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Yield Hog

Learning to take control of your investment portfolio Add to ...

Several years ago, Stephen Ross’s adviser came to him with some “good” news.

“Congratulations,” the adviser said. “You only lost 8 per cent last year.”

Only lost 8 per cent? That was strange, Mr. Ross thought. Stock markets had been going through the roof for the previous several years, yet the risky, fee-laden mutual funds that his adviser sold him always seemed to lose money.

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Fed up after a string of similarly lousy results, he decided then and there to fire his adviser – and vowed to take control of his own investments. He hasn’t looked back.

“At the time I didn’t know anything about investing,” he said. “Now I just can’t get enough of it. It’s my hobby. I took the Canadian Securities Course, and I’ve probably got three shelves full of investing books.”

Mr. Ross’s story (we’ve changed his name to protect his privacy) illustrates how, with an open mind and a desire to learn, even someone who starts late in life and and has no investing experience can learn to manage a portfolio.

After doing some research, the 66-year-old retired company manager decided that dividend stocks were the way to go because they offer a combination of relative safety, growing income and capital appreciation. Now that he’s taken control of his and his wife’s seven-figure portfolio, Yield Hog asked Mr. Ross to discuss what he’s learned by becoming a do-it-yourself investor so that others can benefit from his experience.

 

What advice do you have for others thinking about taking the plunge?

 

Don’t be scared. The most important thing to know is that it’s not brain surgery. The mutual fund industry tries to make it sound like it is brain surgery, and that you can’t possibly do a good job looking after your investments yourself, and that you need an adviser. The problem is that most advisers are in fact really sales people.

 

Okay, it’s not brain surgery. But where do people start?

 

The best advice I can give to anybody who is getting into this is: Don’t invest in a company that doesn’t pay a dividend, because any other kind of stock is speculation. Dividends are the key to our portfolio. Our strategy over the long run is to create a diversified portfolio of stocks that have shown consistency in raising their D and Ds [dividends and distributions] and which provide an attractive dividend yield.

What do you mean, “any other kind of stock is speculation”?

 

A stock without a dividend is not necessarily bad, but it only brings in cash when you sell it to someone else who is willing to pay more for it than you did. Dividend stocks enhance returns when markets are favourable, and pay you to wait when they are not.

 

Can you give us a taste of what’s in your portfolio?

 

I’ve got BCE, TransCanada, Bell Aliant, Toronto-Dominion Bank and some oil and gas companies. I also own a lot of real estate investment trusts, among other things.

 

What about bonds and GICs?

 

I don’t have any fixed-income, but I do keep enough cash to cover about one-and-a half to two years of expenses. So if the market goes down and somebody suddenly starts to cut dividends, I wouldn’t like it, but I wouldn’t have to panic.

Not having any fixed-income goes against the advice of most financial experts. Doesn’t that worry you?

 

I don’t expect that BCE or TransCanada or RioCan REIT will go out of business. These guys will keep paying me. The important thing is that you’ve got to have companies that will continue to pay dividends regardless of what happens. If a company’s dividend is rising, it provides protection from inflation, unlike a bond or GIC, where the income is flat and gets eroded by inflation.

 

What are some of your favourite investing books?

 

I really liked Stephen Jarislowsky’s book, The Investment Zoo. Other books I’ve found helpful include Dividends Still Don’t Lie (Kelley Wright), The Naked Investor (John Lawrence Reynolds), The Investor’s Manifesto (William Bernstein), The Single Best Investment (Lowell Miller) and The Strategic Dividend Investor (Daniel Peris).

 

Any regrets?

 

There are a couple of stocks I wish I’d kept. I sold some of my Calloway REIT, for example, but the price kept going up.

 

The biggest lesson you’ve learned?

 

You have to filter out all the noise that’s out there. And you have to have absolute patience.

 
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