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Outlook 2008: Results

As mentioned in my previous post, the past nineteen months have been a learning experience to say the least. When I consider the combined hundreds of hours of effort, research and time put into the decision and preparation I felt essential in becoming a competent DIY investor I start to see now that there’s no way I could go back to how I invested before. At some point in the past I decided that no one person would ever manage my money as well as I could and set out to develop a set of skills that placed me in a mindset which I could benefit from personally and financially over a long period of time.

Nothing about what I do I could ever consider as “easy”. For every stock I research, possibly 1 in 10 generates enough interest to be scrutinized further and out of those 1 in 15 has usually led to a stock purchase. Investing in multiple strategies is also difficult and time consuming if not balanced properly. I’ll admit that I often use organized spreadsheets, tracking software and multiple screens in order to accurately follow my presently held and previously owned stocks as well as a watch list of varying size depending on market condition. Friends often shake their heads at the perceived complexity of everything I do; but for all the research, due diligence and effort put into stock analysis, most of the time it comes down to generating a FMV as fundamentals are apparent and easy to identify.


The Healthcare Portfolio return for 2007 was decent when you consider the huge appreciation we saw as the Canadian dollar climbed against the US currency. With close to 80% of the portfolios’ holdings in US equities the currency appreciation decimated returns if converted back to CDN$. Since the objective of this portfolio has always been for long-term capital appreciation, currency valuations will tend to work themselves out over the long term.

To better put this in perspective:
– The 2007 return for the entire portfolio when converted to CDN$ was 5.5%
– The 2007 return for the CDN segment of the portfolio was 31.4% in CDN$
– The 2007 return for the US segment of the portfolio was 19.1% in USD.
*** Including Dividends

– The return on the CDN segment was largely influenced by BioMS Medical, Covalon Technologies and PYNG Medical
– The return on the US segment was largely influenced by Baxter, Colgate Palmolive, Haemonetics and Praxair

As explained in an earlier post, one of the main objectives of this portfolio is to gain exposure to broad & specialized segments of healthcare which may/may not be perceived by the general public as healthcare related. Health can be defined in multiple ways and in my opinion can no longer be confined to strictly well known pharmaceutical or biotechnology companies. Companies such as National Dentex, 3M, Steris, Standard Register, Praxair or Colgate Palmolive may not appear as adequate investments for a healthcare portfolio of stocks, but when compared to the alternative options and a few ETF’s the choice is quite limited and confined.

Dividend Growth:

In May of this year I added my third investment portfolio with a strategy and focus on Canadian dividend growth companies. The main intention for this group of investments is to start an early retirement fund which will provide tax-efficient cashflow in future years to replace, supplement or provide additional income beyond my current future wage. At that time I’ll either retire, semi-retire or the additional cashflow will help benefit in activities important for my family life. I’ve already begun planning a mortgage manoeuvre using the HBP and a variation of the Smith Manoeuvre in order to pay off my first home when I purchase in a few short years. Since both the Value & Healthcare Portfolios grow organically from no additional input of funds, this portfolio allows me to grow a pool of capital tax-efficiently for future years or usages.

I began my security selection by identifying 10-12 core companies I wanted to anchor the portfolio with the possibility of adding another 10-15 in the future for diversification across different sectors. Since Value & Health funds have considerable exposure to US equities already, this portfolio allows me to benefit from the dividend tax-credit in Canada with the intention of moving my RSP strategy to a completely US/International focus.

Currently I hold positions in BNS, CNR, EMP.A, IGM, MFC, RY, SAP, SC, SLF, TD & TOC with a return since May of 6.4% (including dividends).


After some hard lessons in stocks such as Dominion Homes, Garneau Inc, Hart Stores, New Century Financial, Handleman Co & Great Wolf Resorts; I realized that my security selection should still be looked at as a work in progress. After some self-reflection in early 2007 I realized that I wasn’t doing a good enough job of identifying quality and ensuring a sufficiently high enough margin of safety for the capital I was investing. When I first began this portfolio I focused almost exclusively on net asset value and book value as leading indicators for value stocks. Although this has provided success for many fund managers I’ve studied in the past I quickly found that stocks I was following on an alternate watchlist based on my Value Rules (qualitative fundamentals) were valued much cheaper by the market than their future earnings potential. Companies such as Fresh Del Monte, Smuckers, Boston Pizza Royalties, UE Waterheater Fund, Printronix, Migao & my transportation stocks (I & II) were all examples of companies undervalued by more than 25% when purchased based from this specific watchlist.

Over those next few months of research I began to shift my focus towards companies I felt the market was discounting heavily based on short-term information and ignoring the major medium-long term fundamental factors. Companies such as American Standard (now Trane), La-Z-Boy, Allstate Insurance, Wabco Holdings, TD Bank, Goldcorp, Tibco Software and Gerdau AmeriSteel are good examples of companies I continue to hold since gaining attractive entry positions this year.

The returns for the Value Portfolio in 2007 beat all my individual expectations and I continue to work hard since I have no ambition of becoming a one-hit-wonder. Whether the future holds returns higher or lower than this years’ can’t be known, but consistency has its place and my initial goal of a 15% CAGR for the portfolio remains intact.

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