The Rempart team has now been together for over a decade. Over this time, we have outperformed the major North American stock market indices on a relatively consistent basis, which we are proud of. How did we accomplish this?
First of all, we embraced our investment philosophy from the start and have stayed with it. We sought to invest in North American listed companies that generated significant and growing cash flow from operations and, more importantly, allocated their free cash flow wisely. Secondly, we remained disciplined in the number of stocks that we owned in our client’s portfolios, trying never to exceed 30. Third, we maintained a running relationship with the managements of both the companies we were invested in and those we were considering for addition. In our experience, assessing management is the single most important factor in dictating investment success. Fourth, we did our own research and made all of our investment decisions in-house.
Had we done the job perfectly, the 30 stocks we owned a decade ago would remain in the portfolios. Needless to say, we are not perfect. In looking back, we discovered that there are nine companies that we have remained invested in throughout the period. This brings to mind the oft-quoted Warren Buffett, who said: “If you are not willing to invest in a company for 10 years, don’t even think about owning it for 10 minutes”.
Our nine holdings over the past decade have been Bank of Montreal, Bank of Nova Scotia, Canadian National Railway, Colgate-Palmolive, Enbridge, Johnson & Johnson, 3M, MacDonald Dettwiler, and Vermilion Energy. Not only have these nine been our longest held positions, they have been amongst our best performers.
Over the decade, the surviving nine have delivered an annual compound return of 11.7%. This exceeded the performances of both the Canadian TSX index (8.1%) and the US S&P 500 (7.4%).
The performance leaders in terms of annual compound returns were (in this order); Canadian National Railway (18%), Vermilion Energy (17%), Enbridge (16%), and MacDonald Dettwiler (14%). These leaders have not only provided our investors with superior returns in the past, but are positioned to continue doing so for the foreseeable future.
So what happened to the rest? Does this mean that we had 21 mistakes in the portfolio 10 years ago? Not necessarily. Some of our holdings from then were acquired (Shopper’s Drug Mart, Petro-Canada, CHC helicopter and Aber Diamond), some had management that simply did not perform (Thomson-Reuters, Potash Corp, Manulife and SNC Lavalin), and some suffered from weak governance at the board level resulting in poor allocation of free cash flow (Ritchie Brothers and Forzani’s). An important element of our philosophy is to recognize that whenever we have made an error, or circumstances have changed for the worse, to sell and move on as quickly as possible.
To date this year, we have continued to deliver positive performance in your portfolios. We believe that macro-economic environment remains favourable to equities. We will continue to monitor our core holdings carefully and make any adjustments that are warranted.
It will be interesting to see how many of our original nine are still with us in 2024.