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Inside the Market Through the market turbulence, my Buy and Hold Portfolio continues to gain ground

These are the times that try our souls – especially if you’re a buy and hold investor.

As stocks tumbled last week, the obvious temptation was to sell everything and run for the hills. But doing so would defeat the whole purpose of buy and hold. You have to stick it out for the long haul, which means in good times and bad. Choosing good companies, stay with them, and avoid emotional reaction to market swings.

The strategy works. Despite the sharp correction we experienced in recent weeks, my Buy and Hold Portfolio gained ground in the latest six-month period and is averaging a return of better than 11 per cent annually since it was launched in June 2012.

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The goal of this portfolio is very simple – invest your money in great stocks and then hold on to them, no matter what the market is doing. Over the long term, you should enjoy very healthy results even though there will be times, like now, when your patience will be sorely tested.

The Buy and Hold portfolio focuses on blue-chip stocks that offer long-term growth potential, but it also has a small fixed-income holding. The original weighting was 10 per cent for each stock with a bond ETF given a 20-per-cent position.

I used several criteria to choose the stocks including a superior long-term growth profile, industry leadership, good balance sheet, and relative strength in down markets.

The objective is to generate decent cash flow (all the stocks but one pay dividends), minimize downside potential, and provide slow but steady growth. The target rate of return is 8 per cent annually.

These are the securities we hold with comments on how they performed since my last review, which was based on results to June 20. Prices are as of the afternoon of Dec. 6.

iShares Canadian Universe Bond Index ETF (XBB-T). Bond prices continued to soften as interest rates rose, and the unit price was down 42 cents since the June review. However, we received distributions of 44.2 cents, so we ended the period with a small gain on this position.

BCE Inc. (BCE-T). After a taking a big hit last winter and spring, BCE shares rallied and posted a gain of $3.22 in the latest period. Because of timing, we received only one dividend payment during the period, totaling 75.5 cents per share.

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Brookfield Asset Management (BAM.A-T). Brookfield stock was trading in the $59 range in late November but lost some ground during the correction. However, it is still up by 75 cents a share since the time of the last review. We received two dividends totallng 30 US cents per share during the period.

CN Rail (CNR-T). CN shares held their ground since the last review, adding 49 cents. We received two dividends of 45.5 cents per share for a total of 91 cents.

Enbridge (ENB-T). Enbridge had been struggling to regain market momentum since the merger with Spectra raised concern about its debt level and its ability to fund new products. The stock has been range-bound in recent months, but it managed a small 32-cent gain in the latest period. We received two dividends for a total of $1.342 per share.

Toronto Dominion Bank (TD-T). Bank stocks have faltered despite rising interest rates, which normally boosts their profits. TD shares lost $6.43 in the period since June 20. We received two dividend payments for a total of $1.34 per share.

Alphabet (GOOGL-Q). Tech stocks were oversold and are now paying the price for investor over-enthusiasm. The stock is down US$116.49 since the last update, although we still have a healthy gain since it was adding to the portfolio. This is the only stock in the group that does not pay a dividend.

UnitedHealth Group (UNH-N). This health insurer stock continues to perform very well for us. It gained US$21.79 per share in the latest review period. We received two quarterly dividends of 90 US cents per share, which represented a 20 per cent increase over last year.

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Walt Disney Corp. (DIS-N). Disney stock has been strong recently and was not greatly affected by the market retreat. The shares are up $7.16 since the last review and we received a semi-annual dividend of 84 US cents per share in July.

Cash. At the time of the last review, our cash reserves, including retained dividends, were $2,142.09. We invested that money at 2.3 per cent in an account with EQ Bank, earning $24.63 in interest.

Here is the status of the portfolio as of the afternoon of Dec. 6. For consistency, the Canadian and U.S. dollars are considered to be at par. However, the currency differential increases U.S. dollar gains (or losses) for Canadians. Trading commissions are not factored in although in a buy and hold portfolio they are not significant in any event.

Symbol Weight % Shares Avg. price Book value Current price Market value Retained dividends Gain/Loss %
XBB 14.5 460 $31.39 $14,440.10 $30.39 $13,979.40 $367.23 -0.006
BCE 8.9 150 $43.74 $6,561.25 $57.17 $8,575.50 $602.83 39.9
BAM.A 14 240 $23.48 $5,635.15 $55.98 $13,435.20 $72.00 139.7
CNR 11.8 105 $44.11 $4,179.00 $107.90 $11,329.50 $417.58 181.1
ENB 7.1 160 $41.59 $6,663.15 $42.75 $6,840.00 $230.50 6.1
TD 11 150 $42.04 $6,305.60 $70.35 $10,552.50 $610.12 77
GOOGL 8.9 8 $794.49 $6,355.92 $1,074.09 $8,592.72 $0 35.2
UNH 12.8 45 $112.47 $5,061.15 $274.55 $12,354.75 $401.64 152
DIS 10.7 90 $50.29 $4,525.75 $114.23 $10,280.70 $221.40 132.1
Cash 0.3 $275.23 $299.86
Total 100 $60,002.30 $96,240.13 $2,923.30 65.3
Inception $49,945.40 98.5

Comments: The new portfolio value (market price plus retained dividends/distributions) is $99,163.43, compared to $97,781.38 at the time of the last review. That represents a gain of 1.41 per cent over the period. That may not seem like much but given the recent market retreat, I think most readers would be content with any gain at all.

Several of our stocks turned in solid gains in the period, especially BCE, UnitedHealth, and Disney. The big losers were Alphabet and TD Bank – both sound companies that will recover.

Since inception, we have a total return of 98.5 per cent. That represents an average annual compound growth rate over six and a half years of 11.13 per cent, which is well ahead of our 8-per-cent target.

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Changes: We will add to our positions in two securities:

XBB – We will buy 10 more units at $30.39 for a cost of $303.90. This will give us 470 units and will reduce the retained earnings to $63.33.

BCE – We have enough accumulated dividends to purchase another 10 shares at a cost of $571.70. That will leave us with $31.13 in cash.

We will keep our cash of $2,347.56 in our EQ Bank account, which is continues to pay 2.3 per cent.

Here is a look at the revised portfolio. I will update it again in June.

Symbol Weight % Shares Avg. price Book value Current price Market value Retained dividends
XBB 14.8 470 $31.37 $14,744.00 $30.39 $14,283.30 $63.33
BCE 9.4 160 $44.58 $7,132.95 $57.17 $9,147.20 $31.13
BAM.A 13.8 240 $23.48 $5,635.15 $55.98 $13,435.20 $72.00
CNR 11.7 105 $44.11 $4,179.00 $107.90 $11,329.50 $417.58
ENB 7 160 $41.59 $6,663.15 $42.75 $6,840.00 $230.50
TD 10.9 150 $42.04 $6,305.60 $70.35 $10,552.50 $610.12
GOOGL 8.8 8 $794.49 $6,355.92 $1,074.09 $8,592.72 $0
UNH 12.7 45 $112.47 $5,061.15 $274.55 $12,354.75 $401.64
DIS 10.6 90 $50.29 $4,525.75 $114.23 $10,280.70 $221.40
Cash 0.3 $299.86 $299.86
Total 100 $60,002.30 $97,115.73 $2,047.70
Inception $49,945.40

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters.

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