In this column published every two weeks, we give you concrete ideas for investing your money.
“You can’t go wrong with Apple.” Someone has probably already thrown a similar phrase at you with conviction. But be careful, the “classics” are not guaranteed home runs, warns Cimon Plante.
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In a recent video, the portfolio manager affiliated with National Bank Financial points out that Apple’s stock has risen much faster than its profits in recent years. Walmart, Microsoft, NVIDIA, Costco and many others are in the same situation.
Concretely, this means that it costs more to invest in these securities than it did five years ago. How much longer can these companies grow on the stock market at a rate higher than their profits?
Impossible to know. We must never forget that in investing, the past is not necessarily a guarantee of the future.
Attach yourself to a title
“Sometimes we take little mental shortcuts,” emphasizes Mr. Plante. You see a beautiful ten-year chart, you are attached to the brand, you are comfortable investing. You let your guard down. You say to yourself: “Had I known, I would have bought just that, it seems obvious to me.” Then we project that the next ten years will be like the last ten.”
Cimon Plante
Plant Group Photo
When you invest in a stock, you have to do your homework: follow it assiduously and ask yourself regularly if you still want to keep it in your portfolio.
“If consumer tastes change, will the company maintain its competitive advantages?”, illustrates Cimon Plante.
Over the last 10 years, several star stocks have beaten the major indices: this is the case of Google, Tesla, Alimentation Couche-Tard, Dollarama, etc.
Enough to prove the famous American investor Peter Lynch right, who liked to repeat: “Invest in what you know,” recalls Mr. Plante.
On the other hand, many well-known stocks have recorded returns lower than the indices over five and ten years: Coca-Cola, Johnson & Johnson, Canadian Tire, Saputo, Suncor… In short, it is not always so profitable to invest in big names.
Spice up the index
“For many independent investors, I think it should be a strategy where you put money aside, you bet on a handful of indices that you will hold for the long term,” says Mr. Plante. “It’s definitely less exciting than investing directly in stocks, but for many people it’s more realistic.”
That said, even with an index approach, nothing prevents you from devoting a small part of your portfolio to individual securities that you like. This can allow you to be more “engaged” as an investor, notes the expert.
“If you deploy 10 or 20% of your portfolio in stock selection [stock picking] and you restrict yourself to quality companies that you buy at reasonable prices, it’s going to be difficult to break the bank,” says Cimon Plante.
