Hunting for value in the stock market

Transcription

1 Hunting for value in the stock market Canadian MoneySaver Seminar February 28, 2015 Norm Rothery, PhD, CFA Slide 1 of 20 Norm Rothery 2015

2 Overview Before starting out Picking the right path Balance Dividends Value Slide 2 of 20 Norm Rothery 2015

3 Before starting out Spend less than you earn Annual income 20 pounds, annual expenditure 19 pounds 19 and 6, result happiness. Annual income 20 pounds, annual expenditure 20 pounds ought and 6, result misery. - Charles Dickens Be debt free I've seen more people fail because of liquor and leverage - leverage being borrowed money. - Warren Buffett Have a rainy day fund T-Bills ~0.5% Savings ~1% Plan for large ticket items Insurance Slide 3 of 20 Norm Rothery 2015

4 Investment Road Map Portfolio Size Expertise Start with Balance Any Any Dividend Investing $50,000+ Moderate Value Investing $50,000+ Above Average Slide 4 of 20 Norm Rothery 2015

5 Fee Drag Growth per $1 invested 0.00% 0.25% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% $60 $50 $40 $30 $20 $ Date (Jan Dec ) $0 Slide 5 of 20 Norm Rothery 2015

6 Taxing Gains Growth per $1 invested 0.00% 2.00% 2.50% 23% Tax $60 $50 $40 $30 $20 $ Date (Jan Dec ) $0 Slide 6 of 20 Norm Rothery 2015

7 Yikes! Growth per $1 invested TSX Fees Taxes Inflation $100 $10 $ Date (2.5% Fund Fees, 23% Capital Gains Tax) $0 Slide 7 of 20 Norm Rothery 2015

8 Minimizing Regret Performance Each Year (%) Mawer '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Bond Equity New Cda U.S Int'l Global S Balanced Slide 8 of 20 Norm Rothery 2015

9 Balanced Funds Low-cost easy-to-hold portfolios Fund Name Fee Bonds/Stocks Style Mawer Balanced 0.96% 40%/60% Active Mawer TE Balanced 0.98% 40%/60% Active Steadyhand Founders 0.69%-1.34% 45%/55% Active TD Balanced Index (I) 0.89% 50%/50% Index CIBC Balanced Index Premium 0.39%* 43%/57% Index Slide 9 of 20 Norm Rothery 2015

10 Index Investing Simple very-low-cost portfolios ETF Name Fee (~) Weight Vanguard Canadian Aggregate Bond (T:VAB) 0.23% 40% Vanguard Total World Stock (N:VT) 0.18% 60% 0.20% 100% ETF Name Fee (~) Weight Vanguard Canadian Aggregate Bond (T:VAB) 0.23% 40% Vanguard FTSE All-World ex Canada (T:VXC) 0.29% 40% Vanguard FTSE Canada (T:VCE) 0.10% 20% 0.20% 100% Slide 10 of 20 Norm Rothery 2015

11 U.S. Bond Market Yield (%) Date (Data Source: Robert Shiller) Slide 11 of 20 Norm Rothery 2015

12 U.S. Stock Market Valuation 25% 20% CAPE Earnings Yield Dividend Yield Yield 15% 10% 5% 0% Date (Data Source: Robert Shiller) Slide 12 of 20 Norm Rothery 2015

13 Simple 10-Year Return Forecast Asset Class Input Forecast Weight Canadian Bonds World Stocks Yield 1.4% 1.4% 40% Dividend Yield 2.3% Earnings Yield 5.3% Average 3.8% 3.8% 60% ~3% 100% Slide 13 of 20 Norm Rothery 2015

14 Canadian Dividend Advantage Growth per $1 invested $210 $140 $70 High Yield (15.6%) Market (10.8%) Low Yield (9.7%) No Yield (3.6%) $ Date (Data Source: Kenneth French, Value Wt) Slide 14 of 20 Norm Rothery 2015

15 U.S. Dividend Advantage Growth per $1 invested $120 $100 $80 $60 $40 $20 High Yield (13.2%) Highest Yield (12.5%) Low Yield (12.2%) Medium Yield (12.0%) No Dividend (11.6%) Lowest Yield (10.6%) $ Date (Source: Kenneth French, Value Wt) Slide 15 of 20 Norm Rothery 2015

16 Dogs of the TSX Start with the 60 stocks in the S&P/TSX 60 Buy the 10 top yielding stocks Rebalance each year Average Annual Returns Period David Stanley's Variant Index % 9.9% Slide 16 of 20 Norm Rothery 2015

17 Long-Term Dividend Stocks Voya Corporate Leaders Trust Fund Series B Started in 1935 with 30 U.S. dividend payers Changes due to spin-offs, mergers, or dividend cuts Now holds 22 U.S. dividend payers Average Annual Returns Period Trust S&P 500 DJIA % 10.6% 7.2% Slide 17 of 20 Norm Rothery 2015

18 Canadian Value vs. Glamour Growth per $1 invested $160 $140 $120 $100 $80 $60 $40 $20 Low P/E (14.5%) Market (10.8%) High P/E (7.2%) $ Date (Data Source: Kenneth French, Value Wt) Slide 18 of 20 Norm Rothery 2015

19 U.S. Value Ratios Annual Outperformance Highest Ratios Lowest Ratios EV/EBITDA -5.1% +3.7% P/E -3.6% +3.4% P/CF -3.9% +3.4% EV/CF -2.0% +2.9% P/B -1.4% +2.8% EV/S -5.7% +2.5% P/FCF -2.5% +2.0% P/S -5.5% +1.3% Source: What Works on Wall Street, James O'Shaughnessy, Deciles, Slide 19 of 20 Norm Rothery 2015

20 Hunting for value in the stock market by Norman Rothery On The Web YouTube: Stingy Investor Slides Further Reading A Random Walk Down Wall Street by Burton G. Malkiel The Intelligent Investor by Benjamin Graham Contrarian Investment Strategies by David Dreman What Works on Wall Street by James P. O'Shaughnessy Deep Value by Tobias E. Carlisle Advanced Topics Security Analysis Value Investing by Benjamin Graham by James Montier Slide 20 of 20 Norm Rothery 2015