Stingy Investor Search - Contact - Subscribe - Login
  Home | Articles | Links | SNW
The Champagne portfolio

The Canadian stock market bounced off its October lows and is tantalizingly close to being in the black for the year. So, instead of lumps of coal, investors might dream of new all-time highs while they sip their bubbly this holiday season.

The possibility of new highs prompted me to take a second look at the Champagne portfolio. It invests in the Canadian stock market after it hits new all-time highs and hides out in Canadian bonds the rest of the time. I was particularly interested to see how it fared during this year's unusually bad market for bonds.

More concretely, the Champagne portfolio uses the S&P/TSX Composite Total Return Index as its proxy for Canadian stocks and the S&P Canada Aggregate Bond Total Return Index for Canadian bonds. It checks to see if the stock index hits a new all-time high at the end of each month. When the index does, the portfolio moves entirely into stocks for the next month. Otherwise, it invests everything in bonds.

Stocks have fared better than bonds over the long term. The stock index climbed at an average annual rate of 9.0 per cent from the end of January, 1993, through to the end of November, 2022. The bond index climbed 5.1 per cent annually over the same period. (The returns herein are based on month-end data from Bloomberg. They include dividend reinvestment, but do not include inflation, fund fees, taxes or trading frictions.)

The Champagne portfolio floats higher

The Champagne portfolio invested in the stock index about 28 per cent of the time over the period. It sat in bonds the other 72 per cent of the time. Despite being in bonds for most of the time, the portfolio gained an average of 7.6 per cent annually over the period, which is a big premium to the returns from the bond index.

You can examine the gains of the Champagne portfolio and indexes in the accompanying graph. But I'm going to put the good-return bubbly on hold for the moment, because I'm fascinated by downside risk. The second graph shows how far the portfolio fell in downturns as a fraction of its prior peak, along with similar data for the indexes.

The stock index generated the worst downside by far. It fell by more than 40 per cent from its prior peak twice. The first time was after the internet bubble popped in 2000, and the second was in the 2008-2009 crash, based on monthly data.

On the other hand, the worst decline for the bond index came at the end of October of this year, when it fell 20 per cent from its prior peak. The plummet was a shock for many bond investors, who expected better from their bond portfolios.

The worst downturn for the Champagne portfolio also occurred this year. It fell 15 per cent by the end of October, largely due to the bond market's decline. On the other hand, the stock index fell 14 per cent from its prior peak this year.

The Champagne portfolio when bubbles pop

Despite its recent drubbing, the Champagne portfolio still looks pretty good. It offers strong upside potential along with a history of much better performance than the stock index during most crashes.

But investors thinking about employing it should be aware that the portfolio requires a good deal of attention and maintenance. After all, you have to check in on it every month. It also performed an average of roughly two swaps each year since January, 1993 - moving from stocks to bonds or vice versa. The frequent swaps indicate the approach is best used in suitable tax-sheltered accounts.

Buying the Canadian stock market when it reaches new highs has historically been a good idea. Active index investors might think about quaffing some bubbly should Santa deliver new highs for the stock market this holiday season

First published in the Globe and Mail, December 4 2022.

Globe & Mail Articles

 Dividend All-Stars for 2024
 250 Megastars for 2024
 Extreme yields
 The easy way
 Smaller stable dividend
 250 Megastars for 2023
 Champagne portfolio
 Screaming Value
 Blended momentum
 Dividend monster
 Frugal dividend
 Stable dividend
 Speads and recessions
 TSX 60 for value investors
 Looking at 10-year returns
 Watching for a bottom
 Oh, bother!
 Indexing advice
 Media-shy stocks
 Curse of size
 Market uncertainty
 Be even lazier
 Scary beats safe
 Small, illiquid, value
 Use the numbers
 What value is good value?
 Sculpt for value
 Value vs CAPE
 Graham Rules
 CAPE vs PeakE
 Top value ratio
 Low Beta
 Value and dividends
 Walter Schloss
 Try unloved AIG
 Why I'm a value investor
 New world of ETFs
 Low P/Es possible
 10 yielders
 Be happier
 Dividend Downside
 Shiller's P/E
 Copycat investing
 Cashing in on class
 Index roulette
 Theory collides
 Diving too deep
 3 retirement villains
 Scourge of inflation
 Economic omens
 Analyst Expectations
 Value stock scarcity
 It's all in the index
 How to pick good funds
 Low Beta Wins
 Hunt for dividend stocks
 Think garage sale

