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Jun 1, 2014

Beating the TSX: Queries and Replies

by David Stanley

David Stanley

In March of this year I had the privilege of presenting a webinar on behalf of the Canadian MoneySaver. Over 600 folks signed up and it was a great experience for me. When my presentation was over, I answered questions from the attendees for about an hour. It later struck me that much of what transpired during that session might be of interest to our readership as well. So, this column will address those queries and my replies, sort of like a FAQ. (By the way, did you know that the acronym FAQ was developed between 1982 and 1985 by Eugene Miya of NASA (

I have grouped the questions into sections by topic and made them as broad as possible.


1. Rebalancing

Does the BTSX portfolio get completely rebalanced to equal market value each year?  I think I understand this as selling the ones that rose in price to buy more of the ones that are "cheap." This feels so contrary to wanting to keep the "winners" and not increase or even dump the "losers." Each year the portfolio does get rebalanced, but perhaps in a different way than you are thinking about. First, the new list of 10 stocks will very likely contain a large number of ‘repeaters,’ usually between six and seven, so the turnover is low and this helps to keep costs down. Second, the companies that did fall off the list did so primarily for one of following two reasons:

a) the price increased over the previous year but the dividend did not increase (or increase enough) to keep the stock in the list of top yielders; or,

b) the dividend was cut so the yield fell.


In the first case, you may not want to sell the stock (a ‘winner’). Certainly, you can keep it in your portfolio of Canadian high dividend, blue-chip stocks that have been purchased at a reasonable price. This is really the long-term goal of our method; BTSX is only a simple way to select underpriced stocks.  As I have said before, we are merely efficiently exploiting small but favourable valuation shifts in low stocks. Finally, I see no reason to return any of your positions to their original dollar values, but BTSX is not about rules, only suggestions. Feel free to do what you think is best.

2. Timing

You buy all the stocks on May 24 each year, but this doesn’t seem to take into account the price fluctuations of the stock and yield throughout the year. Would it be better to watch the individual stocks and wait for the best entry point?  A good thought, but impossible in practice. Knowing that the future is unknowable, only by looking backwards in time could that be done with any accuracy. Alternatively, we simply nominate one day (as far as I know all days are equally effective) and stick with it.

3. Weighting

If you were purchasing all 10 stocks what would the weighting be?  How about if you were only replacing a few? When just starting out, it seems reasonable to purchase equal dollar amounts, reasoning again that since the future is unknowable there is no reason to overweight or underweight any particular stock. If you are only replacing a few, I suppose it would depend upon your available funds, but I would still try to invest equal initial amounts.  In general, BTSX works because it substitutes subjective human evaluation with an objective method free of our psychological frailties. I think investors risk lowered results when they begin to place their own judgments ahead of the system, but that is their prerogative.

4. Income Trusts

Former income trusts are not included in the list. Why not and how do we identify them?  For Beating The TSX, Beating The Dow, or any similar method to work, the index must be composed of only ‘blue-chip’ stocks. The ‘blue-chip’ designation requires both a very large market capitalization and a very long history of paying out stable or rising dividends.  Prior income trusts don’t qualify for ‘blue-chip’ status...yet. A lot of their profits are still plowed back as capital expenditures to foster growth, and the dividend is not as safe as for companies that have more disposable cash devoted to dividends and a tradition of paying and increasing them. The best way to identify former income trusts is to contact the company’s investor relations department directly, although some information is available at

5. Diversification

Should we consider adding a few extra stocks from other segments even if they didn't get selected by the BTSX criteria just to increase diversification?BTSX tends to be concentrated in financial and utility stocks. Although it has performed well for a number of years, it should be used as part of a well-diversified investment portfolio. This includes diversification between fixed income and equity, among geographic locations, and with consideration of the various equity sectors and investing strategies. For example, Peter Hodson, Norm Rothery, Benj Gallander, and John DeGoey all write in the MoneySaver and/or appear on BNN discussing their own approach to Canadian individual investing. In my opinion, no one method should be used to the exclusion of the others.

6. DRIPs And SPPs

There are always numerous questions about these dividend reinvestment and share purchase plans. I am of the opinion that they should play an important role in any dividend-oriented investment program. Because it has been a long time since I set up a DRIP/SPP and things may have changed, and because Bob Gibb, occasional writer for the MoneySaver, has made this his specialty, I always refer inquirers to the DRIP Investing Resource Center ( There you will find a plethora of up-to-date information along with tools, forms, articles, research, and an erudite set of message boards managed by Bob, aka ‘Opera Bob,’ from which you may acquire answers to all your questions.

7. Information Sources

Where can I find a list of the TSX 60 Index ordered by yield? Where can I find the Total Return value for the TSX 60 Index? 

You can go to:   You will see a list of the 60 constituents.  Click on the symbol, e.g., BCE. The dividend is listed, but note that it is the quarterly dividend, and multiply by four to get the yearly dividend. Be careful, some companies pay yearly, some biyearly, some quarterly, some monthly, and some in US dollars.

Or, go to: and look up the stock you want.

Or, go to: and see the TSX 60 ranked by yield, remembering that we do not include previous income trusts. Sadly, it is not unusual to find discrepancies between the various sources of data available to individual investors. It always pays to use more than one resource for information.

You can get total return data for the TSX 60 index at^TX60

8. Tweaks

Since I began the BTSX experiment I have beencontacted by myriad folks suggesting improvements.  These range from including P/E values to astrological considerations. My reply has always been the same: Do whatever you like and let me know what happens. Thus far, no one has gotten back to me. Absence of evidence is not evidence of absence, but I continue to use the plain vanilla version with reasonable results.  I have tried to answer the most important and recurring questions. Some would have required me to comment on individual stocks or the particular situation of the asker, both of which are beyond my knowledge. I hope this material is useful. If you need further clarification contact me as indicated below. As always, I hope this column will generate discussion and I will attempt to answer your questions within the guidelines set by the Canadian MoneySaver.

David Stanley, Ph. D.,

P. O. Box 12, Ontario, N0B 2K0