The Benchmarks: S&P/TSX Composite Total Return and CPI Inflation
Assessing performance needs to be done from several angles. First, there is the absolute performance - did we make money or lose money after inflation (if we don't beat inflation, we have lost purchasing power, so we have lost money in real terms)? Second, we need to compare in relative terms - have we beat the overall average return of similar assets. In this case, our picks were all Canadian stocks so we benchmark against the Toronto Stock Exchange's basic index, the S&P/TSX Composite Total Return.
- CPI Inflation - 2.7% in the latest available figures covering up to the end of July 2011, published by Statistics Canada on August 19th
- S&P/TSX Composite Total Return - 9.5% gain in the one year up to August 24th. Note that Total Return includes both the stock price gain plus dividends. If we buy a stock, we receive dividends so we must compare with the index that includes them. Unfortunately, almost every chart available on the Internet and in news reports uses only the price gain index, excluding dividends, which are running at about 2.7% per year currently. As we wrote about in TSX Composite and S&P 500 Total Market Return, dividends are a significant part of investing profits. Our source for the TSX Composite Total Return Index is GlobeInvestor's Stock price report using the ticker symbol TSXT-I. (Pull up the chart and graph the price-only index TSX-I and see the difference even in one year)
We've used GlobeInvestor's My Watchlist to create the series of mini portfolios. The ones we created are not publicly visible, being under our personal id, but you can easily reproduce them simply by creating a new watchlist of your own and typing in the stock symbols. Apart from being so quick and easy to use, My Watchlist most importantly can show the one-year total returns (again, so many price quote sites only show the price movement of stocks excluding dividends).
The Twelve Ultimate Buy and Hold Stocks - original post of June 2010 here
- Inflation-beaters: 67% (8/12)
- Index-beaters: 50% (6/12)
- George Weston (TSX: WN) - continues to be profitable every quarter; though its profits are up and down, it keeps paying its dividend
- CP Rail (TSX: CP) - continues to be profitable every quarter; though its profits were down the last two quarters, it increased its dividend in the most recent quarter
- Great-West Lifeco (TSX: GWO) - continues to be profitable every quarter; though its profits are up and down, it keeps paying its dividend
Food Companies - original post of September 2010 here
- Inflation-beaters: 75% (3/4)
- Index-beaters: 75% (3/4)
Electric Power Utilities - original post of January 2011 here
- Inflation-beaters: 100% (4/4)
- Index-beaters: 100% (4/4)
Split Share Capital Shares - original post of December 2010 here
- Inflation-beaters: 100% (3/3)
- Index-beaters: 67% (2/3)
Dividend Growers - original posts of April 2011 on High-Yielders here and of May 2011 on Low-Yielders here
- Inflation-beaters: 84% (16/19)
- Index-beaters: 53% (10/19)
Overall, the performance results support the idea that looking at the numbers for stocks and companies is worthwhile to help find good investments. We must temper our enthusiasm and consider that it is to some degree by chance that our very short term success rate is so high since even professionals do not on average achieve much above 50% success. Our blog post assessments did not delve very deeply into each company so we should be wary. Still, those dull-looking numbers merit our attention!
Disclaimer: this post is my opinion only and should not be construed as investment advice. Readers should be aware that the above comparisons are not an investment recommendation. They rest on other sources, whose accuracy is not guaranteed and the article may not interpret such results correctly. Do your homework before making any decisions and consider consulting a professional advisor.