MoneySaver Articles
 2 Graham Stocks for 2018
 2 Stingy Stocks for 2017
 2 Graham Stocks for 2017
 3 Stingy Stocks for 2016
 5 Graham Stocks for 2016
 3 Stingy Stocks for 2015
 3 Graham Stocks for 2015
 3 Stingy Stocks for 2014
 4 Graham Stocks for 2014
 8 Stingy Stocks for 2013
 6 Graham Stocks for 2013
 9 Stingy Stocks for 2012
 8 Graham Stocks for 2012
 Simple Way 2011
 5 Stingy Stocks for 2011
 7 Graham Stocks for 2011
 Simple Way 2010
 5 Stingy Stocks for 2010
 8 Graham Stocks for 2010
 Simple Way 2009
 Timing Temptation
 19 Stingy Stocks for 2009
 4 Graham Stocks for 2009
 Simple Way 2008
 Active at Passive Prices
 Unbundling ETFs 2008
 5 Stingy Stocks for 2008
 5 Graham Stocks for 2008
 Is your index too active?
 Graham's Simple Way
 Canadian Graham Stocks
 5 Stingy Stocks for 2007
 8 Graham Stocks for 2007
 Top SPPs
 The Simple Way
 A hole in your IPO?
 Monkey Business
 8 Stingy Stocks for 2006
 Graham Stock Gainers
 Blue-Chip Blues
 Are Dividends Safe?
 SPPs for 2005
 Graham's Simplest Way
 Selling Graham Stocks
 RRSP Money Market Funds
 Stingy Stocks for 2005
 High Performance Graham
 Intelligent Indexing
 Unbundling Canadian ETFs
 A history of yield
 A Dynamic Duo
 Canadian Graham Stock
 Dividends at Risk
 Thrifty Value Stocks
 Stocks in Short Supply
 The New Dividend
 Hunting Goodwill
 SPPs for 2003
 RRSP: don't panic
 Desirable Dividends
 Stingy Selections 2003
 10 Graham Picks
 Growth Eh?
 Timing Disaster
 Dangerous Diversification
 The Coffee Can Portfolio
 Down with the dogs
 Stingy Selections
 Frugal Funds
 Graham Revisited
 Just Spend It
 Ticker Temptation
 Stock Mortality
 Focus on Fees
 SPPs for the Long Term
 Seeking Solid Stocks
 Relative Strength
 The VR Approach
 The Irrational Investor
 Value Investing

Old MS Articles
 Cdn Top 200 2018
 Cdn Top 200 2017
 Cdn Top 200 2016
 Cdn Top 200 2015
 Cdn Top 200 2014
 Cdn Top 200 2013
 Cdn Top 200 2012
 Cdn Top 200 2011
 Cdn Top 200 2010
 Cdn Top 200 2009
 Cdn Top 200 2008
 Cdn Top 200 2007
 Cdn Top 200 2006
 Cdn Top 200 2005
 US Top 500 2018
 US Top 500 2017
 US Top 500 2016
 US Top 500 2015
 US Top 500 2014
 US Top 500 2013
 US Top 500 2012
 US Top 500 2011
 US Top 500 2010
 US Top 500 2009
 US Top 500 2008
 US Top 500 2007
 US Top 1000 2006
 Dividends 100 2017
 Dividends 100 2016
 Retirement 100 2015
 Retirement 100 2014
 Retirement 100 2013
 Retirement 100 2012
 Retirement 100 2011
 Retirement 100 2010
 Income 100 2009
 Income 100 2008
 Income 100 2007
 Top Trusts 2006
 Top Trusts 2005
 Hot Potato
 Buffett Buys
 Stocks that pay
 Value in the S&P500
 Where to invest $100k
 Where to invest $10k
 Summer Simple Way
 A crystal ball for stocks?
 Cheap & safe
 Risky business
 Dividend investing
 Value investing
 Momentum investing
 Low P/E P/B
 Dividend growers
 Graham's prescription
 The case for optimism
 Wicked investments
 Simply spectacular
 Small stocks, big profits
 Value that sizzles
 So simple it works
 No assembly required
 Investing by the book
 Invest like the masters
 A simple way to get rich
 Stocks for cannibals
 Car bites dogs
 So easy, so profitable
 Dogs of the Dow
 Money for nothing
 Yield of dreams
 Return of the master

Advisor's Edge Articles
 Passive Rebundling
 Doing the math

Flip Books

About Us | Legal | Contact Us
Disclaimers: Consult with a qualified investment adviser before trading. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, financial advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. More...