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Daniel Goodman of GFI Investment Counsel.The Globe and Mail

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Daniel Goodman doesn’t invest based on forecasts of whether or not a recession is coming. Instead, the chief executive officer at Toronto-based GFI Investment Counsel Ltd. chooses to own a handful of companies he believes are strong and will survive some of the toughest economic cycles.

“We never say we’re getting more defensive or offensive,” says Mr. Goodman, whose firm oversees about $1.7-billion in assets. “Instead, we establish an asset mix of equities and bonds for a particular client and stick with it unless their circumstances or comfort level change.”

And when the markets do drop, Mr. Goodman’s team looks for opportunities to buy great businesses at cheaper prices that he expects to perform well in the long term.

GFI invests in about 15 to 20 companies at one time with a current split of about 40 per cent Canadian-listed stocks and 60 per cent listed in the U.S. Mr. Goodman says many companies his firm owns also have a global footprint. Some of its top holdings include Apple Inc. AAPL-Q, Microsoft Corp. MSFT-Q, MSCI Inc. MSCI-N, Comfort Systems USA Inc. FIX-N and Sherwin-Williams Co. SHW-N.

GFI’s all-equity portfolio returned 14.7 per cent so far this year and 17.4 per cent over the past 12 months. The all-equity portfolio also had an annualized return of 7.5 per cent over the past three years and 15.6 per cent over the past 10 years. The performance is based on total returns, net of fees, as of Aug. 31.

The Globe and Mail spoke with Mr. Goodman recently about what he’s been buying and selling and some advice for new investors.

Describe your investing style.

We are value-focused investors. We look for high-quality companies, which to us means companies that can survive based on their operations and cash flow without having to raise capital. We also look for businesses that can grow revenue without increasing costs. We also like companies that can control their pricing so that when inflation hits, they can pass those higher costs along to the consumer and don’t get stuck with margin erosion. We also like capital-light companies, which means they don’t have high capital requirements to produce their goods and services.

What have you been buying lately?

One company we bought in the second quarter was insurance broker Aon PLC AON-N. Aon represents the client, it doesn’t take on any insurance risk. It has a client retention rate of about 95 per cent. It’s a disciplined and focused company that doesn’t need a lot of capital to achieve its business plan. It has also bought back its stock consistently for about 15 years now. We think it’s a wonderful business.

Another stock we bought in recent weeks was Hilton Worldwide Holdings Inc. HLT-N. Hilton focuses on marketing, room booking and support for its franchisees. It has a great rewards program, making it slightly less price-sensitive. It’s also focused on growing its properties in the future. We see a lot of growth coming in the next decade, especially with its focus on business travel. With the resurgence in travel, over all, we believe Hilton is poised to do incredibly well.

What have you been selling?

We recently sold our position in Intact Financial Corp. IFC-T. Intact has been a great business for some time, but we don’t think it will be as strong going forward. There are a lot of risks with the changing environment, which we saw with the number of forest fires across Canada this summer, for example. We sold this position to purchase Hilton shares, which we felt was a better long-term investment.

Name a stock you wished you bought or didn’t sell.

SiteOne Landscape Supply Inc. SITE-N is a stock we sold in 2019 that I wished we hadn’t. We owned it for approximately three years. It’s a well-run business that we sold for a better investment opportunity. We bought Microsoft to replace SiteOne, which cushions the blow as the former has been and remains a fabulous investment.

What advice do you have for new investors?

Develop a financial plan and stick to it. Ideally, set aside a little bit from your paycheque every month and invest it. And take advantage of some of the tax incentive programs, such as the tax-free savings account or the new tax-free first home savings account. Also, invest in a few great businesses you understand and believe will likely be around for many years. Lastly, remember that economic downturns are a normal part of life and investing. There should be nothing to fret about if you have a long-term plan that you stick to.

This interview has been edited and condensed.

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