How do you determine the top 200 and top 500 stocks for your respective Canadian and U.S. lists?
We grade the largest stocks in each country based on revenue over the last 12 months.
Why are the dates from which the stock prices are cited weeks old by the time I get my copy of the magazine or read the list online?
We do try to reduce the delay as much as possible but it takes time to put the magazine together and get it into your hands. Collecting and analyzing the data just represents the start of the process. We also have to write the articles, calculate the performance figures, create the graphs and present the results in an appealing way. The whole package then has to be edited and checked. That’s all before it’s sent off to the printers and translated to the web for distribution.
Over what period do you measure returns?
The returns are measured between the dates mentioned in the annual data tables. This year’s date can be found at the top of the price column.
Do cited gains include the cost of buying and selling securities over the given time period?
The returns do not include trading costs or taxes, which vary by person. Even a flat commission fee varies on a percentage basis depending on the size of the portfolio. Nor do the returns include dividends. The same goes for the returns of the index ETFs used for comparison purposes.
Do you cherry pick the time periods over which you measure the Top 200/Top 500 returns to make them seem better than they are?
No, they coincide with when we collect the data, which is itself as close as possible to the publication deadline.
How do the returns of the Top 200 compare to the typical Canadian equity mutual fund?
We’re happy to say our All-Star stocks, which combine the best growth and value characteristics, have climbed by an average of 17.3% annually since we started 10 years ago. That assumes an equal dollar amount was put into each All-Star in the first year and rolled into the new All-Stars each year thereafter. By way of comparison, the S&P/TSX Composite (as represented by the XIC ETF) advanced 5.3% annually over the same period. The All-Stars beat the market by an average of 12.0 percentage points per year over the last decade.
Over a similar period the Top 200 All-Stars beat every Canadian equity, or Canadian focused equity, mutual fund. We topped the best by about 4 percentage points a year and the second best by about 5 percentage points a year. The median fund trailed by 11 percentage points a year.
To be fair, the comparison is not entirely precise. The performance period in question doesn’t match exactly, although it’s close. The Top 200 started life in the middle of October, and this year’s list was reformed a little later in October, whereas only month-end performance figures are available for mutual funds. Also, we don’t include trading commissions which, although low these days, vary from investor to investor. As well, mutual funds invest in more than a handful of stocks because concentrated portfolios tend to be volatile. On the other hand, the gains of the All-Stars don’t include dividends, whereas the fund returns do.
According to the Couch Potato methodology, it’s impossible to beat the market after fees over long periods of time, yet the Top 200 seems to have done just that. How can you explain that?
The question makes an assumption that is not true. It is possible for some people to beat the market over the long-term on an after-fee basis. For instance, Warren Buffett has famously done so for many decades.
While we don’t explicitly incorporate fees into our return estimates, such costs are generally quite low. The magazine itself is a bargain–either on the newsstand or by subscription–and commissions at discount brokerages tend to be modest. In comparison, some index mutual funds cost more.
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