Weekend Reading – Most stocks are duds edition
Welcome to my latest Weekend Reading edition.
You can read my previous editions below:
Different ways to drawdown your portfolio and why,
My approach and thoughts to core and explore investing.
Enjoy this weekend reading edition – see you in the comments section!
Most stocks are duds?
Interesting reading material from the Evidence Investor: most stocks are duds.
The article cites a study covering the period of 1926-2015, which found that:
- “Over their full life, only a minority (49.2 percent) of common stocks had a positive lifetime holding period return, and the median lifetime return was -3.7 percent.”
- “Even at the decade horizon, a minority of stocks outperformed Treasury bills.”
So, the premise of the study sounds great, as a bias to indexing, but sensational headlines only tell part of the story.
The study included “all stocks on the NYSE, AMEX and Nasdaq” but to my knowledge, no other market. As such, you may or may not be able to make any similar claim for our Canadian market let alone other markets, but potentially the same conclusions might occur. Beyond that, it’s quite true that some stocks would be duds given the premise behind index investing, the alpha must be a zero-sum game. There are many stock losers to offset many stock winners. One of the compelling reasons to index invest is by being the market – you don’t have to guess who the stocks winners are. You own all the winners (and losers) as a collective. This makes indexing investing for the masses, all fine and good – to a point. Finally, not sure how survivorship bias plays into this but the analysis of stocks that remain since 1926 is hardly relevant. Did Apple exist in 1926? What about low-cost ETF world-leader BlackRock? You know the answers. Alas, take any study with a grain of salt. The time period, the scope, the story that someone is trying to tell is all very important to consider.
I’m a huge fan of index investing but it’s not indexing or nothing as some folks may lead you to believe. There are other ways to build wealth.
The challenge for me with an all-indexed approach over the years as a DIY investor has always been – I like the optionality and motivational thrill that dividends and dividend growth provide. I like seeing cash flowing into my account. I also like owing companies, that pay dividends, and demonstrate year-over-year cash increases. It’s real money I see, I can use, I can reinvest as I please.
Can I own the market and get the same or better result? Maybe. A reminder I will own “dud” stocks with indexing – you get it all: losers, winners and everyone in between.
The reliance on just capital gains or growth from my portfolio, from the winners, offers little in the way of personal confidence when it comes to my income needs as I approach semi-retirement. Sure, there never any guarantees with dividend investing. I’ve mentioned that on my site about 984 times over the last 12 years. But dividends are very good!
Besides, as primarily as a DIY stock investor, I’ve done rather well. When benchmarking my 10-year returns in Canadian stock ownership against low-cost ETF titans like XIU, XIC, and VCN over the same period, I’m up.
Will this always be the case? I have no idea although I hope so.
That said, I am a fan of investing beyond Canadian borders. For well over a decade now, I’ve owned U.S. dividend stalwarts such as Johnson & Johnson (JNJ) and Procter & Gamble (PG) as key dividend growth plays. In recent years, I’ve added Blackrock (BLK) to my U.S. portfolio. Beyond that, it’s about low-cost ETFs for simplification. I’m a hybrid investor – that’s an approach I remain comfortable with.
In closing, I have full confidence I wouldn’t be where I am today, with my portfolio overall, without taking some risks with my DIY approach, owning the odd stock “dud” and learning from it but also buying and holding many successful picks along the way. I’ve learned about investing for myself as My Own Advisor and I am better for it. Lucky or biased or not, that’s been my journey.
More Weekend Reading!
Nice update by critical care nurse by profession, entrepreneur, and blogger Rommel Faunillan. He has a very long list of stocks on My Prudent Life – holdings approaching 100 in total. Although I wouldn’t own that many stocks myself (I prefer some form of a consolidated portfolio), I totally agree with the punchline about striving to save and invest enough to enjoy some meaningful dividend and distribution income in semi-retirement, without relying on government benefits.
“Finally, our ultimate goal is to live off passive income from our dividends without harvesting the capital. Additionally, whatever other sources of income during retirement such as work defined benefit pension plan, Canada Pension Plan (CPP), Old Age Security (OAS) will be such a huge bonus and icing on the cake. However, it is something that we will not solely rely on, as these are sources of income, guaranteed it may seem but are beyond our control.”
In case you missed it, I posted my latest monthly income update on my site here. Onwards and upwards and hopefully I can earn $11 per hour from part of my portfolio later this year!
A big thanks to GenY Money, one of my favourite Canadian blogs, for her review of our new site and services to Canadians at Cashflows & Portfolios.
