I want out of investing - options

[KJP]

e spent I've been experimenting with high-grading my ideas to invest in only the no-brainer ones over the last 3 years. Performance during this three year period has been about 25% per year.

 

My biggest holding by far right now is Dream Unlimited (DRM-T), a diversified real estate company. I bought it at various prices starting around 3 years ago. I think it's worth more than $20, currently trades close to $12, was $7 earlier this year. My average price is about $8. I expect to hold this one for at least another 7 years to make my total holding time 10 years or more. This one big, long term investment will probably replace 10 or 15 more average deals I could have done, so that is where the big time savings will come from.

 

The wrong thread to ask, but what do you think of the the Dream Global transaction and the seeming move away from third-party asset management (Dream Office restructuring, Dream Global deal, and increasing DRM ownership of Alternatives), which I thought I was the best part of the business?

[samwise]

 

I've been investing in stocks for 25 years, usually owning 5 to 7 at any one time. This level of concentration was not by design, but by having a pretty high bar for what I would invest in, usually 1 or 2 simple ideas per year would pass the hurdle. I focused almost entirely on small and obscure Canadian stocks, often special situations. My performance during that time was at or close to 25% per year, with a success rate of about 85% on the ideas I bet on. I can't remember if that ridiculous performance number includes leverage because I did leverage up after the two crashes in 2000 and 2008. Most of the time I was debt free. I don't pretend to be as good as those numbers suggest. I just think the area I was prospecting in--small and obscure Canadian stocks--has been able to offer up just enough really easy deals over the time I've been looking that I could get a good one once or twice a year if I searched enough.

 

I'm sure I could have just kept doing that, but about 3 years ago I decided to reduce the amount of time I was devoting to stock research. It struck me that over the 25 years I've been doing it, I have identified about 7 or 8 "no-brainer" ideas (one every 3 or 4 years) that I would put 20% into. All of them put up excellent 10 year+ records after that, whether I kept them that long or not, often I did keep them. More "average" ideas I would put in 10 or 15%. I realized that if I had simply stuck to those 7 or 8 "no-brainers" ignoring everything else, and put maybe 30% into them when I found them and held on, I would have done about as well or better than I did investing in the much larger number of "average" ideas I got into. So, in the interest of reducing time spent I've been experimenting with high-grading my ideas to invest in only the no-brainer ones over the last 3 years. Performance during this three year period has been about 25% per year.

 

My biggest holding by far right now is Dream Unlimited (DRM-T), a diversified real estate company. I bought it at various prices starting around 3 years ago. I think it's worth more than $20, currently trades close to $12, was $7 earlier this year. My average price is about $8. I expect to hold this one for at least another 7 years to make my total holding time 10 years or more. This one big, long term investment will probably replace 10 or 15 more average deals I could have done, so that is where the big time savings will come from.

 

Were most of your no brainer ideas in real estate?

[samwise]

For my Canadian investments I actually want just about anything but the banks and O&G.  Those Canadian banks are going to get wiped out like what happened in Europe. They really don't have a lot of equity relative to assets.  Somehow we managed to avoid a RE crash but if we ever have one they are in big trouble.

 

There are a lot of good quality small and midcaps that you have never heard of.  Industrials, tech, consumer Staples, the railways, that sort of thing.  That's what I want to own. I am going to find a fund that holds a bunch of those, throw some money in and walk away.

 

Banks have full recourse. They will most likely be fine in a real estate crash. I believe losses in the 1990 crash were < 10 bps. Yes their mortgage books probably don’t grow much, and multiple to book might compress, but this is not an existential crises.

[Rod]

e spent I've been experimenting with high-grading my ideas to invest in only the no-brainer ones over the last 3 years. Performance during this three year period has been about 25% per year.

 

My biggest holding by far right now is Dream Unlimited (DRM-T), a diversified real estate company. I bought it at various prices starting around 3 years ago. I think it's worth more than $20, currently trades close to $12, was $7 earlier this year. My average price is about $8. I expect to hold this one for at least another 7 years to make my total holding time 10 years or more. This one big, long term investment will probably replace 10 or 15 more average deals I could have done, so that is where the big time savings will come from.

 

The wrong thread to ask, but what do you think of the the Dream Global transaction and the seeming move away from third-party asset management (Dream Office restructuring, Dream Global deal, and increasing DRM ownership of Alternatives), which I thought I was the best part of the business?

