Graham’s Way–Case Study

How well does Graham’s way work?  Well back in 2013, I picked the following stocks, with the following criteria:

Stingy Stock Criteria
1. A member of the TSX
2. Low Debt-to-Equity Ratio
3. Price-to-Earnings less than 10
5. Some Cash Flow from Operations
6. Positive Earnings

7. Good Dividend Yield


 I chose 10 stocks from the Canadian TSX, and bought equal weighted positions, if it were a $10,000 portfolio, this is the result after 4 years:

Name Symbol Price Shares Cost basis Mkt value Gain Gain %
IAMGOLD Corp IMG 5.75 185 1000.85 1063.75 62.9 6.28
Penn West Petroleum Ltd PWT 1.90 108 1004.4 205.2 -799.2 -79.57
Canadian Imperial Bank of Commerce CM 105.28 13 1047.41 1368.64 321.23 30.67
National Bank of Canada NA 53.01 27 1027.89 1431.27 403.38 39.24
TELUS Corporation T 45.98 28 1015.00 1287.44 272.44 26.84
Sun Life Financial Inc SLF 44.28 36 1023.12 1594.08 570.96 55.81
Power Corporation of Canada POW 28.96 40 1004.8 1158.4 153.6 15.29
Canadian Tire Corporation Limited CTC.A 152.62 15 1010.55 2289.3 1278.75 126.54
Enbridge Inc ENB 52.00 24 1020.96 1248 227.04 22.24
Bank of Montreal BMO 90.99 17 1034.28 1546.83 512.55 49.56
10189.26 13192.91 3003.65 29.29%


Did I beat the index?  TSX gained around %22.6 percent… so yes in fact I have %29 capital gains.  Don’t forget I haven’t factored in the dividends, so I did even better if I enrolled in a dividend reinvestment plan.

Just for asset allocation, you can see I have stocks in very different sectors. I picked:  Three bank stocks (CM,NA,BMO)   30%,  Three resource (PWT, ENB, IMG) 30%, Two utilities (POW, T) 20%, one retail (CTC) %10, and one insurance (SLF) %10.

Gold and oil were really gaining right before I bought the above, they were also under performers for the next 4 years.  If all I had was just oil or gold stocks instead of diversifying, I would have realized a loss.  The best portfolio is one that includes all sectors, and at least 10 stocks.  It’s like a bell curve, if you only buy a few stocks you risk missing the really good ones.  (This works for markets too–I only bought Canadian stocks, but US stock and emerging markets have performance so much better).  Beware of buying too much, too broad a portfolio dilutes your returns and flatten your return to zero.  Too narrow and you carry too much risk (imagine if you has just bought into oil, you would be down 50-70%).  Zero doesn’t sound bad, until you realize the TSX index made 22%, and without going through the hassle of stock picking.

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