“For a very reasonable price you can get peace of mind and feel empowered knowing the best way to draw down your portfolio in order to preserve your estate (if that’s what you want), maximize government benefits like OAS, and minimize taxes paid. Also, you can pick the mind of two of the most knowledgeable Canadian personal finance bloggers for their unbiased takes on how they are preparing for early retirement themselves.
I think that this is a service that is a great unmet need across Canada for those nearing retirement, planning years in advance of retirement, or even those who are currently in retirement and want to optimize their withdrawals from their retirement portfolio.”
On Reverse the Crush – there are problems with some narrow-minded thinking when it comes to money.
“Think about what you value. Think about the important relationships in your life. Pursue those things. Don’t be distracted by or attracted to the false summits you see along the way. Make sure you have enough rope, anchors, clips, and supplies for the ascent. Keep yourself grounded as you climb. Look ahead, not behind. The summit is just beyond the horizon.”
Those words align well with my thoughts when it comes to wrestling with the emotional side of early retirement.
Boomer & Echo highlighted a new book: Die With Zero. I should put that on my reading list, but I have more books to giveaway first – stay tuned readers!!
Cashflows & Portfolios shared everything there is to know about the Locked-In Retirement Account (LIRA), including some Life Income Fund (LIF) withdrawal options – read on!
What do you make of this? Pretty cool, I think.
Source: The Laws of Wealth.
Dividend Stocks can Rock as Mike Heroux outlines his top-holdings in this video. Keep it up Mike!
Quite the story on Dividend Growth Investor: how an investor built a $500,000 portfolio on minimum wage. Without stealing the entire story:
“One of the largest misconceptions people have is that they need to earn a high income, in order to save. The important thing is to be able to live within your means, and manage your income and your expenses at the same time.”
Here are some Weekend Reads from Cut the Crap Investing – including more inflationary guidance.
Good stuff on How To Save Money when it comes to federal and provincial tax brackets.
Save, Invest, Prosper!
As always, check out my Deals page.
My very own personal BMO promo code remains available! Use that BMO code to get hundreds in cash back when you open investment accounts with BMO like your RRSP, TFSA, taxable account and more! What’s even better with BMO now is they have commission-free ETF investing. Yup. They are now offering commission-free investing for more than 80 Exchange Traded Funds (ETFs), via their self-directed BMO InvestorLine clients. The ETFs cover a broad range of asset classes, geographies, management styles and popular themes from Canada’s largest ETF providers, including BMO, iShares and Vanguard. Simply awesome and I hope more big discount brokerages follow their lead.
I’ve got a new partnership with EQ Bank – just look at the banner in the margin! EQ Bank typically offers the best savings account rates in Canada. I hope to park my cash wedge for retirement there!
With 5i Research, take a no obligation FREE trial for your ETF and stock research.
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Other great, free, My Own Advisor content:
How I invest in dividend paying stocks is always found here.
Why I invest in low-cost ETFs – along with dozens of articles about ETFs can be found here.
Looking for free calculators, tools, or even my support? Check out my Helpful Sites page here.
I regularly update my FAQs page here.
I might be approaching 30 free, retirement case studies you can learn from here. More to come!
Reminder – Watch and Listen at the 2021 Canadian Financial Summit for FREE!
The Canadian Financial Summit is back once again for the 2021 edition with a great line-up of 35+ personal finance experts, including yours truly, to discuss a host of personal finance and investing subjects.
Beyond Kevin and Mahima above, I have the honour to speak alongside the following in the personal finance space again this year:
PWL Capital’s Ben Felix, Millionaire Teacher Andrew Hallam, The Globe and Mail’s Rob Carrick, consumer advocate Ellen Roseman, as well as long-time personal finance bloggers and friends Barry Choi, Tom Drake, Robb Engen, Bob Lai, Stephen Weyman and Jonathan Chevreau.
Topics discussed in this year’s online Summit include:
- Buy back your family time with FIRE
- How much does it cost to travel FOREVER?
- Are dividend stocks in a bubble?
- The risks of investing in cryptocurrency
- Should I have Bitcoin in my Portfolio?
- Maximize the New Aeroplan and Post-Covid travel plans
- Don’t let FOMO ruin your investment returns
- Maximize Work From Home tax tips in a Post-Covid World
- Will the Canadian Housing bubble finally pop?
- How to setup a corporation, invest within it, and then pay yourself
- The BEST ETFs in Canada
- Why self-made dividends are better than ordinary dividends in every way!
- And more!!
My session about my journey and my thinking behind setting up my corporation goes live on September 24th alongside some of the best in this space:
- Mahima Poddar – EQ Bank’s Group Head of Personal Banking to share the best solutions for your RRSP and TFSA, as well as EQ’s new USD accounts.
