Stocks for a 15-20 Year Hold Time

[bizaro86]

I manage very small portfolios for each of my children in Canada's RESP program. It is designed to save for children's education, and comes with a government grant on contributions, as well as tax deferral (and eventual taxation in the children's name). However, the limits are relatively low, and so each year I have a few thousand dollars to invest for each child in their account.

 

Because of the small-dollar annual investments, I've been trying to do a "keeper" stock strategy to keep trading costs down. Essentially, buying one stock per kid each year and holding it until maturity. Therefore, I'm looking for quality businesses that can reasonably be expected to have decent business results for a long period of time, trading at reasonable valuations. (Simple, right?)

 

Anyway, my picks so far have been:

Year 1) Canadian index fund

Year 2) Partners Value (a leveraged play on BAM)

Year 3) DIS

Year 4) One kid got CNQ, one got AER

 

This is year 5 of the portfolios, and I'm not sure where to go next, so I thought I'd throw it open for discussion.

 

I'm considering Viacom, although I'm not sure if that has the set-it-and-forget-it business quality I'm looking for. I'm also thinking Fedex will be a reasonable compounder after they get past their fleet renewal capex. I still like COST but the price is too high to add here. Probably right now I'm leaning BRK.B, but would love suggestions/comments. I might split between the kids again as well.

[Guest cherzeca]

spy

[longlake95]

It sounds like you have an RESP for each kid. You can have a "family" resp, so, I have one account 2 kids. That way you have more $$$ in the account and you can buy bigger positions and diversify. Mine is held with CIBC Investors Edge...probably Canada's worst bank-broker...LOL.

 

LL

[bizaro86]

It sounds like you have an RESP for each kid. You can have a "family" resp, so, I have one account 2 kids. That way you have more $$$ in the account and you can buy bigger positions and diversify. Mine is held with CIBC Investors Edge...probably Canada's worst bank-broker...LOL.

 

LL

 

Yeah, I could merge it into a family account. Except they're held (by historical mistake) at 2 different brokers and 1 in my name and 1 with my wife. The cost of getting it merged exceeds the present value of the commission stream I expect to pay.

 

I like this idea anyway, because it isnt very much work, and I think it will be useful as an educational tool when they're a bit older. Both because it is an understandable strategy and because it will show significant gains on single positions, which hopefully helps underscore the value of compounding.

[bizaro86]

spy

 

Reasonable choice and would be easy. I have an index fund in there already, want to do one new position per year, and this doesn't seem like an optimal entry point into SPY to me.

 

 

[thepupil]

I would recommend against this path where each kid ends up with very concentrated positions in different stocks. there are situations where this ends poorly.

 

I know of a situation where grandparents had given two siblings some stocks for education. one siblings account had a big position in GE; another had a big position in XOM. the financial crisis was far more devastating to GE. unintended inequity was the result.

 

I'd recommend ETF's/indices or berkshire (less likely to have a high variance outcome, but still a single stock) for this purpose.

[writser]

To get them interested you could also buy a basket of consumer stocks they’d know, i.e. Mattel, Coke, Disney, Google, McDonalds, etc. Add a new one every year. Maybe not the best option from a rational perspective but I always though that would be a cool way to teach kids a bit about investing. You could also buy 1 share of such a company each year and put the rest in an index fund.

 

Then you can act like an annoying dad every once in a while: “you know, when I buy a happy meal you earn 0.0000001 cents!” etc.

[bizaro86]

I would recommend against this path where each kid ends up with very concentrated positions in different stocks. there are situations where this ends poorly.

 

I know of a situation where grandparents had given two siblings some stocks for education. one siblings account had a big position in GE; another had a big position in XOM. the financial crisis was far more devastating to GE. unintended inequity was the result.

 

I'd recommend ETF's/indices or berkshire (less likely to have a high variance outcome, but still a single stock) for this purpose.

 

This is something I have considered, and is why I'm planning to mostly do the same positions (3/4 identical right now). These portfolios are already getting diversified and will continue to get more so over time, which should help as well.

 

The dollar amounts are small enough here that I will make up any differences for fairness purposes. I'm willing to take more risk than an index here, because effectively this money is mine with a long time horizon. It will almost certainly not cover the cost of school/starting-in-life, so I expect to add funds for both from other resources, and this is a small portion of total assets.

 

Your point about equity is well taken, and you've convinced me to make the positions the same this year/going forward. Even perceived unfairness is probably a bad idea, and it's hard to feel two accounts that are exactly the same is unfair...

