Our Portfolio Management Process

Research and Purchase Decisions


In deciding the "what” and "when” of purchase decisions, we amalgamate three fundamental types of research:

"Bottom-up” Fundamental Research:

"Bottom-up research” refers to looking at a company or industry’s fundamental prospects from the bottom up. It involves researching factors like projected profits, financial ratios, competitive advantages and management teams.

For Canadian equity, our primary source of this research is BMO Capital Markets, whose team has been named the best overall institutional equity research, sales and trading team in Canada for 32 of the past 40 years*. In addition, our team maintains contacts at other research firms and regularly reviews reports written by the best analysts at other firms.

For US equity, BMO is one of the only Canadian firms to maintain internal coverage, and given the breadth of the market, our firm also subscribes to a number of other highly ranked research sources, including JP Morgan, Morningstar, Valueline and Pyrford International. JP Morgan was ranked #1 overall by a weighted research ranking by II Magazine in 2017, including having 16 out of their 42 sector teams ranked #1 overall.**

"Top Down” Strategic Research

"Top Down” research involves looking at bigger picture trends evolving across the world and analyzing their impact on financial markets. This type of research is invaluable in choosing which countries, industries and asset classes to overweight in portfolios.

In addition to having many excellent internal strategists, our favourite resource in this regard is a publication called Cornerstone Macro that is published three times per week.  Cornerstone’s staff include:

  • Lead Portfolio Strategist Francois Trahan,who has been selected by Institutional Investor magazine All-American Research survey as the #1 ranked strategist in the U.S. for 8 out of the past 10 years.

  • Lead Economist Nancy Lazar has been ranked as either the #1 or #2 economist in the U.S. for each of the past five years.***

"Technical Analysis” (charting) Research:

With an increasing number of computer-based program traders dominating the volume of stock exchanges, widely followed charting indicators tend to become self-fulfilling prophecies – if an indicator says to sell a stock, the program traders do and thus it goes down, proving the indicator correct.

Many would argue that this is all short-term noise and is to be ignored by longer-term fundamental investors. We agree for the most part, but do find technical analysis useful for confirming the timing of entry/exit points once we have fundamentally decided on buying or selling a holding.

We use BMO Technical Analyst Rush Visch’s work for this purpose.

Putting It All Together:

Our research in all three of the aforementioned areas is supported by BMO’s Portfolio Advisory Team, which hosts a daily morning conference call. These conference calls provide overnight market news as well as timely updates from our analysts in all areas of research.  We maintain regular contact with Stephane Rochon, our Head of Private Client Research.


Using our portfolio management process to identify good "buys” is only 50% of the required research. Knowing when to sell a position – either at a gain or loss – is critical to successful portfolio management.

Selling at a LOSS:

If one of our holdings drops in value, we view it as falling into one of two broad categories:

  1. We bought the stock for fundamental reasons that are no longer valid. Sir John Maynard Keynes was once criticized for changing his position on monetary policy during the Great Depression. He replied, "When the facts change, I change my mind. What do you do, sir?” One of the greatest mistakes many investors make is refusing to admit that their position is wrong. Being wrong is acceptable – but staying wrong isn’t. If the facts have changed or we find our position is wrong, we will rectify this by selling – attempting to keep a small loss from becoming a bigger one.

  2. The market has got it wrong. Stock markets aren’t quite as efficient as scholars might have you believe and often an undervalued security becomes more undervalued before it appreciates. We believe in being patient with a falling stock if we feel the fundamental reasons we bought the stock are still present, especially if a stock has been purchased for "top down” strategic reasons – these are longer term calls by definition. We may even see a drop in price as an opportunity to add to a position if we still feel strongly.
Selling at a GAIN:

Many individuals are proponents of setting a target price and selling when it is reached. We believe that this can lead to prematurely abandoning a well-researched idea. If a stock appreciates from our buy price significantly, but the fundamentals continue to improve, we’re quite happy to let a large profit become a larger one.

Given the absence of trading costs, our fundamental trading principal is asking ourselves the following question: "Would we buy it today if we didn’t own it?” Having an unrealized gain or loss shouldn’t cloud your judgment in this regard. Focusing too much on what you paid for something is known as "anchoring”, and is the primary reason so many Canadians rode Nortel down from $120 to nothing. ("But it was $120 – it has to be a bargain at $40.”)


The exception to our "would we buy it today” consideration is tax implications. If a stock is held outside an RRSP and is at large gain, we may be more inclined to hold through expected dips in order to avoid realizing a capital gain. Similarly, a stock may be sold and moved into something else for the sole purpose of realizing a capital loss. Our focus tends to be on after-tax returns.

* Source: Brendan Wood Institutional Survey

** Source: 2017 II Magazine Survey

*** Source: 2017 Institutional Investor All-America Research