 

That transaction surprised me. I didn't realize that DRM had such a large embedded incentive fee in Dream Global. They also have the same deal with Dream Industrial, 15% of gains on properties sold. Industrial trades at $14 now with a book value of $9.40. If you assume the market value of their buildings is reflected by the $14 price, then DRM has about $100 million of embedded incentive fees in Industrial, or about $1 per DRM share. I don't know if Industrial will get bought out, but that $100 million is a real asset for DRM and it's growing.

 

I think they are having some trouble growing the asset management business through the publicly traded REITS at the rate they would like, so they are going to pivot to private equity funds like Brookfield does. I think they have a good shot at this, given their performance track record is good. If they can build up private equity funds then I expect their asset management earnings can grow for a very long time.

[Rod]

 

I've been investing in stocks for 25 years, usually owning 5 to 7 at any one time. This level of concentration was not by design, but by having a pretty high bar for what I would invest in, usually 1 or 2 simple ideas per year would pass the hurdle. I focused almost entirely on small and obscure Canadian stocks, often special situations. My performance during that time was at or close to 25% per year, with a success rate of about 85% on the ideas I bet on. I can't remember if that ridiculous performance number includes leverage because I did leverage up after the two crashes in 2000 and 2008. Most of the time I was debt free. I don't pretend to be as good as those numbers suggest. I just think the area I was prospecting in--small and obscure Canadian stocks--has been able to offer up just enough really easy deals over the time I've been looking that I could get a good one once or twice a year if I searched enough.

 

I'm sure I could have just kept doing that, but about 3 years ago I decided to reduce the amount of time I was devoting to stock research. It struck me that over the 25 years I've been doing it, I have identified about 7 or 8 "no-brainer" ideas (one every 3 or 4 years) that I would put 20% into. All of them put up excellent 10 year+ records after that, whether I kept them that long or not, often I did keep them. More "average" ideas I would put in 10 or 15%. I realized that if I had simply stuck to those 7 or 8 "no-brainers" ignoring everything else, and put maybe 30% into them when I found them and held on, I would have done about as well or better than I did investing in the much larger number of "average" ideas I got into. So, in the interest of reducing time spent I've been experimenting with high-grading my ideas to invest in only the no-brainer ones over the last 3 years. Performance during this three year period has been about 25% per year.

 

My biggest holding by far right now is Dream Unlimited (DRM-T), a diversified real estate company. I bought it at various prices starting around 3 years ago. I think it's worth more than $20, currently trades close to $12, was $7 earlier this year. My average price is about $8. I expect to hold this one for at least another 7 years to make my total holding time 10 years or more. This one big, long term investment will probably replace 10 or 15 more average deals I could have done, so that is where the big time savings will come from.

 

Were most of your no brainer ideas in real estate?

 

No, just Dream Unlimited and Morguard. Though there have been some really good microcap real estate bargains over the years. Those weren't long term holds, however.

[coc]

Thanks for elaborating Rod. Seems sensible.

 

What I'm about to say is probably useless to you given that you like broad diversification, but here goes:

 

In recent years I've been owning fewer and fewer stocks to the point where I now will usually own only three or four. I made a conscious decision to focus only on "no-brainer" ideas. The kind of idea that I might find only once every three or four years. By "no-brainer" I mean a stock that is a great company or very solid infrastructure like asset that is selling for one-third or less of my estimate of intrinsic value. Waiting for no-brainers means letting a bunch of good ideas go by. When I find the no-brainer idea I will put 30% or more into it. The fact that the undervaluation is so extreme means I can hold it for many years and make high returns the whole way. I usually think in terms of making 10x in 10 years. A single idea like that can replace 10 or 15 more typical value ideas because I'm putting maybe 3x more money into and holding it 5x longer. So I've found it to be a huge time saver on research. It's also more fun in my opinion to focus on only your best ideas and hold them long term. So far, it's working very well.

 

Out of curiosity, what ideas have fallen into this net since you switched? How long has it been? No need to give current ideas if you don’t want to share them, older ones are fine.

 

I've been investing in stocks for 25 years, usually owning 5 to 7 at any one time. This level of concentration was not by design, but by having a pretty high bar for what I would invest in, usually 1 or 2 simple ideas per year would pass the hurdle. I focused almost entirely on small and obscure Canadian stocks, often special situations. My performance during that time was at or close to 25% per year, with a success rate of about 85% on the ideas I bet on. I can't remember if that ridiculous performance number includes leverage because I did leverage up after the two crashes in 2000 and 2008. Most of the time I was debt free. I don't pretend to be as good as those numbers suggest. I just think the area I was prospecting in--small and obscure Canadian stocks--has been able to offer up just enough really easy deals over the time I've been looking that I could get a good one once or twice a year if I searched enough.

