theglobeandmail.com
Buy and Hold Portfolio Adjusts After 19.8% Gain
A Canadian Buy and Hold portfolio, launched in June 2012, gained 19.8% in the last six months, reaching a 301.9% total return since inception; however, Toronto-Dominion Bank was replaced by Royal Bank of Canada due to a money-laundering scandal, while BCE Inc. is under observation.
- What immediate actions were taken to address underperforming stocks within the Buy and Hold portfolio, and what were the justifications for these changes?
- This Canadian Buy and Hold portfolio, launched in June 2012, achieved a 19.8% gain in the last six months, reaching a total return of 301.9% since inception. However, underperformance in Toronto-Dominion Bank (TD-T) and BCE Inc. (BCE-T) necessitates adjustments. TD Bank's money-laundering scandal negatively impacts its growth, prompting its replacement with Royal Bank of Canada (RY-T).
- What are the long-term implications for the portfolio given the changes made and the ongoing challenges faced by some of its holdings, and what potential future adjustments might be needed?
- Replacing TD Bank with Royal Bank of Canada mitigates the long-term risks associated with the money laundering scandal. Maintaining BCE Inc. for observation allows for potential recovery, given its high yield and apparent market pricing of a potential dividend cut. This proactive strategy balances risk mitigation with opportunities for future growth. The addition of shares in XBB and ENB further optimizes the portfolio's composition.
- How did the portfolio's overall performance during the last six months compare to its historical performance and its original target rate of return, and what factors contributed to these results?
- The portfolio's success stems from a long-term, high-quality stock strategy, primarily in Canadian and U.S. blue-chip companies. While the recent 19.8% gain is significant, the portfolio's long-term success (301.9% return since 2012) underscores its effectiveness despite specific stock underperformance. Strategic adjustments address emerging risks.
Cognitive Concepts
Framing Bias
The article frames the portfolio's overall performance positively, emphasizing the nearly 20 percent gain in the latest six-month period and the substantial returns since inception (301.9 percent). This positive framing overshadows the significant underperformance and potential long-term damage of specific holdings (BCE and TD Bank). The headline (not provided, but implied by context) likely highlights the overall portfolio gain, further reinforcing a positive narrative. The description of the portfolio's objective as 'slow but steady growth' is also framed positively, even though two major holdings are performing poorly. This positive framing might lead readers to overestimate the consistency and reliability of this particular buy-and-hold strategy.
Language Bias
While generally neutral, the article uses some language that could be considered slightly loaded. For example, describing the problems at TD Bank as 'serious and potentially long-lasting damage' is more emotionally charged than simply stating the facts of the situation. A more neutral alternative would be to describe the impacts of the scandal on the bank's financial outlook. Similarly, phrases such as 'hit a wall' and 'major concern' express opinions rather than objective observations. Replacing such terms with more neutral descriptions would improve objectivity and transparency. The repeated use of terms like "strong rally" and "strong gain" to describe positive stock performance are not inherently biased but contribute to the overall positive framing.
Bias by Omission
The article focuses heavily on the performance of individual stocks within the portfolio, providing detailed information on price changes and dividend payouts. However, it omits broader market context. While acknowledging the Bank of Canada's rate cuts, it doesn't discuss the overall economic climate or other factors that might have influenced the portfolio's performance. This omission limits the reader's ability to fully assess the success of the buy-and-hold strategy compared to alternative investment approaches. Further, the reasons for the underperformance of BCE Inc. and Toronto-Dominion Bank are only partially explained. While specific issues are mentioned (U.S. expansion for BCE, money-laundering scandal for TD), deeper analysis of market trends or competitive pressures affecting those companies is lacking. This might mislead readers into believing the problems are solely company-specific, when broader industry factors could also be at play. The space constraints inherent in a newsletter format likely contribute to these omissions, but the lack of broader context does present a limitation to the analysis.
False Dichotomy
The article presents a false dichotomy by suggesting that the only options are to either strictly adhere to a 'buy and hold' strategy or drastically alter the portfolio. It frames the decision to sell TD Bank and replace it as a deviation from the buy-and-hold approach, creating an implication that this is not a typical part of the strategy. The nuance of adaptive portfolio management, where adjustments are made based on significant changes or new information, is ignored. This simplification could misrepresent the reality of investment strategies, suggesting a rigid adherence to buy and hold is always the best option.
Sustainable Development Goals
The article discusses a portfolio