I know a lot of our readers will be excited to hear your thoughts on a variety of topics, so thank you so much for spending this time with me.

Thanks, Matt for the opportunity to contribute to the blog. 

You created Beating the TSX in the 1990s.  Can you tell us about the circumstances that led to its creation?

My investment story began in 1995, the year I retired from the University of Guelph after 25 years of teaching and research. Up to that point, I had collected a few mutual funds and some Canada Savings Bonds, usually at the urging of family, friends and colleagues, but I was counting on my defined-benefit (DB) pension to see me through. The first thing I did after retirement was to dig into the plan and discuss its merits with other retirees (yes, I should have done that long before!). The result was that it became clear to me that I would be wise to buttress my income with other investments. This led to a great deal of reading and contemplation. One gift that I was given when I retired was a subscription to the ‘Canadian MoneySaver’, an independent magazine that focussed on advice to individual investors. Then I saw an article that I thought contained an error so I contacted the Editor, Dale Ennis, and that led to his suggestion that I consider becoming a contributor. At that time I had just finished reading ‘Beating The Dow’, a book by Michael O’Higgins in which he laid out a simple approach to dividend investing that had handily beat the U.S. Dow blue-chip index over a long period of time. It seemed so easy that I wondered if it would work in Canada and I decided to find out. I spent several months back-testing it only to find out that it performed even better here with TSX 60 stocks than with the U.S. index. I wrote my first ‘Beating The TSX’ column for the MoneySaver in June of 1996.

My understanding is that this strategy has performed significantly better in Canada than in the U.S., so we’re lucky you were inspired to take on the project of applying it here.  The long-term results of BTSX are remarkable, but some investors worry about stock turnover if they were to sell those stocks that drop off the list every year.  You and I both prefer to hold many of these stocks rather than sell.  What are some of your longest-held stocks and how have they performed?

As a result of the concerns I had about my pension I began investing in Canadian blue-chip dividend stocks in 1995 and continued that until I had acquired a basic ‘hold forever’ portfolio. After studying the Canadian blue-chip index I decided to focus on 4 sectors – my TURF stocks – that consist of Telecom, Utility, Real Estate, and Financial companies. To me, these sectors held the greatest promise of future growth, rising dividends, and stable earnings. 

Here are my initial purchases:

I have held on to those basic six stocks, adding more shares along the way mainly via DRIP accounts. The following table shows the results as of Dec. 31, 2021.

Total return multiple is calculated as ((current price — adjusted initial price)/adjusted initial price). These data were obtained using the Yahoo Canada Finance (https://ca.yahoo.com/) historical data function. Current yield as of January 10, 2022.  Benchmark used: XIU ETF and its predecessors are used as a proxy for the S&P/TSX 60 Canadian blue-chip index

I think these results are rather remarkable since they are a result of a very simple investment portfolio whose current value rose to about 30 times the initial investment over a period of 25 years or so. This implies a Compound Annual Growth Rate (CAGR) of about 15%. And, the results beat the TSX blue-chip Index by a factor of about 3.5 times.  As you might imagine, a large proportion of these gains came from dividends, demonstrating the importance of this factor to the total returns. 

I conclude that my original hypothesis has been confirmed; buying a diversified group of high dividend, blue-chip stocks and holding them over many years is a simple and inexpensive way to accumulate wealth. 

Simple? Yes, but not easy. I was tempted many times to get out of the market. Remember the Dot.com Bomb?, the New Normal?, the Global Financial Crisis? All of them were severe tests of my resolve. But, I held on and was rewarded for it. Discipline and patience are the keys.

A few of those stocks haven’t been in the annual BTSX portfolio for a while, yet you still hold them.  I write frequently about using BTSX as a tool to identify potential investments rather than as a black and white recipe for portfolio construction.  Can you tell us how you use BTSX personally?

That was answered a bit above, but my view of BTSX is that it is a most useful tool for buying dividend stocks when they are exhibiting a high yield, thus implying a reasonable cost. Blue-chip stocks rarely if ever go on sale even though they do exhibit a mild cyclicality, but since the dividend yield and the stock price are inversely related (at a constant dividend) buying when the yield is high helps to make sure you are paying as modest a cost as possible. 

You and I both believe that buy-and-hold investing is key to long-term success, but what would cause you to sell a stock?  Do you have rules for yourself, or is it case by case?

I started out without any rules, and then Manulife cut its dividend by 50% in 2009. Acting on a knee-jerk reaction I sold my holdings. In retrospect that was unwarranted. We learn by doing. Now, my ‘rule’ is that, with respect to blue-chip stocks, one should hold on in such a situation. Are there events that would trigger a sale? Certainly, but these would have to be irreversible,  near-catastrophic, and company-specific, not merely gyrations in the overall market. 

