February 1st, 2023 | Grant Johnson

Add These Four Stocks To Your Winning Portfolio

If you want to make money, you won't lose with these picks.

I listen to a podcast called The Rational Reminder by a couple of Canadian investors/advisors that use pure data and empirical evidence upon which to base their financial and investment decision making. They run an investment firm and do interviews with (frankly unbelievably) high ranking finance gurus, economists, best-selling authors and titans of capitalism.

After listening to hours upon hours of this podcast and reading about investment for years (and often learning lessons the hard way), I have come to conclude that if you want to invest relatively safely with prospects of decent compounding returns, this is what you need to do.

1. Earn money… more is better.

2. Spend less than you earn.

3. Save.

4. Open a self-directed investment account…especially a TFSA.

5. Put money into it whenever you can.

6. Invest the money in big, passive, broad-based, low fee ETF funds.

7. Leave them alone for as long as you can.

8. Cash them in when absolutely necessary.

9. Success!

That’s basically it. You’ll get market rate returns and your wealth will grow decently over time. No advisor (or advisor fees) needed. Set it and forget it.

But if you are really interested in investing, then doing it the safe and easy way isn’t the most fun way to go about making your fortune. After all, what if you’re so smart and savvy that you can beat the market average?! (Newsflash. Pretty much nobody does, not even Warren Buffett anymore.)

Well, it can still be fun and there’s nothing wrong with a little diversification. Plus, you never know when some insight you have may actually outwit the market. I’ve beaten the S&P 500 for a couple years now, so I consider myself something of a genius.

If you’re interested in putting your money where my mouth is, rather than just following steps 1-9 like a boring winner, read along while I delight you with some insightful portfolio picks that I am very enthusiastic about and you can agree, or disagree, with your pocket book accordingly.

Nintendo

I was downstairs in my mother-in-law’s basement a while back and my nephews had set up their Dad’s old Nintendo and they were playing Super Mario Bros.

“Hey Uncle, we’re playing Dad’s old video games! You want to try playing it?” they asked.

“Yeah, sure. I’ll give it a go.”

Cut to me cracking my knuckles and holding a game controller for the first time in long while. “Let’s see… how do you play this thing?” I playfully asked.

“You’re Mario and you have to run through the levels without getting killed by these mushrooms and stuff. You have to jump on their heads.”

“Oh, okay. I think I get it. Let me give it try.”

I then proceeded to blow their minds with some professional level deftness that only someone from the 80s could pull off. They had a good time playing and so did I, but I didn’t give it too much thought.

Then I started to notice something. One of my kid’s friends dressed up as Mario for Halloween. At a playdate at Treehouse, an indoor playground where parents can let their kids rip around while we all sit at tables staring at our phones, I noticed a birthday party theme room decked out in Mario lore. Then a guy at work showed me his Nintendo Switch. Then my nephews got Switches. I began to realize that Nintendo is still around and it's huge.

I’m not a gamer and lost track of Nintendo after the Wii came and went, but when I started to notice more and more Nintendo popping up randomly, I decided to investigate. That led to me finding out about Nintendo’s new (relatively young) president, Shuntaro Furukawa… and his Disney-styled plans for Nintendo.

A company built around adored intellectual property that’s in the theme parks, movies and merch business? That sounds a whole lot like Disney, the M&A-obsessed pop culture behemoth that, under CEO Bob Iger, has gobbled up everything from Star Wars to Marvel. Asked if the Mouse House is a model for Nintendo’s future, Furukawa doesn’t bite. “We’ve never tried to imitate any other company,” he says, later adding that “the idea of using our IP in things like theme parks or movies is simply an extension of the philosophy we’ve had all along.”

And to be sure, Nintendo’s strategy is less about acquisitions and more about in-house creations. But, wandering around Nintendo World, with its shelves upon shelves of Mario t-shirts, stuffed Yoshi dolls and other Nintendo paraphernalia, the comparison to an Orlando gift shop is unavoidable. Nintendo may never become quite as dominant as the house that Walt built, but for many of its fans, it has at least the same power to inspire nostalgia and joy – and convert those emotions into big dollars.

- Time magazine

Nintendo’s new leadership is going to scale up their brand into a Japanese Disney. Here’s why I like it…

1. Video gaming is a fickle business. Technology is changing all the time and what’s popular today could be passe tomorrow. This makes long-term investing in gaming tech spaces difficult, (unless you just buy a gaming ETF that purchases everything). Nintendo has been incredibly resilient with constant innovation and routine bounce backs from misfires; but by expanding the IP into different media, Nintendo will be diversifying and expanding their reach and insulating their bottom line from the ups and downs of gaming alone.

2. The company has a 133-year track record of success. They’ve innovated constantly through war, economic depression, and technological revolutions. Any company this resilient is worth looking at.

3. Japan is inoculated against wokeness. Japanese companies operate differently than their Western counterparts. This doesn’t always equate to huge returns for investors, but it does create solid companies that don’t go off the rails with fads like (DIE) Diversity, Equity, Inclusion and (ESG) Environment, Social, Governance. While Western companies scramble to find trannies for their board of directors, Japan has a hierarchical system of brutal, unapologetic meritocracy.

4. When Sonic The Hedgehog was made into a feature film back in 2020, it was a massive success and created a lot of new awareness for the Sonic brand. Sega quickly ordered a sequel and Sonic has been revitalized into a massive cash cow. Mario (and other Nintendo IP) is even more valuable.