 

 

[Jurgis]

I agree with people suggesting indexes. If you don't want to buy SPY or Canadian index, then why not international index? (Yeah, US is gonna trounce rest of the world forever and all that.  8) )

 

Overall, if anyone is planning to buy-and-forget-and-hodl(sic) for 15-20 years, IMO indexes are the only choice. Even for companies like KO, BRK, MSFT, etc 15-20 year future is unknowable. It's different story if you plan to buy-and-watch-and-infrequently-sell-and-replace. Then BRK maybe. Or any other companies that you like with 5-10 year horizons.

 

OTOH, theoretically, you could buy a selection of (strong) businesses and mostly-hodl and maybe do OK: https://www.morningstar.com/articles/960641/the-strange-and-happy-tale-of-voya-corporate-leaders-trust . It's quite possible though that it was easier to pick 10 businesses for long term in 1935 than now...  8)

[Gregmal]

I would suggest Pure Cycle or Madison Square Garden.

 

Pure Cycle basically owns the MPC and will reap build out dollars; effectively a large string of one off gains that eventually bridge the gap to the highest quality recurring revenue stream- municipal water servicing. It is 15 miles from downtown Denver/4 miles from DIA and is located in basically the only place left to develop in that MSA. You have tremendous 5-10 year visibility. The only thing that stops it is probably a wide spread economic recession, which history has shown us, probably will effect everything else as well, if not more so.

 

Madison Square Garden(if post spin, the sports teams) owns one of a kind, trophy assets. Historically, it doesnt matter what decade you start and what decade you end at, sports teams are mind bogglingly good investments. Even lousy ones. Here you get the best ones, at a discount.

[Guest cherzeca]

for a 15-20 year horizon i would minimize event risk and diversify...some great companies will have bad setbacks over this horizon so diversify so you dont hold the great company that screwed up.  maximize confidence of good returns over possibility of great returns over a long horizon

[wabuffo]

Madison Square Garden(if post spin, the sports teams) owns one of a kind, trophy assets.

 

Not to hijack this thread, but Forbes just came out with its yearly NBA sports franchise values and the Knicks are no. 1 at $4.6B.  Historically, Forbes' valuations have been under the level at which transactions occur.  FWIW.

 

https://www.forbes.com/sites/kurtbadenhausen/2020/02/11/nba-team-values-2020-lakers-and-warriors-join-knicks-in-rarefied-4-billion-club/#6f4c918e2032

 

wabuffo

[Cigarbutt]

I can share some experience but will not go into specific names or ideas.

I've got three children who have reached higher education and the fourth one (if past results are indicative of future events) should reach the goal in 5 years.

 

I've used a similar "strategy" as in other accounts and it made it easier for decisions (consistency). In retrospect, I'm glad I did that.

A "family account" is practical as funds fed into the RESP can be transferred and used for children who actually access higher education (something which is hard to predict early on) and you can deal with "fairness" in due course according to your values etc. Getting children involved in investment decision making has not worked out (they're OK with an annual bird's eye review but are not into reading 10-Ks) so they don't care what's in their investment accounts.

 

In the last few years, I've confirmed an interesting planned 'strategy' that is within the rules of the RESP game. Once a child reaches higher education (and accumulated funds start to get paid out), you can retire the "capital" invested in the family account under the specific child's name and re-deposit the amount in the family account under another younger child's name which gives access to another round of government grants. The number of times you can do this is (n-1)!, n being the number of children you have. In my part of our great country, the federal grant is 20% and the provincial grant is 10% and it looks like I will get 1.8x the "capital" (at least for the initial capital and there is an absolute maximum of grants $ per child) invested just with the grants alone. So, potentially useful. To do this out-and-back-in thing, there are no specific restrictions at the federal level. At the provincial level, the grant is given only to the extent of the net positive transfer of capital per calendar year, so some planning required once that phase is reached.

 

Good luck.

 

Personal note: Within my acquaintances, extended family etc, the only people doing this effectively don't really need to do it which is food for thought from a policy point of view but that's another story.

[bizaro86]

I agree with people suggesting indexes. If you don't want to buy SPY or Canadian index, then why not international index? (Yeah, US is gonna trounce rest of the world forever and all that.  8) )

 

Overall, if anyone is planning to buy-and-forget-and-hodl(sic) for 15-20 years, IMO indexes are the only choice. Even for companies like KO, BRK, MSFT, etc 15-20 year future is unknowable. It's different story if you plan to buy-and-watch-and-infrequently-sell-and-replace. Then BRK maybe. Or any other companies that you like with 5-10 year horizons.