 

I'm sure I could have just kept doing that, but about 3 years ago I decided to reduce the amount of time I was devoting to stock research. It struck me that over the 25 years I've been doing it, I have identified about 7 or 8 "no-brainer" ideas (one every 3 or 4 years) that I would put 20% into. All of them put up excellent 10 year+ records after that, whether I kept them that long or not, often I did keep them. More "average" ideas I would put in 10 or 15%. I realized that if I had simply stuck to those 7 or 8 "no-brainers" ignoring everything else, and put maybe 30% into them when I found them and held on, I would have done about as well or better than I did investing in the much larger number of "average" ideas I got into. So, in the interest of reducing time spent I've been experimenting with high-grading my ideas to invest in only the no-brainer ones over the last 3 years. Performance during this three year period has been about 25% per year.

 

My biggest holding by far right now is Dream Unlimited (DRM-T), a diversified real estate company. I bought it at various prices starting around 3 years ago. I think it's worth more than $20, currently trades close to $12, was $7 earlier this year. My average price is about $8. I expect to hold this one for at least another 7 years to make my total holding time 10 years or more. This one big, long term investment will probably replace 10 or 15 more average deals I could have done, so that is where the big time savings will come from.

[no_free_lunch]

I put some funds (maybe 5%) into beutel goodman small cap (BTG104), series F.  It has an expense ratio of 1.2% which is obviously high but much lower than competitors.  If you look at their track record they have beaten the markets going back 5/10/20 years even with expenses considered.  I am not sure it is so much that they are superior stock pickers, I think it is that they avoided energy / materials.  I suspect this is the ballpark natural result if you invest in non fraudulent canadian companies and further reduce the energy/materials exposure.

 

Otherwise I have found a couple investments.  This was mostly the result of scanning the investments these various funds hold.  So as usual I am hedging and will have to continue stock picking with a portion of my funds.

[CorpRaider]

You should probably just DCA into world index funds and/or BRK. 

 

You guys can get some not horrible options in Canada.

[vinod1]

I find it increasingly difficult / impossible to run my portfolio.  It is simply too time consuming to research individual stocks given how diversified I like to be.  I am looking for options.  I am a Canadian investor.

 

I know i should buy ETFs but I just don't like how popular they are.  I feel that mutual funds are my best option.  I am hoping someone can provide some good suggestions.  Mawer and Beutel Goodman look interesting.  Are there any other names people like?

 

I came the other way around. Moved from indexing (between 2001 to 2005) to active investing (from 2006 onwards). I would suggest reading The Four Pillars of Investing by William Bernstein. Of all the books it has the most intellectually honest case for indexing.

 

It has the answers you are looking for and it provides a detailed rationale for that approach. The main thing is you need to buy into that approach and it should make sense to you. Otherwise, something might cause you to change the strategy probably at the wrong time.

 

Even if you do not go with indexing, atleast you would have thought through the issues presented and take a different approach if that is what you want to do.

 

Vinod

[no_free_lunch]

Vinod, I really only have confidence in index funds for large cap US.  However, the valuations of the indices are really high.  I have a small amount, maybe 10% in an S&P500 index but I am not willing to go all in on it.

 

I also added MAW105.  This is an incredibly boring fund but they have been pumping out 8% returns for 30 years.  Their results over the past 15 years (2004-2019) are 7.8% vs 1.3% for their index.  It is not going to get me rich over night but I can work with these numbers.  I don't doubt results could be lower going forward, if the economy tanks say, but if they can get some alpha then I should still do okay.

[RadMan24]

A few options. You can take whatever insights you have and apply it to ETFs. For example, if you feel like financials are undervalued or hated, buy the financial sector ETF. If you want to get completely out, mutual funds of interest include Sequoia Fund (post-Valeant) or a S&P 500 Fund run by Gotham Funds.

[CorpRaider]

Wanted to mention a few good, cheap, legit value etfs for OP to look at:  ZIG, QVAL, IVAL, DVP, RPV.  You could also just do the RAFI etfs from Schwab or like DTD.  You get a nice, dynamic, value tilt but still get broad exposure and low tracking error (if that matters to you).