One stock pick took this former fire services’ captain’s TFSA to a million dollars
This is TFSA Trouncers, a series that profiles Canadian investors who’ve accomplished incredible feats with their tax-free savings accounts. If you have grown your TFSA to half a million dollars or more, drop us an e-mail at dakeith@globeandmail.com or fill out this form. You may choose to be anonymous, but we do require an e-mail address and may request a screengrab of your portfolio for fact-checking purposes. We’ll also be profiling people who haven’t been so lucky with their TFSAs.
Able, 65, lives in Toronto and was a captain with the city’s fire services before retiring on a pension in 2016. In 2015, he bought a stock that took his tax-free savings account to more than a million dollars (verified by screenshot).
As an investor, he is a fan of Peter Lynch, a fund manager who regularly beat the market a few decades back. His books reveal that many of his stock picks were based on what he and others consumed. Due diligence often consisted of trips to the shopping mall with his wife.
Able remembers the events leading up to his big stock pick. It all began late one night when an alarm call came in for a fire at a medical marijuana facility, operating under the name of Bedrocan.
After the fire was extinguished, he got to talking with the “key holder” of the facility and learned that Bedrocan was a subsidiary of Canopy Growth Corp. WEED-T. He also learned that Canopy traded on the Toronto Stock Exchange, where its value was tied to how many clients it had.
Able, who had a medical marijuana card, was one of Bedrocan’s customers in 2015 when the company “dropped the price of their flagship strain from $8.50 to $5.00 per gram.” He knew they would quickly gain a lot of new clients from this move.
Furthermore, the federal Liberals had made a promise in the 2015 election to legalize marijuana for recreational use. Given the price reduction on medical marijuana and the party’s pledge on recreational marijuana, he decided to load up on Canopy shares in his TFSA.
The shares began to climb and then soared after April, 2017, when the Liberal government introduced the promised legislation in Parliament. In addition, Constellation Brands, a marketer of alcoholic beverages, announced a major investment in Canopy during 2018.
“Soon I had over a million dollars in my portfolio,” Able said. “It was exhilarating.” But the speed and magnitude of the rise was increasingly making him uneasy. As a user of marijuana, he knew that a large proportion of recreational users were buying from the underground market.
Able then got out of Canopy while his capital was still above a million dollars. The trigger was watching an interview featuring billionaire investor, Mike Novogratz: “He said: ‘If I was long cannabis stocks, I would sell; if I was speculating I would short,’” Able recalled.
Unfortunately, aside from his familiarity with Mr. Lynch’s approach, Able is not, as he says, a “sophisticated” investor. His subsequent stock picks took his TFSA down to $530,000. It could have been worse if not for investing in Yogen Früz because of his fondness for its frozen yogurt.
While Able was managing his TFSA, he became concerned about his marijuana usage. Thanks to Marijuana Anonymous, he has been free of the substance for several years.
“Using marijuana was a double-edged sword for me,” he says. “Because I knew about it, I was able to invest in it, but because I was a user, I was enslaved to it.”
Able now delegates the management of his capital to professionals. He is especially pleased with having his TFSA money in the pooled funds of money managers Phillips, Hager & North. Their diversified funds have low fees and are growing his capital, which is now at $600,000.
Able and his wife have registered retirement funds and non-registered accounts, as well. An annuity that he purchased separately from his TFSA provides a guaranteed annual income of $20,000, in addition to his pension.
What an expert says
We asked Lori Pinkowski, senior portfolio manager and investment adviser with Pinkowski Wealth Management at Canaccord Genuity Corp. for her thoughts on Able’s TFSA investing.
Able discovered a strategy used by many great investors: leveraging personal experiences to spark creative ideas for new investments. However, personal experience can only take you so far. For an idea to succeed, it must be backed by an analysis of company fundamentals and diversified within a portfolio of strong ideas.
Another principle Able followed was knowing when to sell. People often get emotionally attached to stocks, especially DIY investors, and end up holding on for too long. If Able still held Canopy today, he would be down over 40 per cent year-to-date, while markets and our portfolios are up 20 to 30 per cent.
While Able’s story is inspiring, there are lessons to be learned. His story is like winning the lottery – life-changing for a lucky few, but unrealistic for the majority.
For investors aiming to grow their portfolios, diversification is key. Earning consistent, stable returns through an active strategy should lead to long-term investment success. Additionally, leaning on investment professionals for advice is far less stressful and allows you to sleep better at night – especially in retirement.
Able could likely have improved his returns by taking two key steps: consulting a professional earlier and avoiding most mutual funds. Mutual funds often take a buy-and-hold approach to investing, which may not provide enough risk management. Fees are typically higher, and returns lower.
With a TFSA that was worth over $1-million, plus other registered and non-registered accounts, Able’s portfolio would benefit from greater flexibility and transparency. Switching to an active investment strategy with individual blue-chip stocks could likely help him better align his portfolio with his long-term goals and legacy.
Lori Pinkowski’s views, including any recommendations, expressed in this article are her own only, and are not necessarily those of Canaccord Genuity Corp. Canaccord Genuity Wealth Management is a division Of Canaccord Genuity Corp., Member-Canadian Investor Protection Fund (CIPF) and The Canadian Investment Regulatory Organization (CIRO).
Larry MacDonald is a regular contributor to The Globe and Mail and author of a new book, The Shopify Story: How a Startup Rocketed to E-commerce Giant.