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Mar 24 2013

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Investment Maestro, Michael O’Higgins, Continues to Impress


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When I wrote my book, Millionaire Teacher, I wanted something timeless. 

Many money books, after all, describe investment methods that look downright silly, just a few years after publication.  Other books are vague, rather than instructive.

But one investment manager has written two prescriptive books, swaying from the ordinary.  His name is Michael O’Higgins.  Author of Beating the Dow and Beating the Dow With Bonds, he dared to offer a contrarian roadmap for investment success.  And both books have stood the test of time.  Unlike the rebalancing indexing model described in Millionaire Teacher, O’Higgins takes the back roads.  He challenges investors to think like bargain hunting contrarians, while providing step by step strategies… taking just ten minutes a year.

Best of all, he has a new method up his sleeve. 

If you’re a value hunter at heart, and love the idea of index funds, you might embrace and profit from it. 

Please read my Globe and Mail article to learn more…

About the author

andrew hallam

I'm a freelance finance writer, lucky enough to have been nominated as a finalist for two Canadian National Publishing Awards. I'm also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School, a book explaining how I became a millionaire on a teacher's salary, while still in my 30s. Working to empower people financially, I'm available to motivate and inspire people on basic retirement planning and index investing. I'm happy to comment on your questions, first, please read the Terms of Use.

Permanent link to this article: http://andrewhallam.com/2013/03/investment-maestro-michael-ohiggins-continues-to-impress/

21 comments

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  1. avatar
    Jeff

    Hi Andrew,

    I remember reading about MOAR in one of your articles last year. I was fascinated by it. However I was just a few months into your system so it was no more than an interesting read at the time. However as you reintroduce me to it, I find that it still peaks my interest. My concern is that the choice of which countries he chooses for the year is proprietary (based on your article in Canadian Business). So if we are to follow his method would we need yearly advice from Mr.O’Higgins or is their a system in place for individuals to figure it out? His website is down so I can’t find out any additional information.
    Since this method has been mentioned more than once on your site (which I am a huge fan of) I have to assume it meets with your approval to some extent? The theory is similar to your diversify and rebalance approach and the back tested results are impressive. Do you have any concerns with it?

    As always I value your opinion.

    Jeff

  2. avatar
    Adam

    Hi Andrew,

    Great post as always. Just wondering, do you give different rates of growth to different asset classes? Do you use the historical growth average?

  3. avatar
    David

    Thanks Andrew for another interesting read. It’s good to read what other index strategies are out there and compare them to mine, as they all show different opinions and can give me some ideas. Surprisingly Mr. O’Higgins’ portfolio is stunningly similar to the Permanent Portfolio by Scott Burns; both have 25% in precious metal (gold/platinum).

    I do have two concerns regarding Mr. O’Higgins’ strategy. The tax consideration on the yearly turnover in any taxable account, especially if my RRSP is maxed out. I’m sure it wouldn’t be a problem for those who live in countries where there isn’t any tax on capital gain (not Canada, unfortunately). And the large amount allocated to gold/platinum. It might be an inflation hedge, but I subscribe to the Greater Fool theory, where someone in the future is willing to pay more for the precious metal than what you paid.

    Just my 2 cents.

    1. avatar
      Andrew Hallam

      Thanks David and Average Guy,

      I think you both have excellent points. If you were to invest this way, it would be best in a RRSP. It’s also a portfolio that does not perform as well during bull markets.

      Harry Browne created the Permanent Portfolio, which Dan does a good job explaining here: http://canadiancouchpotato.com/2011/08/29/introducing-the-permanent-portfolio/

  4. avatar
    An Average Guy

    Like what David mentioned, it has a resemblance to the Permanent Portfolio with 25% allocation in 4 asset classed. I have my concerns on the allocation to gold/platinum as well – for example, I don’t think that the spike in gold price is sustainable over the long run.

    An interesting strategy for sure, but not for everyone I guess.

  5. avatar
    Cole

    Hi Andrew,

    I don’t want to be the one who argues for the sake of arguing, however I have some reservations with this approach. Value investing has the scent of market timing. Holding cash and purchasing when markets decline? Of course investing when markets are falling has shown to produce tremendous results IF you put your money in stocks at the right point. As you know and have stated, who knows when that is.

    It seems as if checking your asset allocation whenever you contribute (monthly, quarterly etc.), purchase the investments that are low for your allocation, don’t purchase investments that have grown out of balance, then re-balance once a year takes the timing out.

    Just my thoughts. Thanks,

    Cole

  6. avatar
    Anna

    Hi Andrew,

    Thank you for your very educational blog. I am a beginner investor and have been reading as much as I could to catch up on lost time so I can start investing as soon as possible. Very thankful to have come across your writing.

    I have 4 newbie questions and hope you can kindly help to point me in the right direction:

    1. I’ve come across balanced portfolio suggestions that include gold, and cash. For example:

    – 25% stock index
    – 25% world stock index (or cash)
    – 25% bonds
    – 25% gold

    What are your thoughts on allocating a portion of the portfolio to gold (or cash)? I haven’t the chance to read all your previous posts yet, but if you had shared your views on gold before (whether to invest in physical gold or gold efts, or just to leave it out completely), kindly point me to the date of the specific post. Many thanks.

    2. I also noticed that you invest in bond index instead of buying bonds directly. What are the reasons that bond index is preferred over direct purchase of bonds?

