had never seen anything like the coronavirus in our lifetimes. No one knew what was going to happen or what the financial consequences would be. We were heading into uncharted waters.
As it turned out, stocks rallied quickly. It turned out to be the shortest bear market ever, as major North American indexes turned around and drove to record highs.
Those that held on emerged just fine. The rest are kicking themselves.
My Buy-and-Hold Portfolio, which I track in my Internet Wealth Builder newsletter, suffered a small loss at the start of the pandemic, but over the summer and fall of 2020, it fully recovered from that setback and went on to generate an impressive gain of more than 15%.
This portfolio was launched eight and a half years ago, in June 2012. It was designed for people who don’t want to do a lot of trading and waste money on commissions. We have one simple goal – invest in great stocks and then hold on to them, no matter what the market is doing. Over the long term, the strategy works. There are ups and downs, of course, as we saw in 2020. But the underlying thesis is that the long-term trend of the markets is up. If you own good stocks, they’ll move with it.
This portfolio consists mainly of blue-chip stocks that offer long-term growth potential. It also has a bond ETF holding. The original weighting was 10% for each stock, with the bond ETF starting with a 20% position. That has now been reduced because equity increases have outpaced the bond market.
I used several criteria to choose the stocks. These included a superior long-term growth profile, industry leadership, a good balance sheet, and relative strength in down markets.
The objective is to generate decent cash flow (all the stocks but one pay dividends), minimize downside potential, and provide slow but steady growth. The target rate of return was originally set at 8% annually.
These are the securities we hold with comments on how they performed since my last review in June 2020. Prices are as of the close of trading on Dec. 2, 2020.
iShares Canadian Universe Bond Index ETF (TSX: XBB). Bonds aren’t returning much these days, but they provide stability for a portfolio. The units were down $0.16 since the last review in late June. But we received five distributions totalling $0.353 per unit, so we ended the period slightly ahead.
BCE Inc. (TSX, NYSE: BCE). We did not see much price movement from BCE over the summer and fall. The shares were down $0.32 from the last review, but that was more than offset by a dividend of $0.833 (we only received one payment because of timing).
Brookfield Asset Management (TSX: BAM.A). After being hard-hit by the pandemic market slide in March, Brookfield rallied strongly in the latest period, gaining $8.12 per share. We also received two dividends of $0.12 a share each.
Canadian National Railway Co. (TSX: CNR). It was a strong summer and fall last year for CN. The share price rose by over $21 as the economy started to recover. We received one dividend payment of $0.575.
Enbridge Inc. (TSX: ENB). Enbridge shares are stuck in a tight trading range between $40 and $42 a share, and nothing seems to shake them out of there. But the attractive yield of 7.8% makes this a stock worth holding. We received two payments for a total of $1.62 per share during the latest period.
Toronto Dominion Bank (TSX: TD). Bank stocks were hard hit by the sharp drop in interest rates. But they are recovering well. As of Dec. 2, 2020, TD was up more than $10 a share since the last review and should do even better in 2021 when the vaccine-led recovery really starts to take hold. It once again proves that investors should never underestimate the resiliency of Canadian bank stocks. We received two dividend payments totalling $1.58 per share.
Alphabet Inc. (NSD: GOOGL). It was a great year for tech stocks, and Alphabet (Google’s parent company) has been among the front-runners. Since our last review, the shares were up US$392.27, or 27.3%. That’s in just over five months! This is the only stock in the group that does not pay a dividend, but at that rate of growth, who cares?
UnitedHealth Group Inc. (NYSE: UNH). After dropping to the US$188 range in March 2020, the stock rallied strongly and kept posting new gains over the summer and fall. To Dec. 2, The shares were up over US$58 since our last review. The quarterly dividend was increased by 15.7%, to US$1.25 a share, effective with the June payment. We received two distributions, totalling US$2.50.
Walmart Inc. (NYSE: WMT). Walmart was added to the portfolio in June 2018. It has been a solid performer and has done well during the pandemic. The stock was up more than US$30 from the last review. We received one quarterly dividend of US$0.54 per share.
Cash. At the time of the last review, we had cash and retained earnings totaling $2,394.51. At the time, Tangerine, which is owned by Scotiabank, was offering 2.5% for five months for new customers, so we took advantage of that. We earned interest of $24.94.
The accompanying table shows the status of the portfolio as Dec. 2, 2020. For consistency, the Canadian and U.S. dollars are considered to be at par. However, the currency differential increases U.S. dollar gains (or losses) for Canadians. Trading commissions are not factored in although in a buy and hold portfolio they are not significant in any event.
Comments: The new portfolio value as of Dec. 2 (market price plus retained dividends/distributions) is $130,698.94, compared with $113,238.21 at the time of the last review in June 2020. That represents a gain of 15.4% over the period. That’s an impressive rebound from the time of our last review.
All the securities in the portfolio were ahead when dividends/distributions are factored in. The big gainers were Alphabet, UnitedHealth, and Walmart.
Since inception, we have a total return of 161.7%. That represents an average annual compound growth rate over eight and a half years of 11.98%, which is well ahead of our 8% target.
Changes: This is a buy-and-hold portfolio, so I am not making any changes to our holdings. All are doing relatively well, and the overall asset mix is sound.
We do not have enough retained earnings to make new purchases, with one exception.
ENB – We will purchase another 10 shares of Enbridge for a cost of $415.60. We now own 190 shares. Retained earnings are reduced to $3.10.
We have cash and retained earnings of $3,202.88. We will move the money to a Motive Savvy Savings Account, which currently pays 1.55%.
The table below shows the revised portfolio. I will update it again in June in my Internet Wealth Builder newsletter, on its ninth anniversary.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.
Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
© 2021 by The Fund Library. All rights reserved. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
Join Fund Library now and get free access to personalized features to help you manage your investments.
Fund Library
