Recently, fellow Seeking Alpha Contributor Dale Roberts wrote an informative piece on his blog Cut the Crap Investing called: How do you invest in the Canadian Market?
I highly recommend the article as it is a very interesting piece that collates simple investing strategies. Strategies that have been back-tested and proven to be outperformers.
There was one, however, that caught my eye entitled: Buy the Canadian bank that sucks. At its core, the premise is very simple - the worst-performing Big Six Bank of the year typically outperforms in the year following.
For those unfamiliar, here are the Big Six Canadian Banks, five of which are dual-listed:
- Royal Bank of Canada (RY)
- Toronto-Dominion Bank (TD)
- Bank of Montreal (BMO)
- Bank of Nova Scotia (BNS)
- Canadian Imperial Bank of Commerce (CM)
- National Bank of Canada (OTCPK:NTIOF)
The idea was brought forward by Globe and Mail investment reporter David Berman. Canada's Big Banks have been some of the most reliable investments and have consistently outperformed the TSX Index. They have paid out un-interrupted dividends for over a hundred years, and are the cornerstone of retirement portfolios across the country.
Why did this strategy catch my eye? It is a strategy that I've heard about before and one that I believed may no longer be relevant.
Here was my off-the-cuff response to Dale on Twitter:
My response was anecdotal at best and not backed up by hard facts - hence the words "I think."
Today, we crunch the numbers. Is buying the bank that sucks still a good strategy?
I first came across the strategy back in late 2016 when I read Berman's previous article on the topic. That year, the Canadian Imperial Bank of Commerce was the worst-performing bank. Here are the worst performers of the past three years with their returns in brackets:
