The unique strategy that works for this $170,000 TFSA investor

(Courtesy of Brendon Lee)

Brendon Lee

AGE: 44
PLACE: British Columbia
TFSA TOTAL: $173,456
STRATEGY: Stocks picked through market timing, global geopolitical and financial trends as well as shopper’s behaviour

TFSA holdings

Stock Total ($) % of portfolio
BP Plc. (BP:NYSE) $17,442 10%
Crescent Point Energy (CP:TO) $30,314 17.5%
Sienna Senior Living (SIA:TO) $6,330 3.6%
Visa Inc. (V:NYSE) $94,644 54.7%
American Dep. Receipts (ADRs) $22,924 13.2%
Cash $ 1,802 1%
TOTAL: $173,456 100%

Brendon is 44 years old and runs his own business. Born in British Columbia, these days, he’s living in New Zealand but his passion is helping his 77-year-old dad pick stocks for his TFSA. Brendon’s dad, who also lives in B.C., opened a TFSA in 2009 and has made contributions annually since then. Right now, that TFSA totals $173,456. Brendon has always been curious to find out if there were many people with sizeable TFSAs but his search hadn’t proved fruitful. “Individuals with high balance TFSAs is not something easily found in the public record,” says Brendon. “I myself have been looking online—in Reddit, finance forums, etc.—but I have not come across anything other than the odd article of some guy that got lucky on some Over-The-Counter (OTC) stock.” (These are stocks that don’t trade on a major stock exchange.)

READ: A near-perfect TFSA for avid stock pickers

It’s true. TFSA investors with close to $180,000 in their TFSAs are rare. Brendon and his dad have a strategy that works for them. Brendon has a good background in finance as well as a passion for following news and market trends. These two things have helped him and his dad grow this TFSA over the last nine years and today it’s worth more than three times the cumulative total of his dad’s $57,500 in contributions over the years. “I don’t have a strategy that’s easy to replicate and I know that most advisors wouldn’t approve of it, but it works for me and my dad,” says Brendon “In the big scheme of things, it’s not a lot of money and we’re willing to hold long-term, so we’re comfortable with it.”

After studying for his Bachelor of Commerce in Finance in B.C. in his 20s, Brendon married and moved to New Zealand, where he is living now. But he likes to take an active researching role when it comes to picking stocks for his dad’s TFSA. “When news of the TFSA came out I urged dad to open up an account,’ says Brendon. “The amounts involved for annual contributions were small but I’ve enjoyed growing it with him.”

In the beginning, it was fairly easy to grow the TFSA. In fact, all the TFSA money each year was invested in only one stock, Visa Inc. (V:NYSE). The purchases were made early and he and his dad had the exchange rate going for them in those first few years.

It’s only in the last four years that three more stock holdings have been added and they include integrated oil and gas company BP Plc. (BP:NYSE) and retirement home operator Sienna Senior Living (SIA:TO). The fourth stock is Crescent Point Energy (CPG.TO), a move Brendon says was highly speculative and dependant on the outcome of the Canadian oil industry in the coming years. “We know that holding only four stocks in total would be against the advice of most financial advisors but who’s to say we’re looking for average returns,” says Brendon. “What people tell you is be sure to ‘diversify your risk’. But what they don’t tell you is that when you diversify, you also lower the return on investment.”

READ: A TFSA strategy in need of diversification

In the early years of the TFSA, the Great Financial Crisis (GFC) happened and at that time the Canadian currency was on par or higher than the U.S. dollar so the TFSA looked for U.S. stocks.  “For most of those early years I held only one stock—Visa—and as the stock market recovered the strategy changed. We had an oil crash so we bought shares of BP. Then the CAD exchange rate was out of our favour so we looked at Canadian equities but with a different requirement, the third being SIA.TO for a dividend play because everything else seemed to be overpriced.” The TFSA is usually fully invested and holds little cash.

The TFSA’s main strategy is a buy-and-hold.  In fact, the pair hasn’t sold a single stock since the inception of the TFSA, so Brendon likes to say they “buy for keeps.” The reasoning is that passive investing will outright beat active investing. “When you know the company is going to be around for a long time then why sell?” questions Brendon. “Because when you sell for a gain, then you’ve created another problem, namely, what to do with the cash? Let it sit while you watch that same stock go up in price, and then feel you shouldn’t have sold so you try to buy it back again but at a much higher price? This is the game active fund managers try to do and it doesn’t work well.”

At any time, the decision to buy stocks highly depends on national and global factors at the time. That means looking at the geopolitical events around the world, right down to what people are doing at the micro level—so an understanding of what happens at the macro and micro level is helpful. Brendon explains. “An example of a macro observation would be Trump imposing tariffs on various goods, such as iPhones. A micro observation would be seeing the behaviour of your friends and other people you see around you in day-to-day activities and trying to understand why they still buy iPhones. And as almost a golden rule, we only buy on a market correction, so look to when the price has been beaten down and get ready to buy more when the price goes lower.”

READ: A 50-50 TFSA with lots of growth potential

Brendon and his dad also don’t put much value on reading a company’s financial statements. “They provide very little information, and mostly tell the investor just what the company wants them to know—so window dressing,” says Brendon. “Actually, looking at insider trading data may be more useful because if an insider such as a chairman or director of a company is buying or selling tremendous amounts of their own stock, then you have to question it. That’s useful information.”

As for selling winning stocks, Brendon’s investment philosophy is against it. In fact, he strongly believes that you should not sell any of your TFSA holdings—even in bad times like the Great Financial Crisis of 2008-2009. “The time to be out of the stock market would be a time of anarchy and chaos and as far as I can see, the world is nowhere near that state,” stresses Brendon. “Many people were advising selling stocks in 2017, saying Trump is going to ruin the world,” says Brendon. “Well, it so happens 2017 was one of the best years for the U.S. equity market.

And while Brendon feels that an interest rate increase is long overdue, he doesn’t think it will affect the stock market that much. He also knows that he and his dad don’t have an easy-to -replicate strategy but it works for them. Brendon’s lesson? “Buy when markets are in chaos and hold when markets are doing well—forever if you can.” This strategy is working for him and his dad and he plans on sticking with it.

What the pro says

“Brendon strikes me as more like someone who’s looking for recognition for his positive outcome than for actual advice, per se,” says Indusrial Alliance Securities portfolio manager John DeGoey. “My sense is that it’s unlikely he’d change his approach no matter what I (or anyone else) writes. As such, I’ll confine my comments to making various observations.” Here are DeGoey’s comments for Brendon.

“Brendon’s portfolio reminds me of an old adage: concentrate to make money; diversify to keep money. So far, he’s only experienced the first part.”

Brendon is both passive and active as an investor, depending on how you define those terms. “He’s passive in that he buys and holds cost-free products for indefinite periods of time,” says DeGoey. “He’s active because he’s a market-timing stock picker. As such, Brendon is correct that his approach is indeed both unique and something that few reputable advisors would recommend.”

It’s always important to remember what the end goal of the TFSA is. “What is this money to be used for?” asks DeGoey. “Is age a factor? What about risk tolerance? Specifically, can his dad handle the potentially significant fluctuations that wouldn’t faze Brendon?”

And finally, “rather than presume to tell Brendon how to proceed (if it ain’t broke…), I’ll just wish him success in the future,” says DeGoey.


The post The unique strategy that works for this $170,000 TFSA investor appeared first on MoneySense.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *