THE GLOBE AND MAIL

THE GLOBE AND MAIL
LARRY MACDONALD

Herman VanGenderen published an investment book, Stocks for Fun and Profit: Adventures of an Amateur Investor.

Herman VanGenderen, 60, is currently pursuing a semi-retired lifestyle of travel, hiking and managing a seed business in Calgary. He also enjoys stock-market investing as “a great and productive pastime to help keep one’s mind active” – not only managing the family’s portfolios but also writing a monthly newsletter on stocks and publishing an investment book, Stocks for Fun and Profit: Adventures of an Amateur Investor. The book chronicles his investment journey of the past 35 years in the hope investors still in the early stages of their journeys might learn from some of his experiences and mistakes.

The Globe and Mail recently interviewed Mr. VanGenderen.

How are your investments performing?

At the end of 2017, my RRSP [registered retirement savings plan] had an 11.7-per-cent compound annual growth rate over the last 25 years and my TFSA [tax-free savings account] had a track record of 17.4-per-cent annual compound growth over the last nine years. My wife’s registered plans, which I manage, are not far behind.

 

But when you first began investing in the 1980s, things didn’t go well?

Correct. Back then, it was common to open an account with a stock broker and rely on their advice. This was not a good experience for me.

The first broker made a lot of recommendations that I acted on without any research on my part. It didn’t go well. My second broker said my portfolio was full of junk and dumped most of it. The junk then promptly rallied.

This broker subsequently had to leave his firm because he wasn’t bringing in enough business. My third broker got promoted and my fourth changed firms so that by the late 1990s, I was with a fifth broker. By this time, I was no longer accepting stock tips unquestioningly and had my own self-directed accounts.

What accounts for your outperformance since the 1990s?

I am 100-per-cent invested in stocks. Stocks of well-selected companies have performed far better than interest-bearing investments over the long term. I expect that outperformance to continue, especially in light of today’s very low interest rates.

 When it comes to selecting stocks, I like those that pay dividends, especially if they are well supported by earnings and are raised regularly. Research studies show that dividends represent a big part of overall stock market returns over the long term.

I also prefer companies with solid track records that I can hold for a long time. This reduces the workload and the stress of managing investments, which leaves me in a better frame of mind and seems to also enhance my performance.

I try to buy my dividend stocks when they are value priced. I like dividends but if the stock has a high price-to-earnings ratio, over 20, and a price-to-cash-flow yield over 12, I hesitate to buy.

Many investors fail at stocks because they are continually attempting to time the market but I just keep plugging away trying to find decent companies at decent valuations. I may also be a little more aggressive after big market drops and a little more cautious after big increases.

A big reason why my RRSP has done well is the shift I made into U.S. stocks in the years before 2014, when the Canadian dollar was trading close to par with the U.S. dollar and Canadian companies were selling at premium valuations to U.S. companies due to the resource boom. The weighting toward U.S stocks in our portfolios went to about 70 per cent, which served us well as the U.S. dollar and stock valuations recovered in recent years. I am now inching back toward Canada, despite all of the negativity in Canada.

Diversification is important. In sectors where I don’t feel confident about picking stocks, like gold and emerging markets, I use exchange-traded funds.

Tax efficiency is important, too. I like to minimize withholding taxes on U.S. dividends – I am willing to sacrifice some dividend yield for growth. I also hold U.S. stocks in our RRSPs, which are exempt from the U.S. withholding tax.

 

What was your best move?

One good move was not panicking during bear markets. For example, our TFSA performances are largely due to putting the contributions into the stock market during the bear market in 2009 and over the ensuing years when valuations were depressed.

What was your worst move?

I purchased Seadrill, an ocean driller, after it had declined significantly in 2014. It was making lots of money at the time but had lots of debt and ended up declaring bankruptcy. The enduring lesson was to really watch debt levels of companies in cyclical industries. Seadrill was in my wife’s TFSA, and without it, her performance may have been as good as mine.

This interview has been edited and condensed.

Larry MacDonald is an economist, author and financial writer.

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