In a bi-weekly column, Cimon Plante cautions against assuming iconic stocks like Apple guarantee success. He notes that many well-known companies have seen their stock prices rise faster than profits, prompting the need for careful analysis and ongoing evaluation before investing. While investing in blue-chip stocks can seem appealing, they may not always outperform indices. Plante suggests a balanced strategy involving index funds, with a smaller portion allocated to carefully selected individual stocks for a more engaged investment experience.
This biweekly column offers practical insights for your investment decisions.
“You can’t go wrong with Apple.” This phrase likely resonates with many investors. However, Cimon Plante advises caution, as even “safe bets” are not infallible.
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In a recent discussion, the portfolio manager at National Bank Financial highlighted how Apple’s stock has risen at a much quicker pace than its profits in recent years. This trend is evident for other major companies like Walmart, Microsoft, NVIDIA, and Costco as well.
This situation indicates that investing in these stocks is now more expensive than it was five years ago. The crucial question is: how much longer can these firms sustain a stock market growth rate that exceeds their earnings growth?
While predicting this is truly challenging, it’s important to remember that past performance is not always indicative of future results in investing.
The Commitment to a Stock
“We often fall into mental traps,” Plante notes. Observing a promising ten-year performance, developing brand loyalty, and feeling secure in an investment can lead to complacency. Investors may think, “If I had known, I would have only invested in this stock, as it seems so clear.” This can result in the misguided belief that the next decade will mirror the last.
To be successful in stock investing, thorough research is key: continually monitor your investments and regularly determine whether they still belong in your portfolio.
“If consumer preferences shift, will this company maintain its competitive edge?” Plante prompts us to consider.
Over the last decade, various blue-chip stocks like Google, Tesla, Alimentation Couche-Tard, and Dollarama outperformed major indexes.
This backs up the advice of renowned American investor Peter Lynch, who famously said: “Invest in what you know,” as Plante reminds us.
Conversely, several well-regarded stocks underperformed the indices over both five and ten years, including Coca-Cola, Johnson & Johnson, Canadian Tire, Saputo, and Suncor. Thus, investing in high-profile names doesn’t always yield the best results.
Index Investing Strategy
“For many self-directed investors, a sound strategy involves setting aside funds to track a few key indices for the long haul,” Plante suggests. While such an approach may not offer the thrill of individual stock trading, it can be more practical for many investors.
That said, even with an index-focused strategy, you can allocate a small fraction of your portfolio to select individual stocks you admire. This method allows you to engage more deeply as an investor, according to the expert.
“If you allocate 10 to 20 percent of your portfolio to stock picking—focusing on quality companies bought at sensible prices—you’ll likely navigate the market safely,” Cimon Plante believes.