 

OTOH, theoretically, you could buy a selection of (strong) businesses and mostly-hodl and maybe do OK: https://www.morningstar.com/articles/960641/the-strange-and-happy-tale-of-voya-corporate-leaders-trust . It's quite possible though that it was easier to pick 10 businesses for long term in 1935 than now...  8)

 

I like an international index more than I like SPY right now (because I think valuation matters). And obviously I'm going to continue watching these, and if something happens to go Tesla-Parabolic I would sell, or sell if the thesis changed etc. The goal would be to hold them all for the full time period, but I'm willing to pay attention.

 

The Voya trust is exactly the idea I'm going for here, with hopefully a more updated group.

[SharperDingaan]

Just to throw out a different approach ;)

 

Contribute the first dollars to the RESP limit, then every other $ to your mortgage as additional principal repayment.

Every 20K or so, increase the mortgage, buy a Sched-A bank in the kids accounts, margin to 50%, and repay 10K of mortgage.

Repeat every 3-4 years or so.

 

There's little risk to holding a Sched-A bank, dividends typically increase over time (raising CF and value), it is tax efficient, and CF will more than cover interest. Your mortgage will also be paid off years early, leaving free CF just as the kids are going to school. After the kids graduate, remortgage to the amount received over the years, and contribute the cash to their RRSP. Which they can then re-lend to themselves as a discretionary repayment zero-interest mortgage (ie: down payment equity).

 

Different value-add.

 

SD

 

 

 

 

 

[bizaro86]

Just to throw out a different approach ;)

 

Contribute the first dollars to the RESP limit, then every other $ to your mortgage as additional principal repayment.

Every 20K or so, increase the mortgage, buy a Sched-A bank in the kids accounts, margin to 50%, and repay 10K of mortgage.

Repeat every 3-4 years or so.

 

There's little risk to holding a Sched-A bank, dividends typically increase over time (raising CF and value), it is tax efficient, and CF will more than cover interest. Your mortgage will also be paid off years early, leaving free CF just as the kids are going to school. After the kids graduate, remortgage to the amount received over the years, and contribute the cash to their RRSP. Which they can then re-lend to themselves as a discretionary repayment zero-interest mortgage (ie: down payment equity).

 

Different value-add.

 

SD

 

Interesting. Our mortgage is paid off already. I only bought on margin during 2008-2009, and had it paid off very quickly. I would expect to use the HELOC capacity from our house (which is already arranged) to make investments if/when there is another large downturn.

[SharperDingaan]

I can share some experience but will not go into specific names or ideas.

I've got three children who have reached higher education and the fourth one (if past results are indicative of future events) should reach the goal in 5 years.

 

I've used a similar "strategy" as in other accounts and it made it easier for decisions (consistency). In retrospect, I'm glad I did that.

A "family account" is practical as funds fed into the RESP can be transferred and used for children who actually access higher education (something which is hard to predict early on) and you can deal with "fairness" in due course according to your values etc. Getting children involved in investment decision making has not worked out (they're OK with an annual bird's eye review but are not into reading 10-Ks) so they don't care what's in their investment accounts.

 

In the last few years, I've confirmed an interesting planned 'strategy' that is within the rules of the RESP game. Once a child reaches higher education (and accumulated funds start to get paid out), you can retire the "capital" invested in the family account under the specific child's name and re-deposit the amount in the family account under another younger child's name which gives access to another round of government grants. The number of times you can do this is (n-1)!, n being the number of children you have. In my part of our great country, the federal grant is 20% and the provincial grant is 10% and it looks like I will get 1.8x the "capital" (at least for the initial capital and there is an absolute maximum of grants $ per child) invested just with the grants alone. So, potentially useful. To do this out-and-back-in thing, there are no specific restrictions at the federal level. At the provincial level, the grant is given only to the extent of the net positive transfer of capital per calendar year, so some planning required once that phase is reached.

 

Good luck.

 

Personal note: Within my acquaintances, extended family etc, the only people doing this effectively don't really need to do it which is food for thought from a policy point of view but that's another story.

 

As is well know, we had two nephews growing up in the UK.

Everyone in the family is well versed in physics, chemistry, biology, etc; and my job was to teach the nephews 'business' and  'money management' - obviously as a former bootlegger, there are lots of opportunities. Everything went great until the youngest concluded there was way more money in making meth, and accidentally set off a flash fire in the basement - converting a home-made still that I'd quietly shown him how to build. Lots of drama, mostly first degree burns and some burnt hair, but that was the end of his business career. Be careful what you wish for, and keep your siblings thousands of km away!

 

SD

 

 

[Viking]

My experience is the simpler i can keep things the better (both mentally and return wise). I would bite the bullet and merge the two into one. Investing decisions get more simple. Allows for maximum flexibility at withdrawal time. My guess is your improved returns over time will more than offset the financial hit in the short run.

