My Top 5 Canadian & U.S. Stock Positions

 “Don’t tell me what you think, tell me what you have in your portfolio.”
― Nassim Nicholas Taleb, Skin in the Game: Hidden Asymmetries in Daily Life

I remember hearing Taleb use this quote in an interview when promoting Skin in the Game. The quote is so simple, yet profound...I absolutely love it. Although I try to be transparent in showing my Investment Holdings, I admit I'm slow to update these holdings, and my Transaction Journal. Furthermore, I don't feel comfortable posting exactly how many shares I own in companies, which limits my transparency. 

After writing over the summer about the top five Canadian and U.S. companies I'd be comfortable holding for 10 years, I decided to post the below two lists to check if I'm "eating my own cooking". As a reminder, these were the five Canadian and U.S. companies I said that I'd be comfortable holding for 10 years:

My top five Canadian and U.S. holdings by value on November 20, 2020 were as follows: 

Top 5 Canadian Holdings

1. Brookfield Infrastructure Partners L.P. (BIP.UN)

2. Granite REIT (GRT.UN)

3. Telus Corp (T)

4. A&W Revenue Royalties Income Fund (AW.UN)

5. Fortis Inc. (FTS)

Top 5 U.S. Holdings:

1. McDonald's Corporation (MCD)

2. Microsoft Corporation (MSFT)

3. National Storage Affiliates Trust (NSA)

4. Johnson & Johnson (JNJ)

5. Digital Realty Trust, Inc. (DLR)

I'm pretty consistent on the Canadian side, with the only difference being my fourth largest holding, A&W Revenue Royalties Income Fund replacing Royal Bank. There's two big reasons for this discrepancy. First reason is that since I own seven Canadian banks, I've been reluctant to invest a large amount in any one. This is partly due to my job, but also speaks to my trying to avoid being overconfident in any given Canadian bank. Secondly, with the hindsight afforded to me with the current pandemic, I am definitely overweight in A&W, despite really liking the strategic decisions management had made for this restaurant chain. I'm in no rush to make any big changes currently to my A&W holding, but will likely look to decrease it after the pandemic is behind us. 

I'm less consistent in the U.S., having large positions in National Storage Affiliates and Digital Realty Trust in my portfolio, instead of Realty Income and Amazon. After first sampling National Storage late last year, I've added twice more in 2020 during which the company has produced some very solid results that have lead to a higher share price. Frankly, I'm fine with this position having grown steadily as the company boosted their dividend twice by ~6% combined over the past year. Digital Realty has also been a steady performer during the pandemic, the share price has risen, and I haven't actually added to my position since September 2018. Realty Income is my eighth largest U.S. position, but I will likely add to it before year end boosting it up to closer to total value of Digital Realty. Although I like the company's proven business model, I am a little fearful of their theatre, gym and retail exposure during the pandemic. Lastly, I haven't yet bitten the bullet and invested in Amazon. Reasons for this is my current quest to avoid making stupid mistakes during the pandemic by buying companies beyond my circle of competence that don't pay dividends, the recent European Union investigation into Amazon's use of third-party sellers' data, and Bezos' admission to congress that he couldn't guarantee Amazon employees didn't use proprietary data in order to compete with third-party sellers. 

Overall, I feel what I say and what I do are pretty consistent, with some obvious gaps, especially related to Amazon. There's always room for improvement and being consistent will definitely be an area of focus for this blog going forward. 

Avoiding Stupid Investment Mistakes During the Pandemic

Within the first month of moving into our house with my then-girlfriend, now wife, I shrunk one of her favourite sweaters. Over the next eight years, I have only managed to replicate this embarrassing feat once more. I attribute this improvement to my choosing a very risk-averse approach of air drying almost all of my wife’s shirts, sweaters and pants, rather than risk shrinking another item in the dryer. My wife finds my over-reaction of barely ever using the dryer on any potentially shrinkable items humorous. Now that we’re both working from home out of the office in our basement, after I’ve put the clothes on a drying rack and start the dryer with mainly my clothes and those of my kids, my wife often checks what is on the rack, and moves the majority of her clothes into the dryer. She then usually laughs at me and tells me not to worry about shrinking her t-shirt, pajama pants, pullover, etc.. Despite these repeated assurances from her, I continue to put the great majority of her clothes on the rack each time I perform this part of the laundry.

I share this anecdote with you as I'm worried about making preventable mistakes since my portfolio has been negatively impacted this year due to the coronavirus pandemic. Between Canadian banks being told by the national regulator not to increase their dividends, A&W suspending and then decreasing their distribution due to lower traffic in their restaurants, and the disruption to retailers caused by local restrictions that has meant landlords like Brookfield may have to rethink their distributions, I've been feeling the will to undertake more transactions than I normally would in order to avoid more dividend cuts. Instead of going crazy, and totaling revamping my dividend growth strategy in the middle of this pandemic, I am making a conscious choice to hold off on making any huge changes until after covid-19 is behinds us. A large part of my reasoning to ride this out is based on my desire to avoid making mistakes similar to those of shrinking my wife's clothes. 

To avoid making a bunch of mistakes in the middle of the covid-19 pandemic, I decided to focus on my process for choosing investments. By following the short checklist below, I hope to simplify my investment decisions and keep focused on my long-term goal of financial independence through dividend growth investing.

 

1.       Does the company pay a dividend/distribution of at least 2%/3%?

2.       Has the company increased their dividend/distribution by at least 5%/2% in the last 12-months?

3.       Is the dividend/distribution sustainable as evidenced by a TTM EPS/FFO payout rate of 80%/90% or less?

4.       Is the price of this company reasonable indicated by a P/E or P/FFO of 25X or less?

5.       If this is a new position, what exposure does this company provide that current companies in my portfolio do not?

6.       If this is a new position, what is the thesis of why this company is undervalued?

Here's hoping that after covid-19 is behind us, my investment portfolio looks more like an organized, well sorted drying rack, like that curated by my wife today.