You wrote and spoke about Beating the TSX for years before passing on the reins.  Clearly, you saw a need to help improve investor literacy.  Are there any key ideas or concepts you wish everyone knew?

What a great question! I suppose my overall concern about individual investors is their willingness to delegate financial decisions to advisors without knowing enough about how or if these people have interests that are in line with their clients. We see every day how investors, many of whom are seniors, have been fleeced by unscrupulous financial professionals. Canada’s outmoded approach of provincial rather than a federal securities commission doesn’t help either. During my investment lifetime, a lot of progress has been made in improving financial literacy but these resources continue to be underutilized. It is our obligation as financial writers to spread the word as far and wide as possible. 

I’ll keep doing my best to help investors through this site.  For those who have started their dividend investing journey, a common concern when it comes to BTSX is poor diversification.  Do you share this concern?  If so, how do you address it?

I have spoken this far only about my blue-chip Canadian portfolio. I have never advocated that this should be one’s only investment. I own, mainly through plain index ETFs, investments in other sectors and other countries. But, my meat-and-potatoes comes from my BTSX portfolio of blue-chip stocks based in the country where I live and spend. 

My approach is very similar.  What are your thoughts on bonds and their place in investors’ portfolios?

In my opinion, one should hold an investment with a very low possibility of failure that provides enough income to keep body and soul together if and when bad times hit. For me, that is a combination of my DB work pension, OAS, and CPP. I do not hold any bonds but I do invest in some Canadian high-quality preferred shares. These cannot be called fixed income products, but they do have a bond-like function. 

Like them or hate them, bonds are one way that investors attempt to lower the risk of their portfolio, even if it means lower overall returns.  I’ve heard you teach a broader concept of the relationship between risk and return that I find very useful.  Can you describe it?

I heard a very good presentation to our Guelph ShareClub recently in which the speaker provided this slide:

I think this reflects the situation admirably, the point being that financial advisors will often tell you that a particular investment might be riskier, but the chances of a great return offset the risk. I think this is bosh — my approach is to control the risk initially through the strategies above and the returns will look after themselves.

[David is being modest.  He is the one who illustrated this concept for me and I copied it for that presentation!]

I hope you don’t mind me saying so, Dave, but you aren’t a young man.  Turns out, that’s good for the rest of us because we can learn from your wisdom!  Any advice for older DIY investors in their 70’s and 80’s in terms of planning and/or decision-making?

Yes. I think the most important thing to do is to ensure continuity of your investment plan through viable estate planning. Although we Canadians are living longer these days, of the years tacked on at the end there is often a period of poor health where we might not be able to make necessary financial decisions. Choose your financial attorneys well and make sure someone is keeping an eye on your affairs as you age. A good financial advisor would be a place to start. Having someone who benefits from your demise in this position could be risky. 

Last question.  I was tempted to ask you for a financial prediction given these crazy times, but we all know how useful those are.  Instead, I’ll ask a question that may be even more challenging.  In the end, money is just a tool we can use to build a good life.  After 80+ years, how would you describe a good life?

Well, Matt, we as a nation are now in the process of entering our third year of dealing with a pandemic/plague. It has disrupted everyone’s hopes, dreams, and plans. I am sure that the retirement plans of many Canadians have been shredded. Time that was supposed to have been spent travelling and enjoying grandchildren has been devoted to worrying about and caring for senior family members and friends. However this health emergency is resolved, you, Matt the medical doctor, know the toll it has taken on us both physically and mentally. 

During my retirement, my situation has changed a lot. I have gone from having a wife and a dog to just me. When the grieving is over it strikes you that it is time to make a new plan. My plan included a new dog, interacting with friends, and a re-dedication to pass on as much help and information I can to the community. 

Last year a small group of us undertook a garden project where the produce was distributed to a retirement home free of charge. It worked on several levels; As well as fostering personal interactions among folks who had been forced into isolation, it improved their nutritional status and got them back in the kitchen again. And they responded. Thanks to their free-will contributions, over $500 was donated to one of our group who is enrolled in a program to become a certified EMT.   We’re looking forward to doing something similar next year.

This may sound kind of trite, but for me, the good life consists of giving back as much as we are able. In these hard times try to be a pocket of joy in a sea of gloom.

I couldn’t agree more, Dave.  Imagine how much better things would be if we all made our “pockets of joy” just a little bigger.  In the end, those are the things we’ll be remembered for, not our investment returns.  I really appreciate you taking the time to answer these questions, for all of your contributions to this site and the dividend investing community at large.

Thanks, Matt for the opportunity to share with the group.