Happy birthday, Strategy Lab!
Three years ago you lurched into life as a new addition to our online offerings at Globe Investor. You were our modest attempt to demystify the mechanics of smart investing.
Today, you're all grown up and a proven success – so much so, in fact, that it might be worth pondering what we can learn from your early life.
The basic notion behind the Lab was to give four smart investors a hypothetical $50,000 each to deploy as they saw fit. The only requirements were that they had to post their Strategy Lab portfolios for public perusal and explain the logic behind their investing decisions.
Each of our investors represented a different approach to the market. Former Bay Street analyst Chris Umiastowski focused on growth stocks, while newsletter guru Norm Rothery beat the drum for value investing. Andrew Hallam, a Singapore-based financial author, preached the merits of an indexing strategy, and The Globe and Mail's own John Heinzl carried the banner for dividend lovers.
So how have they done?
At the end of August, Mr. Hallam's index portfolio was up a cumulative 31.6 per cent since the launch date in September, 2012, Mr. Heinzl's dividend-oriented selections had gained 33.6 per cent and Mr. Rothery's value strategy had shot ahead 67.1 per cent. Leading the pack was Mr. Umiastowski's growth portfolio, up an amazing 288.5 per cent.
What are the lessons you should take away from this? Our Strategy Lab stars offered several insights:
Several roads lead to profit
Pundits and analysts like to give the impression there's only one sure path to investing Nirvana. In fact, many techniques can result in bliss, as evidenced by the healthy gains achieved by all the Lab portfolios.
"Strategy Lab demonstrates there is a wide variety of ways to intelligently invest," says Mr. Rothery, the Lab's value investor. "It also shows you don't have to be perfect to make a profit. We've all had things we would probably like to do differently. For instance, I put a fairly large amount of money into cash and that proved to be an error for the period in question. But despite that, we've all made money."
"In my opinion, what readers should take away from Strategy Lab is that it's essential for them to take control over their own investments," Mr. Umiastowski says.
He points out that all four Strategy Lab portfolios share a couple of important characteristics. One is a commitment to being in the market for the long haul; the other is a belief in keeping investing costs to a minimum. None of our investors chose expensive mutual funds. Instead, they purchased individual stocks or put their money into low-cost funds or exchange-traded funds (ETF).
Mr. Umiastowski's triple-digit gains are ample reason for pride, but he's the first to caution that neither he nor anyone else can predict the short-term direction of the market. Mr. Rothery, who has also posted impressive returns, points out that the Lab portfolios have yet to encounter a bear market.
The common theme is that you can't extrapolate from one three-year patch. All four of our portfolios show promise, but it's best not to choose a strategy based on how it's performed over a short period.
So how should you choose an investing strategy? It comes down to personal fit.
Growth strategies appeal to technology-oriented investors who have the time to research potentially disruptive new products and can handle the swings involved in buying upstart companies that either win big or flame out.
Value-oriented approaches also test investors' nerves because they emphasize buying cheap, out-of-favour companies. They work best for those who have the training and interest to scour financial statements in search of hidden value.
Dividend investing is a favourite of those who like the stability of a steady income stream and who don't want to put in the hours involved in researching growth or value stocks.
Indexing takes that a step further and involves passively tracking market benchmarks – an approach that appeals to those of us who believe it's difficult to outperform the market over time and see no particular reason to spend our evenings and weekends reading financial reports.
"Whatever approach you choose has to fit your personality," says Mr. Heinzl, our dividend investor. "You have to find it interesting and fun and you have to commit to it."
Much of that depends on your time horizon. Mr. Hallam, for instance, devoted almost a third of his Strategy Lab portfolio to Canadian bonds – a move that has handicapped him in a contest dominated by great stock picks. But he's just fine with that. "This portfolio was built to last 50 years," he says.
Globe Unlimited subscribers can read Strategy Lab columns at tgam.ca/strategy-lab.