Gordon Pape: Even with the recent market pullback, my Buy and Hold portfolio is ahead of its targets

It’s great to be a buy-and-hold investor in a bull market. You can just sit back and watch the value of your portfolio increase a little more each month.

Bear markets are another matter. It’s stressful to watch your hard-earned profits melt away each month as the markets slide to even lower lows. Bear markets are the real test of whether you can stick to a buy and hold philosophy or give in to market pressure.

My Internet Wealth Builder Buy and Hold Portfolio, which celebrates its 10th anniversary this month, is a testament to why sticking to the plan through good times and bad will pay off. Despite some slippage over the last reporting period, the portfolio has posted an average annual compound rate of return of 11.43% since its inception ten years ago.

The portfolio has one fundamental purpose: to invest in great stocks and hold onto them no matter what the market does. The underlying thesis is that the long-term trend in markets is up. If you have good deeds, they will evolve with them.

The portfolio is comprised primarily of blue chip Canadian and US stocks that offer long-term growth potential. He also owns a bond ETF. The initial weighting was 10% for each stock, with the bond ETF starting with a 20% position. This has now been reduced because increases in equities have outpaced the bond market.

I used several criteria to choose the stocks. These included a superior long-term growth profile, industry leadership, a good balance sheet, a history of dividend increases and relative strength in bear markets.

The goal is to generate decent cash flow (all but one stock pays dividends), minimize downside potential, and provide slow but steady growth. The target rate of return was initially set at 8% per annum.

Here are the stocks we hold with commentary on their performance since my last review in December. Prices are from the afternoon of June 23.

iShares Canadian Universe Bond Index ETF (XBB-T). This is not a good time for bonds, to put it mildly. In fact, it’s the worst bond bear market I’ve seen since I started my career as a financial writer in the late 1980s. As of the June 22 close, this fund was down 13, 54% since the start of the year. This is almost unheard of for a universe bond fund and, unfortunately, the trend is likely to continue for a few more months. But bonds or their substitutes are an essential part of a long-term portfolio, so we have to accept the losses and wait for the inevitable turnaround. The price is down $4.12 per unit since the last review in December. We received distributions totaling 39.6 cents per unit.

BCE Inc. (ECB-T). BCE shares are down $3.36 since the last update. Due to the timing, we received three dividends during the period for a total of $2.715 per share.

Brookfield Asset Management (BAM.AT). After several years of steady gains, Brookfield has been hit hard by the market selloff, with its shares losing $16 in the past six months. Despite the pullback, the shares still look a bit pricey with an ap/e ratio of 18.29. We received two dividends for a total of 27 US cents per share.

Canadian National Railway Company. (CNR-T). CN has done very well for us, but a falling tide brings all the boats down. The stock is down $23.05 (14%) since our last review. Due to timing, we received three dividend payments totaling $2,081.

Enbridge Inc. (ENB-T). Here’s a change of pace. Enbridge shares have actually risen over the past period as the pipeline companies hold their ground in the market downturn. Shares are ahead $4.30 (9%) since the last review. We received two dividend payments for a total of $1.72 per share. The quarterly dividend was increased by 3% starting with the February payment.

Toronto-Dominion Bank (TD-T). TD increased its dividend by 13% starting in January, but the stock fell along with the rest of the financial sector, losing $12.49 (nearly 13%) per share. We received two dividend payments at the new rate of 89 cents per quarter for a total of $1.78 per share.

Alphabet Inc. (GOOGL-Q). When a stock is in the thousands, any setback hurts. In this case, shares have fallen $614.48 since the last review as the tech sector suffered a major correction. The drop has brought the p/e ratio down to a more reasonable level of 20.3, which could limit further decline. It is the only share of the group that does not pay a dividend.

UnitedHealth Group Inc. (UNH-N). Another winner. They are rare at the moment. It is the number one health insurer in the United States and the number one in our portfolio, with a total return of almost 370%. The shares have gained US$59.79 (13.6%) since our last review. We received three timing dividends for a total of US$4.55 per share. The quarterly payout was increased by 20 US cents per share (13.8 percent) to US$1.65, effective with the June payout.

Walmart Inc. (WMT-N). Walmart didn’t do much during this time. The shares fell US$1.44. We received a quarterly dividend of 55 US cents per share.

Cash. At the time of last review, we had cash and retained earnings totaling $3,483.40. We held the money in an EQ Bank Savings Plus account, which paid 1.25%. We earned interest of $25.40.

