A diversified selection of nearly two dozen stocks, including shares in Dorel Industries Inc., Metro Inc., 3M Co. and Verizon Communications Inc.
Michael Epp started his portfolio 15 years ago at the age of 40. He never owned a car, which helped a lot with generating the savings to invest. Add in great returns (including reinvested dividends) and his portfolio is now well into “six figures.”
How he invests
“The success of my approach relies on acting like a machine or an algorithm,” Mr. Epp says. “This means automatically buying low and selling high.
“As soon as one of my holdings increases in value by 50 per cent,” he continues, “I sell it back down to its normal weighting of 5 per cent in the portfolio and invest the proceeds in the stock which is the most beaten down of my holdings. This is harder to do than it sounds … but it becomes easier over time.”
The rebalancing strategy has worked particularly well with cyclical stocks. Take mining company Teck Resources Ltd. With the dramatic ups and downs in its shares – a drop of 65 per cent in 2015 and rise of 430 per cent in 2016 – buying low and selling high has given his portfolio a big boost (while keeping risk under control by preventing Teck Resources’s portfolio weight from getting too big or small).
Diversification across industries is also important. So is having a mix of small- to large-cap companies, and exposure to Canadian and U.S. markets.
As for which companies to include in his portfolio, Mr. Epp follows “The Successful Investor” newsletters authored by Patrick McKeough. He says the recommendations are unbiased, as “there is no commission-based motive underlying the advice.” Another plus is cost: less than 0.2 per cent of his assets.
His best move was “getting out of mutual funds back in 2001 and into a self-directed account with Credential Securities.”
It was “selling a small-cap miner at a 50-per-cent loss during the 2008-2009 bear market.” Later, it rebounded way above his purchase price. If he had stuck to his rebalancing rule and bought more shares on the downswing, he would have made some good money instead.
“Have a system and stick to it, through thick and thin,” he recommends. “This can be very hard – you have to master your emotions. A simple ‘algorithmic’ approach takes the emotion out of your investing. Read Daniel Kahneman’s excellent book Thinking, Fast and Slow.”
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