- Ed Rempel – on how to reliably maximize your retirement income – is the 4% rule really “safe” and a few retirement rules of thumb!
- A MoneySense panel with Jonathan Chevreau, Ben Felix, Kornel Szrejber – who discuss the Best ETFs in Canada for 2021 and more!
- Peter Hodson – considered one of the “Warren Buffetts of Canada” who shares his top lessons learned from over 30 years of professional investing, including his best stocks to own in 2021-2022!
- Kristy Shen and Bryce Leung – Canada’s original FIRE couple stops who discuss the rewarding side of financial independence.
- Barry Choi – learn how to optimize your post-covid travel plans. (I mean, who doesn’t want to get out and explore?!)
How do you sign up?
Just head on over to the Canadian Financial Summit and sign up for free with my link here.
This way, you’ll be automatically entered to win one of the free Premium All Access Passes they will giving away when the event goes LIVE.
My link gives you access to all the talks – you won’t miss a thing – and you can watch and listen from your couch or patio!
When the Summit starts, you’ll be sent an email each day with the link to the sessions that go LIVE for the next 48 hours. That’s it. There’s no paperwork. No need to put in payment information that you have to cancel later. No worries.
The Summit will kick off with a live webinar on September 22nd and is absolutely free to view for that weekend.
If you want to check out the videos after their free window has passed (and get access to a whole smorgasbord of bonus resources and video sessions) then you’ll want to sign up for the All Access Pass. Don’t miss out on the Early Bird Pricing, as the price jumps up as the Summit begins!
I am very honored and humbled of being mentioned in your weekend reading. The stocks that we owned is quite sizable in number which are meticulously chosen. That compilation is for me and my wife. At some point we are looking to streamline these gradually to a more manageable one. Thanks for the reminder.
Ha, good stuff to consolidate over time Rommel and happy to list your site and help it get some attention 🙂 Happy investing and stay in touch!
Thanks a lot Mark. There is nothing special about my site but if I can inspire anyone to make lifestyle changes toward personal finance and independence then what I have started is well worth doing.
Great stuff Rommel and continued success to you!
Interesting discussion. Some very good points many of which I agree with.
Without getting into a long diatribe here’s my take: There is no one single successful path to meeting a persons goals. It’s easily proven either have worked, but not always, depending on a persons goals, selections/allocations, time frame, risk appetite, and behaviour. Indexing or dividend payers both have pluses and minuses.
I’ve mostly been a hybrid investor for many years. Some indexing (US, international, and more recently building VGRO), some dividend focus 25 or so CDN stocks, some FI, real assets for protection, re-balancing and peace of mind.
Not for everyone but it works well enough. In hindsight if I was a full indexer I would have better results, but at this stage too complicated to amend. And I also don’t know what the future will bring.
Hindsight is always 20/20. What you have done will work better if the last decade is not such a bull market. Nobody knows the future is exactly why I don’t want to index right now with a pretty overvalued market. For retirement, safety is more important than higher return.
I think you’re right with 20/20 and about safety vs. higher return.
Satisfied enough here with our present path. It’s easy to say that because we’ve had such a bull run. The rubber hits the road when a long bad patch hits.
Yes, no one single path. There can be real estate focus, starting a business, etc. to build wealth beyond indexed ETFs but you don’t hear that balanced argument from them since they have bias for you to buy their services/deliver assets under management.
Am I an anti-indexer? Heck no. I’ve been a hybrid investor (as you know) for well over 11 years now since running the blog. I suspect I’ll be a hybrid investor for as long as I live. Until I underperform the market with my CDN stocks I won’t change my approach. Hasn’t happened in 11 years since I started the blog and really tracking things. Taxable account since inception is hovering around 160% returns. TSX by comparison is 110% over same period.
I have no idea of what the future might bring of course. Just doin’ my thing 🙂
You’re an investing machine!
Ha, well, I pick boring stuff. WCN, banks, buy when stocks down (like now!), etc. I suspect more corrections are coming into October. Just a hunch.
You have some competition here when it comes to boring stuff. LOL
Yes, I think we are well due for something quite a bit more than today. Maybe I’ll have to deploy some cash.
Ha. Thinking about it as well as long as things go lower. A Conservative gov’t win might signal more RED tomorrow! We’ll find out in 5-6 hours.
“all stocks on the NYSE, AMEX and Nasdaq” not the same as Index. SP500 has only 500. These 500 already exclude lots of duds. And SP500 will continue to exclude duds and include winners. So by investing in an index such as SP500, one is actually investing most of the time the winners. Same with Nasdaq 100, which has the best 100 companies on that exchange. Also, people who adjust these indexes are for sure have better knowledge than me to know if a company is winner or loser or average.
