Malcolm Burford, 67
Includes shares in large-capitalization resource firms, life annuities, real estate and gold bullion.
Malcolm Burford started out as an investment analyst trainee in England. After coming to Canada in 1972, he pioneered quantitative analysis at a Bay Street brokerage. When he later became an actuary, he continued to manage his own investment portfolio.
How he invests
Mr. Burford believes that the value of a security is based on its future stream of monies or dividends. Accordingly, he uses a variant of the dividend-discount model to select stocks.
His variant calculates the present value of the stream of "postulated" dividends for a company up to 30 years ahead, discounted at various rates. (See this link for more details.) If the calculated present value per share is higher than the stock price, the company is deemed undervalued.
With interest rates so low, Mr. Burford's approach suggests that stocks should trade, on average, at higher valuations than they do currently. As for undervalued companies, he prefers those that can earn good returns regardless of the economic environment.
Many commodity companies fit the bill, in his view. Conventional wisdom says such companies are cyclical and merit low price-earnings ratios. But "if anything is going to grow and prosper in the long haul, resource stocks and food-production companies should be among them."
That's because the "big economic issue today is the emergence of large developing economies." Resource and fertilizer companies should continue to flourish since they produce "what emerging countries need to build their living standards."
Life annuities for income
"Life annuities provide a relatively safe boost to my immediate income," Mr. Burford says. His gold and real estate holdings hedge against inflation eroding the purchasing power of the annuities. To tame portfolio volatility, asset classes are weighed according to perceived risks.
It was Alberta real estate and building companies in the early 1970s. The market initially feared these assets would get hit by rising interest rates. But "rocketing" oil prices overrode their impact.
Buying junior gold stocks after 2008 – inflation hasn't picked up yet.
If you can't see yourself holding a security after it has dropped 30 per cent, Mr. Burford says, don't buy it.
Special to The Globe and Mail.
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