Big Names and the Long-Term

Gordon Beals is an "active" 47 years of age. he does "enjoyable" work for the federal government and can retire in five years with 70% of his salary. But Gordon has no intention of retiring because he really likes his job.

The accompanying chart shows the 'composite' revenue and earnings profiles for the top ten holdings in the Beals' $60,000 collection from ShareOwner's Low Cost Investing Program. The Beals' investment money is divided about 65/35% between a trading account and an RSP account in Mrs. Beals' name.

The Beals have three children, with the eldest heading for university this Fall. Gordon plans on introducing them to his style of investing when each finishes school.

This case study profiles successful investing strategies practiced by busy, self-reliant investors looking to earn a superior rate of return over the longer term. The focus is on: What They Buy? How They Buy? and When They Sell? Names have been modified to ensure confidentiality.

Please describe your portfolio.

I have diversified holdings divided between generally bigname stocks, mutual funds and exchange-traded funds. As far as asset allocation goes, I try to keep 25% of the overall portfolio in the U.S. market, 25% in Canada, 25% in world markets, and the remaining 25% in rental properties.

What kind of stocks do you buy?

I consider myself to be an aggressive investor because I don't hold any bonds. But, to some extent, my pension is like a bond - I know it will always pay out enough to live on.

To minimize risk though, I only buy stocks that are big enough to survive difficult times and still do well over the long haul. The big mutual funds and exchange-traded funds [ETFs] are highly diversified so they will survive too.

I'm pretty cheap when it comes to commissions and fees. That's why I buy stocks and ETFs through ShareOwner. And, I only buy the big funds with the lowest expense ratios.

I try to balance things further by owning about 2 to 4 stocks from each of ShareOwner's Health Care, Wealth Management, Technology, and Consumer collections. I believe in the long term upward trend of these sectors.

How do you choose specific stocks for your portfolio?

First, the stocks have to be available through ShareOwner's list. I use it for my Canadian and U.S. big-name stocks and the international ETF.

I started the portfolio in 2002, and did my initial screen by looking at all the little charts near the centre of the magazine. And I read the more detailed write-ups as well.

For the most part I picked larger companies from the four collections and used the Gold Service to keep costs down when buying so many stocks every three months.

On an ongoing basis I use the Stock Study Guides published in ShareOwner. I pay special attention to the Buy and Sell price zones. I have very little technical training so the articles are helpful.

Your portfolio's composite EPS profile shows a sharp decline and rebound from several stocks experiencing unusual or cyclical adjustments like TD Bank, BCE, Bombardier and Intel. How do you handle that volatility?

All of these companies have, world-class operations and are large enough to survive occasional setbacks. Plus their longer term prospects are attractive.

TD's earnings have come back nicely after the write-offs in 02. So have Intel's, it couldn't do much about the big slowdown in the tech sector. Bombardier's turning around and streamlining their operations, while still winning significant contracts globally.

And, BCE is proceeding with its convergence model which I think has lots of potential to be an attractive alternative to cable.

Why did you choose to buy stocks every three months instead of more or less frequently?

I buy quarterly to take advantage of dollar-cost averaging. If share prices fall, I am buying more units. This is also a good approach for someone like me with very little spare time. The money automatically comes out of an account, so I don't have to remember to take care of it.

How do you keep track of your portfolio's progress?

This again is consistent with my macro approach. I review my portfolio twice a year. Once in the spring when the income tax refund comes in. This allows me to rebalance using the refund. The next time I review is in early December to set up the coming year's automatic purchases in my Gold Plan. Again, I rebalance things with my goals for 25% content from each of Canada, the U.S. and world markets.

I also rebalance within the Wealth Management, Health Care, Technology and Consumer Goods sectors.

How do you decide what and when to sell?

I have only sold one stock so far, Theragenics from the Health Care sector. The stock had too much volatility for my liking. There were a few newspaper articles about regulatory approval of a product. And, the price fluctuated greatly. I began to think they were not big enough to weather very many storms.

Besides price volatility, are there any other things that would cause you to sell?

I think long term. Because this money is for longer-term plans, I will sell a stock if and when it reaches the upper limits of my price targets.