For any people with a long term investment horizon, I do believe investing in Index is the winning strategy with the least effort. People has other investment goal though other than return. E.g. stable income in retirement, tax benefit with Canadian eligible dividends, etc. That’s why I am not an indexer. But I will definitely strongly recommend my kids to be indexers.
Same May, far from being an anti-indexer here for sure but I get tired of one-way articles that do not express their own biases. We all have biases. Besides, true indexers might never invest in ETFs like QQQ or others that have offered tremendous returns over the last 10+ years.
To ignore and discount other ways to invest is simply narrow-minded. Just me maybe!!
All the best,
“Can I own the market and get the same or better result? Maybe. A reminder I will own “dud” stocks with indexing – you get it all: losers, winners and everyone in between.”
I’ve tried to suggest that one change their focus from “market returns” or “capital growth” to concentrating on just “Income” from their investments. Then it becomes very clear that at least 90% or more of stocks are duds. Once you accept that, then why would you ever consider owning an index? Identifying the 10% income paying companies is easy and most will be large, well financed, and have a solid earnings record. By investing in just the 10%, you’ll get income and growth, with much less risk.
I’m a huge fan of my ever growing income cannew – as you well know, so to your point, because I do most of my stock selection in Canada vs. the U.S. then beyond the 25 or so CDN stocks I own I figure most of the rest are duds by design 🙂
Index investing has its pros and cons. It isnt what I tend to do personally nor what I see clients utilizing a lot of.
When investment are held personally though tax can play a role as on income of roughly over $100k there is a preference to receive capital gains where as under $100k eligible dividends result in less tax.
If we are talking foreign investments…dividends from a foreign company are not taxed the same as from a Canadian company. Tax rates on US dividends are taxed at the rates of regular income. So to give an example on income of $50,000 a foreign dividend received would face a tax rate of 29.65%, a capital gain would be 14.83% and an Eligible Canadian dividend would be 6.39% for an Ontario resident.
If we focus only on dividend paying companies are you ignoring companies like Amazon or Alphabet. Where does a company like Microsoft fit in….low dividend but has had strong growth? Just seems like you can be missing a strong part of the market which you may benefit from if you are using an index investing vs picking dividend paying companies.
Many ways to invest…my own bias is to pick a strong company with a good future outlook regardless of whether it pays a dividend.
Great insights Brent.
Yes, there are no real advantages to own U.S. dividend paying stocks in a taxable account – re: treated like income and taxed at same rate. I prefer CDN stocks in taxable for the tax advantage.
“If we focus only on dividend paying companies are you ignoring companies like Amazon or Alphabet. Where does a company like Microsoft fit in….low dividend but has had strong growth?”
Very true. I used to own MSFT years ago (sadly sold…) and bought VTI and more recently QQQ instead. I think you are 100% correct – just because a company pays a dividend doesn’t make it superior. Total returns after fees, etc. matter. Dividends are just part of total returns as are capital gains. Ideally, as a DIY stock picker, you want both for = high total return.
Cool infographic. Someone should make that into a poster and sell it on Etsy, lol. I’m already signed up and can’t wait for the summit. Looking forward to hearing you and others speak next week. 🙂 Such a great lineup this year.
Yes, I think you can buy a poster from that as well – somewhere!
The Summit should be fun and looking forward to hearing the other speakers myself.
Thanks as always for the support Liquid. Are you considering incorporating yourself?
I like to keep my life simple so I have never incorporated. The thought of having to file another corporate tax return in addition to my personal return is not appealing to me. As I age I believe in keeping things simple in my life which is doing more and more indexing rather than stock picking. At some point I will not want to look after our investments. My worry is also that if I pass away before my wife, she has no interest in investment selection. So I have found a fee for service financial advisor who does not sell financial products to advise her about investments and tax issues when I am gone. Keep It simple!
Looking forward to hearing you Mark on the 2021 Canadian Financial Summit!
I’ve thought about that estate planning as well Roger but I figure I have a few years of part-time work ahead of me in my 40s still so I should have time to wind down the corporation in the coming decade well before age 60 when I might not want to work at all – play golf, walk, bike and eat some fine foods while travelling. Let’s hope 🙂
Thanks for the eagerness for the Summit – always fun to be asked to do those things and be thought of as a good contributor to Canadian personal finance knowledge 🙂
Great question, Mark. I’m currently of the same mindset as Roger and don’t have any plans to incorporate myself.
I barely make enough income from blogging to cover the annual hosting cost. So at the moment I don’t earn enough to justify setting up a corporation. But if my side hustles take off some day I will reconsider it. 🙂
Yes, very fair, need to have modest income to incorporate. You never know what the future may bring 🙂