theglobeandmail.com
Canadian Value Stock Portfolio Outperforms Market with 84% Return
The Screaming Value portfolio, investing in 10 Canadian stocks with the lowest EV/EBIT ratios monthly from the TSX's top 300, achieved an 84% return from September 2022 to December 2024, significantly outperforming the S&P/TSX Composite Index. This boosted its 25-year average annual return to 14.5%, exceeding the index's 7.2%.
- How does the portfolio's strategy of selecting stocks based on EV/EBIT ratios affect its performance and the number of stocks held over time, and what are the implications of this dynamic?
- The portfolio's success is attributed to its strategy of investing in the 10 Canadian stocks with the lowest EV/EBIT ratios each month from the TSX's top 300. This approach, while fluctuating in the number of stocks held, consistently outperformed market averages over 25 years. The higher returns are directly correlated to lower EV/EBIT ratios.
- What is the primary factor driving the Screaming Value portfolio's exceptional performance compared to market benchmarks, and what are its immediate implications for Canadian value investors?
- The Screaming Value portfolio, a Canadian value stock portfolio, achieved an 84% return from September 2022 to December 2024, significantly outperforming the S&P/TSX Composite Index's 59% gain during the same period. This boosted its 25-year average annual return to 14.5%, compared to the index's 7.2%.
- What are the long-term implications and potential risks associated with employing a low-EV/EBIT stock selection strategy, particularly during market volatility, and how does the risk-reward profile compare to market indices?
- Fixed-ratio portfolios, employing a consistent EV/EBIT threshold, revealed that lower thresholds yielded higher average annual returns (e.g., below 5 yielded 15.5%). However, lower thresholds also led to fewer investable stocks, highlighting a trade-off between return potential and investment flexibility. The number of stocks available increased significantly during market downturns, suggesting this strategy's counter-cyclical nature.
Cognitive Concepts
Framing Bias
The framing of the article is heavily positive towards low EV/EBIT value investing. The headline (not provided, but implied by the text) and the opening paragraph would likely emphasize the portfolio's impressive returns. The consistent use of positive language and the highlighting of exceptional past performance (84% jump) serves to promote this strategy. The inclusion of graphs further reinforces the positive narrative.
Language Bias
The article uses language that is generally positive and enthusiastic about the performance of the Screaming Value portfolio. Phrases such as "on a roll," "jumped 84 percent," "excellent – but very frightening – time to load up," and "high hopes" contribute to an optimistic and potentially biased tone. More neutral alternatives could include phrasing such as 'increased significantly,' 'experienced substantial growth,' 'presented an opportune, albeit risky, investment opportunity,' and 'positive outlook.'
Bias by Omission
The article focuses heavily on the Screaming Value portfolio's performance and the methodology behind it, but omits discussion of other investment strategies or market factors that could have contributed to the overall market gains. It also doesn't mention potential downsides or risks associated with this specific investment approach, beyond a brief mention of "dramatic downturns." The lack of comparative analysis with broader market trends beyond the S&P/TSX Composite Index limits the reader's ability to fully assess the portfolio's performance.
False Dichotomy
The article presents a somewhat false dichotomy by strongly emphasizing the success of low EV/EBIT stock portfolios while not adequately exploring other potential value investing strategies or market approaches. While it acknowledges that the availability of bargains may fluctuate, it doesn't fully address the complexities of market conditions and the limitations of solely relying on EV/EBIT ratios for investment decisions.
Sustainable Development Goals
The article highlights the significant returns of a value stock portfolio, indicating strong economic growth and potentially contributing to job creation within the Canadian market. The portfolio's performance suggests a healthy investment environment, which can stimulate economic activity and support decent work opportunities.