Here is the status of the portfolio as of June 23. For consistency, the Canadian and US dollars are presented at par. Trading commissions are not taken into account, although in a buy and hold portfolio they are by no means significant.

Buy and Hold portfolio (as of June 23)

Symbol weight % Shares Avg. the price Book value Current price Market value Retained earnings Loss of profit %
XBB-T 9.8 510 $31.43 $16,031.80 $27.38 $13,963.80 $212.55 -11.6
ECB-T 8.1 185 $46.67 $8,633.45 $62.18 $11,503.30 $660.97 40.9
BAM-AT 14.8 365 $16.44 $6,001.20 $57.61 $21,027.65 $362.74 256.4
CNR-T 11 110 $43.34 $4,767.35 $142.16 $15,637.60 $790.36 246.1
ENB-T 7.3 195 $41.97 $8,184.00 $52.97 $10,329.15 $416.45 31.3
TD-T 10.3 175 $43.07 $7,538.10 $84.01 $14,701.75 $634.80 103.5
GOOGL-Q 12.6 8 $794.49 $6,355.92 $2,244.84 $17,958.72 $0 182.6
UNH-N 15.8 45 $112.47 $5,061.15 $499.81 $22,491.45 $1,262.04 369.3
WMT-N ten 115 $108.82 $12,514.30 $123.62 $14,216.30 $752.10 19.6
Cash 0.3 $421.79 $447.19
Total 100 $75,509.06 $142,276.91 $5,092.01 95.2
Creation $49,945.40 195.1

comments: The new portfolio value (market price plus retained dividends/distributions) is $147,368.92. This compares to $161,269.71 at the time of last review, for a loss of 8.6%.

The only two winners in the last period were UnitedHealth and Enbridge. The biggest absolute dollar loser was Alphabet.

Since inception, we have had a total return of 195.1%. This represents a 10-year average annual compound growth rate of 11.43%. I believe most readers would be satisfied with this decade-long return, and it is well above our 8% target.

Changes: This is a Buy and Hold wallet, so I’m not making any changes to our holdings. The bond ETF is a drag on the portfolio at this point, but some of the stock losses have been worse (eg Alphabet).

We’re holding a lot of cash, so with prices falling, let’s put some of it to work, as follows.

BCE – We will buy 10 more shares at $62.18 for a total cost of $621.80. This will give us 195 shares. Retained earnings will fall to $39.17.

BAM.A – We will add five more shares at $57.61 for a total of $288.05. This will give us 370 shares. Retained earnings will fall to $74.69.

CNR – We have enough to buy five more shares at $142.16, for an outlay of $710.80. We now own 115 shares and have retained earnings of $79.56.

ENB – Enbridge is doing well these days, so we will be buying another five shares at $52.97 for a cost of $264.85. This will bring our position to 200 shares and leave $151.60 of retained earnings.

TD – We will buy five more shares at $84.01, for a cost of $420.05. We now own 180 shares and have retained earnings of $214.75.

WMT – We will buy five shares at $123.62 for a total outlay of $618.10. That leaves $134 in retained earnings.

We have cash and retained earnings of $2,615.55. We will transfer this money into the Wyth High Interest Savings Account, which currently pays 1.80%. Wyth was recently acquired by Equitable Bank and its deposits are covered by the Canada Deposit Insurance Corporation.

Here is the revised portfolio. I will update it in December.

Buy and Hold Wallet (Revised June 23)

Symbol weight % Shares Avg. the price Book value Current price Market value Retained earnings
XBB-T 9.6 510 $31.43 $16,031.80 $27.38 $13,963.80 $212.55
ECB-T 8.4 195 $47.46 $9,255.29 $62.18 $12,125.10 $39.17
BAM-AT 14.7 370 $17.00 $6,289.25 $57.61 $21,315.70 $74.69
CNR-T 11.2 115 $47.64 $5,478.15 $142.16 $16,348.40 $79.56
ENB-T 7.3 200 $42.24 $8,448.85 $52.97 $10,594.00 $151.60
TD-T 10.4 180 $44.21 $7,958.15 $84.01 $15,121.80 $214.75
GOOGL-Q 12.4 8 $794.49 $6,355.92 $2,244.84 $17,958.72 $0
UNH-N 15.5 45 $112.47 $5,061.15 $499.81 $22,491.45 $1,262.04
WMT-N 10.2 120 $109.44 $13,132.40 $123.62 $14,834.40 $134.00
Cash 0.3 $447.19 $447.19
Total 100 $78,458.15 $145,200.56 $2,168.36
Creation $49,945.40

Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.

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