    3. You mentioned that you usually invest monthly. Wouldn’t rebalancing monthly, or even quarterly, require frequent selling and buying and incur transaction costs that would eat into the overall returns? (or do you mean just buying monthly with whatever new funds one can afford, but only rebalancing at the end of each year?)

    4. My final question is, in one of your posts you mentioned receiving a yearly total dividends of $45000. Do investing in stock index and bond index yield dividends? Or do you mean dividends from your individual stock investments? I’m aware that this is probably a dumb question out of ignorance but would really appreciate you shedding some light.

    Thank you for your time.

    Best regards,
    Anna

    1. avatar
      Andrew Hallam

      Hi Anna,

      1. The portfolio listed above would be fine, but one part is a bit odd. A world stock index and cash have nothing in common. Putting such a large sum in cash will lose money to inflation, and you won’t have future benefits of compounding that part of your portfolio.

      2. I invest in a bond index because I’m lazy. Every time a bond within the index expires, it gets replaced, and I don’t have to keep an eye on all the maturation dates of my bonds. The index allows a hands off approach.

      3. I don’t re-balance monthly or quarterly. In fact, I may not re-balance for many years if I can keep my account allocation within the parameters I set for it. I generally buy the lagging index. For example, if my money were split evenly in thirds between an international index, a U.S. stock index and a bond index, I would look (when I’m about to invest new money) to see which portion no longer makes up a third of my portfolio….and I would add fresh money to that one. Ideally, this allows me to re-balance without selling. However, if my allocation is suddenly out by 10% or more in a given index, then I would sell to re-balance. In the hypothetical case above (where my money was split in thirds) if it looks like this: 20% U.S. index, 20% international index, 60% bonds, then I would sell some bonds and top up the stock indexes.

      4. I don’t own individual stocks. But stock indexes pay dividends and bond indexes pay interest.

      Cheers,
      Andrew

  7. avatar
    Andrew Hallam

    I agree with you Cole. But the system (although I don't use it) has earned better than market returns during every ten year back-tested study. Market timing involves a speculative component, while Value Averaging involves something very objective and mechanical. You could also suggest that buying the lagging index each month (as I do) is market timing. But again, it's quite mechanical and objective.

    Cheers,

    Andrew

    1. avatar
      Andrew Hallam

      Sorry Cole, I thought you were commenting on the Value Averaging article. The piece above does describe a mechanical re-balancing method that is also objective, rather than depending on market timing (which I deem speculative). That said, it has NOT outperformed the market over every ten year back-tested period.

      Cheers,

      Andrew

      1. avatar
        Rob

        Hi Andrew

        Not as well known is David Stanelys Beating the TSX same idea as dogs pf the DOW execpt he did it for the Canadian index, more importantly is he’s been doing this for 25 years and has outperformed the index of 18 (I think) of the last 25. Sadly he’s not as well known as he writes only for Canadian Money Saver, but there is information on the free area.

        Rob

        1. avatar
          Andrew Hallam

          Thanks Rob,

          Contrarians do invest best, whether indexing or going with a mechanical sort of value investing, Dogs of the Dow style.

          Cheers,

          Andrew

  8. avatar
    Andrew Hallam

    Hi Jeff,

    This method is much like Harry Browne's Permanent Portfolio. During strong bull markets, it will certainly under-perform. It did so when markets strongly moved upward (1982-2000, for instance). I wrote about it because it's fascinating, and O'Higgins is a brilliant man. I invest much more simply myself, however, without a gold/platinum component to my personal portfolio.

  9. avatar
    Barry

    Hi Andrew

    When was the last time you re-balanced by selling rather than re-balancing by topping up?

    Regards

    Barry

    1. avatar
      Andrew Hallam

      Hi Barry,

      I re-balanced in May, 2012, and wrote about it here: http://andrewhallam.com/2012/05/millionaire-teach

      In fact, the above post answers your previous question as well.

      Cheers,

      Andrew

      1. avatar
        Barry

        Thanks Andrew

        I want to track my portfolio and compare it over time to the ASX Accumulation Index as a benchmark

        Reading your posts and Money Moves are great in re-enforcing the strategies

        I will have additional funds to invest again within the fortnight and these come through every quarter (Jan-Mar, Apr-Jun, Jul-Sep,Oct-Dec) I'm not sure if best to invest upon receipt or dollar cost average each month until the next quarters cash injection; either way , funds to arrive in the next week or two look to be heading towards the Bond Index (and maybe World-Ex US).

        Many thanks for the link and responses to myself and others on your site, reading the posts are part of my commitment to the strategy

        Regards

        Barry

        1. avatar
          Andrew Hallam

          Thanks Barry,

          I'm glad you find the posts helpful.

          Cheers,

          Andrew

  10. avatar
    Vincent

    Hi Andrew,

    Great article, I'm willing to give a try to this strategy but I only have small amounts to invest on a periodic basis ($800 every 2 weeks). Would you recommend I stick to the same ETF for the whole year or should I revaluate which are the 5 dogs every time I'm buying?

    Also which long-term and intermediate bond ETFs would you recommend for Canadians?

    Thank you in advance for your help,

    V.

  11. avatar
    Andre

    Hello Andrew,

    Here is an interesting piece of information on how one of the largest fund is re-balancing. Quite amazing for such a large fund. I believe it also has performed very well in the past.

    http://www.nbim.no/en/press-and-publications/feat

  12. avatar
    präuner andrea

    Dear Andrew,
    I am from germany. my english is not so good. so sorry of this. i hab´ve jsut one question to this simple strategy from mr. O` Higgins: whats the rule to get into gold or platin or simple both?

    sincerly andrea

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