The 6-Pack Portfolio - Book Review

TITLE: The 6-Pack Portfolio
AUTHOR NAME: Jason Fremlin
AUTHOR CREDENTIALS: DIY Stock Investor, MBA
GENRE: Stock Investing
NUMBER OF PAGES: 108
PUBLICATION DATE: 25 March 2018

SYNOPSIS/SUMMARY: It is Easy to Beat The Canadian Stock Market

From Amazon: "The Toronto Stock Exchange (TSX) Composite is a bad index. So how do you make money in the Canadian market? In this book, Jason Fremlin unveils the 6-Pack Portfolio, which has beat the TSX Index every year since inception. The 6-Pack has beat the TSX by an astounding 8% annually despite having lower risk"

At only 108 pages this is a quick and fun read for anyone starting out their investing journey and looking for beginner stock investing ideas. I wouldn't say the return is astounding but mere hyberbole. This premise has been proposed before to describe an investing strategy. Jason has just given it a fresh new label attaching a common Canadian beer phrase to it and calling it his own.
Most people I know own more than 6 stocks. - PW

Jason's Investment Theory

Pick 6 stocks and invest them in equal weight from the banking, telecom, utility, real estate, pipeline and railroad industry. You pick the stocks just ensure you use equal dollar amounts for each stock. 

Use your TFSA for this strategy as he claims this is the most tax efficient place for the 6-Pack Portfolio. Once implemented just sit back and watch the dividends roll in. Other reasons Jason gives for this particular strategy include;

• the TSX is poorly diversified, so you must hold concentrated positions 
• ETFs dominate investor psychology
• the focus is on stocks that work best in Canada
• higher dividend yield than the broader index
• replace Canadian ETFs with individual stocks

What About The Rest of the World?

You should complement the 6-Pack Portfolio with a US broad based ETF like VTI. Due to the fact that the Canadian Market is far too concentrated in financials and materials Jason believes exposure to the FANG and healthcare stocks the US offers is a perfect combination for a TFSA portfolio. Use an Int'l ETF for the rest of the world.

Pros and Cons

Pros

• easy to implement
• only 6 stocks to choose
• low cost with only one time trading fees
• highly concentrated
• uses the TFSA for tax efficiency
• recommends diversification into the US market via ETFs

The main advantages here are buy six Canadian stocks and one US ETF and one Int'l ETF. Pretty straight forward and simple.

Ross Grant over at the Canadian Moneysaver publishes a list of 10 stocks every January that he also claims to 'Beat the TSX'. Also coined the 'Dogs of the TSE'. The BTSX strategy was instituted by David Stanley who BEAT the index in 19 out of 27 years. The idea is to pick out the top ten highest yielding stocks from a screen of the worst performers from the previous year. You purchase them in equal dollar amounts. 

The 2018 Dogs list is comprised of; Enbridge, BCE, Power Corp, TransCanada, Shaw, CIBC, Scotiabank, National Bank, Bank of Montreal and Royal Bank. 

I use a variation of this strategy by adding any new additions that are recommended year over year. I do not sell any position that is dropped from the list. That way I still capture the dividend yield from the stock. I also supplement my portfolio with a US & Int'l ETF. 

Cons 

• small sample size of return data
• this has been proposed in numerous books, nothing new here
• gold is also recommended for diversification
• no discussion of other stock analyzing tools
• claim of this being for seasoned investors is baseless

Jason attempts to beat the index with just 6 stocks. I have seen no record of this so far, just an 8% claimed return since he instituted the strategy in 2010/11. The index lost 11% in 2011 and again in 2015. So what year did he start 2010 or 2011? The start month will skew the total return and it would be nice to know his year by year return. That is the only way to claim to 'beat' the index instead of claiming to do so on an accumulating basis.

I have no idea how the 6-Pack did during this time frame.

My Final Take

If you have ever read or subscribe to Tom Connolly's site dividendgrowth.ca then you will read nothing new here with this book.

Tom has been telling readers to concentrate their portfolios on just a few stocks from the telecomm, utilitiy, real estate and financial sectors for decades. Acronym = TURF or TULF. The big difference here is that NO commodity, pipelines or high yield stocks are ever covered or chosen as recommendations via statistics. Tom also does not offer analysis on individual stocks.

I think this book is more suited to newbie investors looking for confirmation and ideas to start a portfolio of individual Canadian stocks.

Jason needs to provide more than a return record of 7-8 years to convince me that this is the best way to construct a portfolio but I do believe it's a good way to start. It's just that you would be better served by first reading books by investing masters like Philip Fisher, Buffett, Montier, Grant, Munger, Bogle, Ellis and Jarislowsky who all have covered parts of this thesis before.

Tom Connolly has been investing this way since 1984 and boasts a portfolio size that has doubled and doubled again and he focuses on; 

Yield + Dividend Growth = Total Return. 

He also never buys ETFs or gold.  Jason's premise boils down to what's called a core and explore strategy. Also been recommended by many others before him. The choice is yours, pick your guru wisely.

How would you start to build a portfolio?

Related Post: Yield and Dividend Growth