Can You Manage Your Portfolio Like a Hockey Team?

 

You may not know this yet, but I’m a big hockey fan. Being raised in the tradition of the Montreal Canadiens, I have followed my team religiously since I was 12… that was when they won their last cup…. Hahaha!

 

Buying stocks is always the fun part when managing a portfolio. You go on the “hunt”, you find an interesting stock, do more research about it and get excited. You buy some shares and feel proud about the catch of the day. But when it comes to managing your portfolio, i.e. should you buy more of this company or should you sell it? It becomes a little bit harder.

 

Today, I’m going a little bit off the traditional post format where I suggest following strict metrics and a proven investment process (read about mine here). I wanted to share with you how you can truly and successfully build your portfolio and manage it to see each of your stocks like a hockey player. Have you ever dreamed of becoming a General Manager? Here’s your chance to see if you would be successful! As is the case with a hockey team, it’s impossible to build your portfolio with only Crosbys and Stamkos; you will have 1^st liners but you will probably end-up with some grinders too. Everybody can’t score on the same night ;-).

 

Where do You Start? With Your Goalie !

 

As is the case with a real hockey team, your goaltender is your wild card. An average goalie can still do the job if you have a strong team in front of him. Also, you may have the best goaltender ever, if you can’t score, you will still end-up losing 1-0.

 

You guessed it; your goalie is your fixed income. Bonds are there mostly to “limit” the damage but can’t ride your portfolio to very high investment returns. I’m the kind of GM who thinks that offense is the best defense and this is why I don’t have bonds or CDs in my portfolio. I would rather leave my goaltending spot to steady dividend stocks such as Johnson & Johnson (JNJ) and Coca-Cola (KO).

 

 

 

 

How to Choose Good Defensemen

 

A good hockey team has 2 types of defensemen: defensive and offensive defensemen. While the defensive Def are doing a similar job as the goalie, offensive Def are very important as they will help you in your transition movements and become crucial during power plays.

 

You have already heard about “defensive stocks”, right? These are your defensive defensemen. No matter what happens during the stock market, they will always lose less during a recession but will lag during a bullish period.

 

Defensive stocks in a good sector can become offensive defensemen. The telecom and the banking industries are fairly protected and stable in Canada. You have 4 major players in the Telecom arena (BCE, Rogers, Shaw Communication and Telus). These stocks are part of a relatively secure environment which provides them with the title of “defensive stocks”. However, have you noticed how some of them have surged over the past years?  Just look at the Telus graph over the past year:

 

 

+22% in 12 months… does it sound like a very defensive stock? This looks more like Erik Karlsson to me! Stocks like these are probably the best card in your hand; stable, reliable and ready to burst at the same time! There is a reason why the Canadiens are doing so well this year so far. This reason is Markov (10 pts in 16 games) and Diaz (12pts in 16 games). Not bad for defensemen, huh?

 

 

 

 

 

I Have a Few Second Liners

 

As is the case for recruiters in the NHL, most of our picks will end-up as second or third liners and only a few of them will rank as “potentially the best player on the team”. The point when selecting a young player is to select a forward that has potential and that can fit into your team. You must find key characteristics that will help your team win more games.

 

The “drafting” selection is similar when buying stocks. You always hope to buy the next stock that will rule your portfolio but in the end, if you concentrate on selecting stocks that are able to contribute to your overall returns, you will do a good job.

 

For example, Chevron (CVX) and Husky Energy (HSE) are part of my Dividend Holdings. They are mature companies running a well established business in the oil industry. They should provide a steady dividend all the time. However, since the oil sector moves rapidly; their growth potential is higher than a regular defensive stocks such as KO. They will be scoring from time to time but they won’t probably become my best player or game changer either.

 

Looking for a Power Forward

 

The term “power forward” in hockey means a big, strong player able to shift towards the center of the ice and place himself in front of the goalie to score important goals. They are able to bring the puck with them and carry the team on their shoulders.  The more power forwards you have on your team, the more difficult it is to play against your team. Unfortunately, power forwards are rare and hard to discover before they evolve.

 

For the past 10 years, a good example of a power forward stock would be Canadian banks. Who would have predicted back in 1999 during the techno bubble that the best performing stocks for the next 10 years would be old grinchers with their techno retarded banks? Over the past recessions, Canadian banks have proven themselves as incredibly strong and productive stocks. Their balance sheets are stellar and their dividend yield impressive. They have consistently been scoring over the past 10 years and represent an important strength in anybody’s portfolio. I have shares of BNS and NA.

 

Looking for a Star Player?

 

Each team tries to get their hand on the next Gretzky, Lemieux or Crosby. Obviously only a few teams can count on a huge star like this. And, sometimes, those we thought could be stars end-up being normal players. I don’t know if you have looked at Ovechkin’s stats for the past few seasons but after racking up over 100 points three seasons in a row, he has dropped to 85, then 65 and he currently shows 10 pts in 15 games…. But this is not the biggest flunk in the history of hockey, far from it. I’m more thinking about another Alexander… Daigle (Sorry Ottawa fans!).

 

Searching for an all-star stock is always risky. You aim for huge returns but might end-up with close to nothing. In past years, I’ve tried my luck with RIM, PDN and VNP. So far, all three stocks look more like Scott Gomez today than anything else. They were very productive and impressive at one point but quickly faded away into mediocrity.

 

I’m currently trying to make some money back with a ride on Seagate Technology (showing over 30% return in my portfolio) and Apple (hoping to see it back at $700 in a few months). I’m taking two important risks right now in my portfolio and I feel I can do it because I have great stocks to compensate. My core is solid and, unlike NHL GMs, I don’t have a salary cap and can keep all of them ;-).

 

Trade / Contract Buybacks – It’s the Same Thing With Your Stocks

 

When a player doesn’t fit in as you thought it would or doesn’t perform, sooner or later, a GM will trade this player or, now that he has the option, buy back the contract. He has taken a loss, but his team will be better without that player anyways.

 

This is how you should feel about an underperforming stock. “Trade” it for a better performing stock you have on your watch list or simply sell the shares, take the loss and wait to make a better move in the future. Hockey has become a business and it’s all about numbers, your investment portfolio is all about numbers as well! Never fall in love with a hockey player… and never fall in love with one of your stocks!

 

 

 

 

 

 

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