 

Give the long time horizon why not wait 6 months or longer for a nice fat pitch. They usually happen about every 2-3 months. Because your portfolio will be fairly concentrated it makes sense to have a high bar in terms of what/when to buy.

 

I have posted this before... i have three kids and started a group RESP when the 3rd was born putting in $2,000 each ($6,000 total). The government added 20% so i started with $7,200. We never put any more money in. When my oldest started university (Sept 2018) the RESP was $104,000. My guess is the RESP will pay for 1/2 of each kids post secondary schooling. The keys to compounding were:

1.) low fee structure (self directed RESP so low cost to execute trades)

2.) one account for all three kids: made investment decisions very easy, especially in the early days when the $ amounts were lower

3.) of all my investment accounts, over the years only my very best ideas went into my RESP (and TFSA’s). I was very patient when making buys.

4.) i was not afraid to concentrate when great opportunities appeared

5.) i was not buy and hold for 14 years; buy low and sell high

 

Today all three of my kids understand they have an RESP and its total value. There are no sibling issues in terms of how big ‘their’ account is. Just a bucket of money to help them get a post secondary education and hopefully graduate debt free :-)

 

Good luck :-)

[bizaro86]

I can share some experience but will not go into specific names or ideas.

I've got three children who have reached higher education and the fourth one (if past results are indicative of future events) should reach the goal in 5 years.

 

I've used a similar "strategy" as in other accounts and it made it easier for decisions (consistency). In retrospect, I'm glad I did that.

A "family account" is practical as funds fed into the RESP can be transferred and used for children who actually access higher education (something which is hard to predict early on) and you can deal with "fairness" in due course according to your values etc. Getting children involved in investment decision making has not worked out (they're OK with an annual bird's eye review but are not into reading 10-Ks) so they don't care what's in their investment accounts.

 

In the last few years, I've confirmed an interesting planned 'strategy' that is within the rules of the RESP game. Once a child reaches higher education (and accumulated funds start to get paid out), you can retire the "capital" invested in the family account under the specific child's name and re-deposit the amount in the family account under another younger child's name which gives access to another round of government grants. The number of times you can do this is (n-1)!, n being the number of children you have. In my part of our great country, the federal grant is 20% and the provincial grant is 10% and it looks like I will get 1.8x the "capital" (at least for the initial capital and there is an absolute maximum of grants $ per child) invested just with the grants alone. So, potentially useful. To do this out-and-back-in thing, there are no specific restrictions at the federal level. At the provincial level, the grant is given only to the extent of the net positive transfer of capital per calendar year, so some planning required once that phase is reached.

 

Good luck.

 

Personal note: Within my acquaintances, extended family etc, the only people doing this effectively don't really need to do it which is food for thought from a policy point of view but that's another story.

 

Interesting! Thanks for posting. My children are very close in age, and I expect to access the full grant for both prior to the older graduating high school. I agree that is a creative way of maximizing grant money! I agree that these grants largely benefit people who dont need them. I think the other thing they do is encourage people to get involved with some of the borderline-predatory organizations that sell plans. From a public policy point of view they probably aren't ideal. From a personal point of view I pay enough tax I dont feel bad maximizing value to myself.

 

I appreciate the commentary on the children's interest. This seems like a more approachable portfolio design as compared to my "regular" portfolio, which has similar names plus special situations and deep value stuff. So using it as a teaching tool is definitely part of my motivation here.

[bizaro86]

My experience is the simpler i can keep things the better (both mentally and return wise). I would bite the bullet and merge the two into one. Investing decisions get more simple. Allows for maximum flexibility at withdrawal time. My guess is your improved returns over time will more than offset the financial hit in the short run.

 

Give the long time horizon why not wait 6 months or longer for a nice fat pitch. They usually happen about every 2-3 months. Because your portfolio will be fairly concentrated it makes sense to have a high bar in terms of what/when to buy.

 

I have posted this before... i have three kids and started a group RESP when the 3rd was born putting in $2,000 each ($6,000 total). The government added 20% so i started with $7,200. We never put any more money in. When my oldest started university (Sept 2018) the RESP was $104,000. My guess is the RESP will pay for 1/2 of each kids post secondary schooling. The keys to compounding were:

1.) low fee structure (self directed RESP so low cost to execute trades)

2.) one account for all three kids: made investment decisions very easy, especially in the early days when the $ amounts were lower

3.) of all my investment accounts, over the years only my very best ideas went into my RESP (and TFSA’s). I was very patient when making buys.

