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How a retired university professor outperforms the market

David Stanley buys ‘dogs’ that are going through a rough patch but have a good chance of recovering.

David Stanley

Occupation

Retired university professor

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The portfolio

Includes about 30 blue-chip, dividend stocks – the two largest positions being Enbridge Inc. and Toronto-Dominion Bank

The investor

David Stanley's schedule has been full since he took early retirement in 1995. Currently, he is in the midst of "processing the bounty" from his rather large vegetable garden. He also recently started an investment club at the seniors home where his disabled wife resides.

In previous retirement years, Mr. Stanley was active in the Guelph ShareClub (an investment club) and wrote a column for Canadian MoneySaver magazine on an investment approach called "Beating the TSX." It's a Canadian version of the "Dogs of the Dow" strategy first popularized by U.S. money manager Michael O'Higgins in his 1991 book Beating the Dow.

How he invests

Mr. Stanley practises what he preaches and follows the "Beating the TSX" approach in his registered and non-registered accounts. It calls for buying the 10 highest-yielding stocks in an index of blue-chip stocks, such as the S&P/TSX 60 index or Dow Jones Canada Titans 40 index.

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These are the "dogs" that are going through a rough patch yet have a good chance of recovering because they are large companies with extensive resources, customer bases, revenues and managerial talent. A year-end portfolio rebalancing replaces the big gainers with new "dogs."

The time and effort required are little more than index investing. Yet the strategy outperforms the market according to back-tests of market data, as presented by Mr. O'Higgins and others.

When Mr. Stanley appeared in Me and My Money in 2009, his equity portfolio was outperforming "quite handily." Since then, he reports, the annual return (dividends plus capital gains) has averaged 12.1 per cent versus 9.5 per cent for the iShares S&P/TSX 60 Index ETF.

Mr. Stanley usually limits his holdings to Canadian TURF stocks (telecoms, utilities, REITs and financials). Some diversification is provided by U.S. dividend stocks and Vanguard ETFs that track foreign markets.

He uses nearly a dozen preferred shares, currently yielding just over 6 per cent, as a proxy for the fixed-income portion of his portfolio. And since he is in the distribution phase, dividends are no longer reinvested but taken as cash.

Best move

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There were major dips in his portfolio that nearly caused him to dump his investing approach – but he stayed the course.

Worst move

"There were a few stocks that I held a bit too long," he declares. "Sometimes our pride won't let us admit a mistake and move on."

Advice

"For me, a portfolio of blue-chip Canadian dividend-paying equities offers more safety than chasing growth stocks," he says.

Want to be in Me and My Money? Contact Larry MacDonald at mccolumn@yahoo.com

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