A Change in Health:

Self reflection, in any situation, serves as an important tool to gain new perspectives on your surroundings and improve yourself in a certain capacity. One of my strongly held beliefs regarding investing is that many investors don’t take the adequate amount of time to self reflect on their behaviour, attitudes and actions in order to gain useful insight into their own personal strengths & weaknesses. What we each do today will leave a lasting effect in the future and when investing your own hard earned money it’s important to acknowledge that things change over time; this is inevitable. Some change is good and other is bad, but having the ability to identify both of those within yourself can lead to meaningful advances in your returns as you acquire a more clear and concise focus on your investing objectives.

Reflection is an integral component of my growth as an investor over the past eight years and one of my New Year’s resolutions in 2008 was to gain a better perspective of my own SWOT and determine if changes needed to be taken in order to improve not only my potential future returns, but my entire approach to investing. Readers, blog & forum peers know that I invest in multiple strategies across a handful of portfolios and this has obvious benefits and costs. While I’ve enjoyed success over the past two years I concluded that likely the structure of my portfolios lends itself to abundant inefficiencies. When I considered the amount of time, effects of taxation, opportunity and transactional costs of my portfolios I likely put in considerably more effort than was needed. There is always the easy way, the hard way and then there’s the smart way. Through reflection I’ve made priorities for myself that I feel will lead to more efficiency and sustainable returns than I was previously attaining.

Investing is a passion of mine, I like money, I’m good at dealing with it and I feel very satisfied when I can translate knowledge of personal finance to close friends and family. Money is also not everything and certainly not the most pressing priority when compared to important factors such as family, my relationship and career.

In the past eight months I’ve come to realize that what makes each person successful will depend entirely on how they judge that success. For me, investing comes as a balance in my life and not in competition with other important aspects. In the fall of 2007 I took a hard look at each portfolio, my trading activity and realized that some housecleaning was in order. I didn’t start with anything drastic, but took a patient and open-minded approach to what I wanted to accomplish. These included a commitment to:

– Maximize tax efficiencies
– Organize the four main portfolios into a maximum of three
– Concentrate on more long-term investing objectives
– Decrease my trading activity by at least 25% overall
– Take a more passive role in the management of my equities

Mentors have clearly had a substantial impact on my development as an investor and young business mind. Through challenges, insights, experiences and a few hard lessons on my own I’ve adapted my investing approach to include the best I’ve learnt from each individual. The most significant of these lessons has come from Charles during our lengthy discussions on the topic of Enduring Value.

While for many value investing can be painted with the same brush; there are distinct interpretations, approaches and styles that individual investors choose. The approach of enduring value has been successful for Charles over decades of investing and makes sense in my own approach when combined with my strong value discipline of how businesses should be run and evaluated. The approach differs slightly from the value teachings of Buffett and Graham, but focuses on corporations that always make money, have strong internal management, achieve consistency over time, are a leader within their industry with dominant brands, pursue or maintain a SCA, know their customers inside & out and who create an emotional response that drives eternal consumption. You buy these stocks when they’re relatively cheap or have the money, hold them forever and rarely, if ever, look back.

He once told me that, “You can’t see your reflection in a fast flowing stream” in response to my excitement about investing and it serves as a great metaphor for how an investor should approach their portfolio and provides insight into how he invested successfully for so many years. With all the coverage, commentary, information and opinions in financial markets it becomes increasingly difficult for an investor, especially a young one, to stay on track and focused on objectives. Buying and selling activities are often too frequent in an attempt to improve short-term success that sabotages our ability to generate sustainable long-term returns. An investor is therefore not likely to take the time needed to see their own self reflection in such a flurry of activity. It’s the classic story of the tortoise and the hare that serves as the important lesson when investing. Patient, disciplined and careful progress

The approach of enduring value is something I’ve already been applying in my Dividend Growth Portfolio, DivG, for the past year that focuses exclusively on Canadian equities that will generate a future and growing tax-efficient income stream. How I differentiate between enduring value and deep value, as in my Value Portfolio, depends entirely on my investing objectives. In the Value Portfolio I look to apply guidelines I’ve designed, learnt and experienced to short or medium-term investment opportunities. Enduring value takes a much longer-term approach of buying an investment and likely holding it forever. I’m more likely to invest in stocks of higher value (lower MoS) in anticipation of premium earnings and dividend growth, stable performance and sustained appreciation when using the EV approach.

What I first turned my attention to in my restructuring was my Healthcare Portfolio. Some readers may have noticed that I no longer post the Top 10 Holdings of the portfolio and that’s because it no longer exists. My original intention in early 2006 was to create a portfolio of 25-30 healthcare stocks that wasn’t hindered by high fees or over-diversification like so many healthcare mutual funds or ETF’s. In addition I would add intimate hands-on knowledge of products and research within the industry that I felt added value. Although I couldn’t complain with the returns, the portfolio was beginning to take more active involvement than I had originally planned and I realized that I would be much better suited holding a concentrated group of these companies that represented key exposures to the sector. I took the overall theme of what I had instilled into the portfolio and took the highest quality names of the US stocks that I owned and moved them into my RSP. I sold off the remainder of the portfolio into cash, moved the US currency component into my RSP and transferred the Canadian currency into DivG. For disclosure purposes the companies I maintained positions in were BAX, CL, GE, JNJ, KMB, PFE, PG, SNY & TEVA. I continue to monitor a watchlist of industry stocks.

Having taken care of the largest of the restructuring I next turned my attention to my RSP. As I previously discussed in September I had began to consider how I wanted to re-organize my current RSP to take advantage of the relatively strong Canadian dollar and depressed markets to purchase US and International equities for the long-term. For the past seven years my existing holdings within the RSP were comprised largely of TD e-series index and high quality managed funds. Since I hold all my Canadian exposure within DivG I wanted to concentrate exclusively within my RSP on fixed income (ex-preferred shares), US/International equities and a group of diversified global ETF’s (there’s always room for indexing!!) for the benefit of tax efficiencies. After cashing out the mutual funds I began to selectively make purchases from a small watchlist of stocks I’ve monitored and compiled research on over the past few years.

For disclosure purposes I’ve secured/transferred positions in some of the following stocks:

BBV, CPB, CAT, KO, EXC, GIS, HNZ, KFT, NKE, NSC, SJM, UPS, WMT & WHR