A Portfolio For Mom: Remembering To Look Down, Not Up

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Includes: ANCUF, BPZZF, CBYDF, CCDBF, CNI, CNSWF, CPXGF, EGHSF, GIB, JCOUF, MTRAF, MTYFF, PZRIF, QSR, SAPIF, TU, WIPKF
by: The Catalyst Tree

Summary

Recapping the investment philosophy used to build A Portfolio For Mom.

20 good-quality businesses with low financial risk in relatively stable, boring areas of the economy.

Words of wisdom to guide our philosophy and keep us grounded.

Remembering to Look Down, Not Up

This is Part 10 of A Portfolio For Mom, which explores the portfolio we're building for one of our most important clients. The series outlines our investment philosophy, centered on loss avoidance, while hopefully educating our client through a variety of case studies.

We'll introduce the philosophy, present case studies, and discuss potential stock candidates. With the help of the Seeking Alpha community, we hope to improve her investment returns.

In this edition we'll review our investment process, highlight the companies selected and offer some wisdom from fellow investors that supports our philosophy.

Hopefully you've enjoyed the series and we look forward to profiling additional clients in the future.

Investment Philosophy

Our philosophy (and thus our investment objective) is based upon one of the most under-appreciated ideas in investment management: loss avoidance. It is seldom discussed in the financial media or by brokers pitching stocks and does little to generate advertising revenues or commissions.

However, we're about building wealth in a low-risk fashion and we believe the best way is to start with a philosophy of loss avoidance. Underpinning this is our attempt to choose businesses in boring and relatively stable industries led by good-quality management teams who do not burden shareholders with excessive debt.

The traditional narrative suggests that return must be accompanied by risk. We believe the opposite: by first avoiding risk we can achieve our goal of protecting capital while building wealth over time.

As Joel Greenblatt famously said, "look down, not up"

Companies Selected

As opposed to dividing our stocks along traditional lines such as sector, we want to frame the conversation differently. We are sector agnostic. As mentioned, we simply want good-quality businesses with good financial health who are led by smart, wise-spending management teams. Often these businesses are in boring and stable areas of the economy and that's just fine with us.

We still end up with a pretty diverse mix of companies. Some are domestically focused while others are international. Some of very cyclical while others are defensive. Regardless of their industry, we've attempted to avoid lower quality businesses (and sectors), which in our view are higher risk and increase the probability of loss.

Plus the benefits of diversification begin to seriously diminish after just sixteen stocks. Twenty will do just fine.

Companies with Really Great Financial Health

Companies with Really Great Management

Jean Coutu (OTCPK:JCOUF)

Metro (OTCPK:MTRAF)

MTY Food Group (OTC:MTYFF)

Constellation Software (OTCPK:CNSWF)

Enghouse (OTC:EGHSF)

Alimentation Couche-Tard (OTCPK:ANCUF)

Richelieu Hardware (RHUUF)

Saputo (OTCPK:SAPIF)

Winpak (OTC:WIPKF)

Restaurant Brands (NYSE:QSR)

Click to enlarge

Companies with Really Great Dividend Yields

Companies with Really Great Track Records

Pizza Pizza Royalty (OTC:PZRIF)

Telus (NYSE:TU)

Boston Pizza Royalties (OTC:BPZZF)

CGI Group (NYSE:GIB)

Corby Spirits & Wine (OTC:CBYDF)

CN Rail (NYSE:CNI)

Keg Royalties

CCL Industries (OTC:CCDBF)

A&W Royalties

Cineplex (OTC:CPXGF)

Click to enlarge

Words of Wisdom

Warren Buffett on loss avoidance...

Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.

Seth Klarman on loss avoidance...

Loss avoidance must be the cornerstone of your investment philosophy.

Benjamin Graham on loss avoidance...

An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative

David Einhorn on loss avoidance...

The trick is to avoid losers. Losers are terrible because it takes a success to offset them just to get back to even. We strive to preserve capital on each investment. It does not always work out that way, but that's the goal.

Joel Greenblatt on loss avoidance...

Comparing the risk of loss in an investment to the potential gain is what investing is all about… in other words, look down, not up, when making your initial investment decision. If you don't lose money, most of the remaining alternatives are good ones.

Monash Pabrai on loss avoidance...

Minimizing downside risk while maximizing the upside is a powerful concept.

Maybe these guys are on to something.

Disclosure: I am/we are long ANCUF, CNI, CCDBF, BPZZF, CPXGF, CNSWF, EGHSF, GIB, JCOUF, MTRAF, MTYFF, PZRIF, QSR, SAPIF, TU, WIPKF, RHUHF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.