4.) i was not afraid to concentrate when great opportunities appeared

5.) i was not buy and hold for 14 years; buy low and sell high

 

Today all three of my kids understand they have an RESP and its total value. There are no sibling issues in terms of how big ‘their’ account is. Just a bucket of money to help them get a post secondary education and hopefully graduate debt free :-)

 

Good luck :-)

 

Thanks so much for sharing, and congratulations on your results! My % returns were spectacular in my older sons RESP prior to executing this strategy. Basically I just did odd lot tenders. Now there is too much money for that to provide effective percentage returns, and odd lot tenders are less frequent as well.

 

Concentration is an interesting one (and very contrary to the consensus advice so far which has been to index). On the one hand concentration seems likely to increase volatility. On the other hand this is a small percentage of my total assets and has a long time horizon, so increased volatility for higher returns would be worth it.

 

So far I'm happy with the returns from this strategy (all have outperformed the Canadian indices materially since purchase, except the ETF which matched). I expect to wait for a bargain, but will take your advice about waiting for a very fast pitch to heart. I dont see anything that is a true no-brainer right now from a long term perspective (and PVF.UN and DIS at the prices I bought them were obvious values).

[bizaro86]

I would suggest Pure Cycle or Madison Square Garden.

 

Pure Cycle basically owns the MPC and will reap build out dollars; effectively a large string of one off gains that eventually bridge the gap to the highest quality recurring revenue stream- municipal water servicing. It is 15 miles from downtown Denver/4 miles from DIA and is located in basically the only place left to develop in that MSA. You have tremendous 5-10 year visibility. The only thing that stops it is probably a wide spread economic recession, which history has shown us, probably will effect everything else as well, if not more so.

 

Madison Square Garden(if post spin, the sports teams) owns one of a kind, trophy assets. Historically, it doesnt matter what decade you start and what decade you end at, sports teams are mind bogglingly good investments. Even lousy ones. Here you get the best ones, at a discount.

 

These are interesting ideas. So far my plan has been to buy good businesses (high ROE type stuff). This is in many ways the opposite - both are low cash flow, high appreciation assets probably trading a discount to current value. I already have a small PCYO stake in another account.

[Spekulatius]

I have  similar account for my son, and my holdings are BRK.B, GOOG, CMCSA and JNJ. I have explained to him what every company is doing and he actually encouraged me to buy more GOOG. His portfolio actually has outperformed mine overall (mostly due to being overweight GOOG). I initially had some FRFHF in it, but decided  its not a buy and forget investment, so I sold it.

[LC]

Just to throw out a different approach ;)

 

Contribute the first dollars to the RESP limit, then every other $ to your mortgage as additional principal repayment.

Every 20K or so, increase the mortgage, buy a Sched-A bank in the kids accounts, margin to 50%, and repay 10K of mortgage.

Repeat every 3-4 years or so.

 

There's little risk to holding a Sched-A bank, dividends typically increase over time (raising CF and value), it is tax efficient, and CF will more than cover interest. Your mortgage will also be paid off years early, leaving free CF just as the kids are going to school. After the kids graduate, remortgage to the amount received over the years, and contribute the cash to their RRSP. Which they can then re-lend to themselves as a discretionary repayment zero-interest mortgage (ie: down payment equity).

 

Different value-add.

 

SD

You've always got such creative financing ideas; a real treat to read. Thanks for the food for thought. Cheers.

[petec]

We have a slightly different setup in the UK, in that I can invest in child ISAs (tax free savings accounts) and SIPPs (tax free pension accounts) every year until the child is 18. My kids own BAM, FFH, and two funds whose managers I know well & like (one global, one Latin American). I am likely to hold them all for a long time but will watch and rejig if theses change.

[thowed]

Quite fascinating hearing about some of these very concentrated 'coffee-can' portfolios.  I wonder how many of them apart from Spekulatius's have outperformed their parent's?

 

It's interesting to consider the different elements that might affect this too, namely:

 

1: Concentration

2: Very low turnover

3: Fear of losing money for a 'client' is greater than for yourself, which focuses the mind.

 

To add - if you can access it in Canada, I'd look at the Akre Focus fund (though he's getting on - I don't know what happens when he retires), which to me is like S&P500 +, quality large-cap portfolio with low-turnover.

 

Also, PeteC, curious about your other 2 funds if you don't mind me asking.  LatAm is so tricky - the Findlay Park fund was the one I was most impressed with (now at Brown Harriman), plus Stewart/First State, and Arisaig.  Was never sure about the Aberdeen IT, though I haven't looked at it recently.