Think like a top Canadian portfolio manager to make smart moves in the market

Following the advice of an experienced and successful Canadian portfolio manager can lead you to the best investing practices

Top-quality stocks tend to lose less of their value in the kind of severe market setback we’re experiencing today. They also tend to bounce back nicely when conditions improve. These are the kinds of stocks we continue to recommend in our newsletters and other services.

To build a portfolio of those stocks—and to show the best long-term results, Pat McKeough still thinks you should stick with his three-part program:

  1. Hold mostly high-quality, dividend-paying stocks.
  2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
  3. Downplay or stay out of stocks in the broker/media limelight.

Meanwhile, it’s our view that the best Canadian portfolio managers will use these principles to choose and monitor the investment holdings they make for individuals or institutions. Portfolio managers choose from a range of investments, including stocks and bonds, to maximize returns for their clients.


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A top Canadian portfolio manager might tell you that the best stocks to own all have this in common

The best stocks to hold in your portfolio all give you reason to believe they might be worth holding on to indefinitely.

Most of these stocks have an established business and a history of sales gains, plus some earnings, if not dividends. To put it more simply: these stocks have a clear business plan that seems to be working.

Of course, stocks like these will still suffer in a deep market downturn like we’ve seen in the wake of COVID-19. They may also suffer in the shallower, shorter downturns that come along more often. But most recover quickly when the market revives, as it always does. In fact, stocks like these may lead the inevitable market recovery.

Although, these are the kind of stocks we think are worth holding on to indefinitely, we keep an open mind. After all, they are subject to the usual risks. Competitors can overtake them. Expected contracts can fall through. They can lose key employees, run into union or regulatory problems, and so on.

Of course, nobody can predict the future, but the best of the bunch will offset your losers and leave you with highly satisfactory long-term returns.

Use these five skills of a top Canadian portfolio manager to make more successful investing decisions

  • Learn all you can about your investments. Frequently visit the websites of the companies you invest in. Get on their email lists and read their quarterly and annual reports. Ask your broker for research reports. Read the business news every day.
  • Take a broad view. Consider earnings, dividends and other factors in making portfolio management decisions. They matter far more than short-term stock-price trends.
  • Invest consistently. Don’t follow a portfolio management strategy of trying to buy at the bottom or sell at the top. Pick out a selection of well-established companies, and then invest gradually over a period of years. Plan to hold indefinitely. You can always change your mind and sell if fundamentals deteriorate or your needs change.
  • Practice “dollar cost averaging.” Invest the same dollar amount on a regular basis. That way you’ll buy more shares when prices are low, and fewer when they’re high.
  • Beware of advisor failings. Some advisors are “permabears”—perpetual pessimists. Others are blind to risk, so they recommend investing in speculative stocks at outrageously high levels.

Use this advice on selling stocks from a successful Canadian portfolio manager

Experienced investors can tell you that some of their best stock picks started going up out of proportion to what they expected, and kept outperforming for years. By the time the first significant “dip” or setback comes along with a stock like this, it may have tripled.

Remember, no one can predict which stocks will be average performers, which will be losers, and which ones will turn into the super stocks that wind up rising 5 times or 10 times the price you paid for them, or even more. You may avoid some temporary losses if you sell every stock you own that goes up faster than you guessed. But do that, and you will also sell any super stocks you stumble upon, often when they are just getting started. You need a few super stocks during your investing career, to make up for the inevitable losses.

When a stock Successful Investors own is unexpectedly strong, they resist any impulse they feel to sell, even if you like the idea of “nailing down a profit.” Instead, they look at it closely to see if they can find any good reason to sell, apart from the fact that it’s beating their expectations.

If Successful Investors can’t find any good reason to sell, then they hang on to it.

Recognize these two common errors often made by unsuccessful Canadian portfolio managers so you can avoid their mistakes

  • Becoming more “bullish,” or optimistic, because stock prices have gone up. Some investors only feel safe buying stocks after prices have risen. This is opposite to the way you make most purchases (cars, clothing, etc.) Ordinarily, it’s better to buy when prices go down, not up.
  • Becoming more “bearish,” or pessimistic, because stock prices have gone down. When other investors sell and drive prices down, you may wonder if they know something you don’t. However, random influences may be at work.

What is the worst or best advice you’ve ever received from a portfolio manager?

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