Having all your eggs in one “proprietary” basket hasn’t necessarily been bad for one of the most sophisticated investors in this country.
Don Drummond, the former economist with TD Bank and Finance Canada spoke with WP recently about this very subject using his own personal example as a case study. The results, for supporters of Canada’s big banks, shouldn’t be too surprising.
“So my income, a good portion of my pension and all of my equities depended upon one company,” says Drummond. “That is hardly a good model for anyone else to emulate. But on the other hand, even with the recent dip, TD stock today is worth about four times what it was in 2000, and it has paid handsome dividends, which receive favourable tax treatment relative to fixed income.”
Semi-retired today, Drummond teaches part-time at Queen’s University in its Masters of Public Administration program, which allows the author of the Drummond Report time to consider the big issues he couldn’t while working full-time in finance.
Although Drummond’s investment portfolio consists of just TD stock and some provincial bonds and isn’t the poster child for asset allocation and the subsequent portfolio construction, he’s quick to point out that Canadian investors don’t get a total reflection of the Canadian economy when they invest in the TSX.
“It is heavily skewed to three sectors: energy, materials and financial institutions,” says Drummond. “If Canadians distribute their investments in accordance with the index, or buy index funds that do this, then they will be over-weighted in certain sectors with little or no exposure to others.”
For example, there is little opportunity to invest in healthcare in Canada, he say, yet it is more than 10% of the economy. So that reality “requires being strategic about the selection of Canadian investments.”
Or, you could do just as Drummond’s done and forget about diversification.
“I have no complaints whatsoever about how it has turned out.”