5. Nostalgia sells big and for all those Millennials that grew up as Nintendo kids in the 80s/90s and now have kids of their own, stuff like a Mario movie is ripe for revenue.

6. Here’s the trailer…it’s going to be a big hit.

I put thousands of dollars into Nintendo stock last March (too early…it’s a better buy now). I’ll know by the end of 2023 if I’m on the right track with this gamble.

Canadian Pacific Rail

CP rail was the first stock I ever bought. It’s a big, fundamental legacy company full of Canadian history and gravitas. I bought it back in 2007 when it was around $14.00 a share, today it’s about $100 a share and growing nicely. If you put all your money into CP rail stock when I did, you would’ve beaten the S&P 500 by more than double. Here’s why I think they’ll keep succeeding in the future…

1. I don’t normally advocate investing in Canadian companies, because Canada can’t compete on the world stage. Anytime a Canadian company gets traction it immediately gets annihilated faster than you can say “Blackberry” or “Nortel” or “Shopify” (too soon, too soon).

The difference with Canadian Pacific Rail, however, is that it’s a business from a previous era. An era, when Canada had the future on the horizon and boldly and proudly pursued it with vigor and resolve. CP rail was built out of grit and realism and can-do spirit. It’s a company from a by-gone era and the corporate culture still reflects it.

In 2012, Hunter Harrison was headhunted to lead CP into the 21st century. Harrison was a legendary railroad baron, with a track record of brutal success. CP rail soared under his leadership and after five years the company would never be the same.

In short, Canadian Pacific Rail is a tough as nails company and is truly world class.

2. In Canada there are two railroad companies that control everything. Canadian National (which is also a good stock) and Canadian Pacific.

“Out of the total Canadian rail transport industry revenues, CN accounts for over 50% and CPR for approximately 35%. Together, CN and CP represent more than 95% of Canada's annual rail tonne-kilometres, more than 75% of the industry's tracks, and three-quarters of overall tonnage carried by the rail sector. For Canada, these two firms serve as important supply chain links for Canada's key trade corridors and gateways.” - railway suppliers 

This is essentially a duopoly. Now from a conservative perspective, not having enough competition is a bad thing, and if you’re a customer then this is true, but if you’re an investor… it’s not necessarily a bad thing.

Much like Canada’s telecom oligopolies and our banking sector oligopolies, Canada’s railway companies function much the same. For investors this means the market here is captured and controlled and guarantee and that can mean big gouging profits.

3. Oil pipelines became politicized back around 2009. Today it is almost impossible to start new oil pipeline infrastructure in this country. While conservatives wail and holler about how dumb that is and how the oil will have to be transported by less efficient and more dangerous means such as railways…why not just accept reality and jump on the money train?

Since 2012, oil transport by rail has grown immensely. It’s likely to continue to do so. This will be a lucrative source of revenue for a shipping company in a country with a rail duopoly. Get onboard!

4. Lastly, CP recently bought Kansas City Southern railways and will now have the only Canada-United States-Mexico railroad infrastructure in North America. Look at this crazy map linking Mexico City, throughout the U.S. mid-West, all the way to northern British Columbia. This sort of synergy and end-to-end transport capture is going to pay massive dividends for the rest of the century.

Costco

If you had invested in Costco stock in 2007 instead of CP rail, you would’ve crushed both CP rail and the average S&P 500 market return with massive gains of almost 800%. Costco is a relentless winner of a stock and it’s easy to see why.

1.Costco has branded itself as exclusive. That membership card is a VIP-ticket, status-signal that middle-class people love. A Costco card is to the modern middle-class what a green lawn and a white picket fence was in the 1950’s…or a gold harvest fridge and stove was in the 1970’s…or a VCR and microwave was in the 1980’s…it signals status. “I’m too good to shop at Wal-Mart or Superstore, but I’m too smart to get ripped off at Safeway or Co-op…I’m a middle-class decent person who shops at Costco!”

Why is this genius?

Because playing this status game, brands Costco in the hearts of minds of shoppers as something worthy of being attached to. They will pay a premium to signal status. It doesn’t matter that you’re shopping in an unappealing warehouse filled with monster sized products that are of dubious quality and selection. The branding and the exclusivity of the membership regarding status-signalling is key.

The membership functions as a gatekeeper by specifically excluding people who can’t or won’t pay the upfront fees. This used to dumbfound me, as I naively thought, “Why limit your customer base?”

My Dad explained that “It keeps the ******* out”.

It was then that I realized Costco appeals to bourgeois middle-class values in a way I hadn’t previously imagined.

2. They are a brutally competitive big box store that competes handily with the Wal-Marts and Superstores and other purveyors of mass-produced mainstream stuff. They have their finger on the pulse of middle-class desires and it never fails to amaze me that they’ll bring in pallets of affordable random items that people instantly seem to love.

Neighbours and friends of mine will proudly show off stuff like Christmas lights and cutting board sets and lawn furniture and when I ask where they got it they say, “Costco!” with both delight and a certain self-satisfied resignation that indicates that it could be no other way for them.

The cultish rituals of showing off your card and walking the aisles and getting your happy face sharpie on your receipt would all be for naught if they didn’t also have an avalanche of stuff that relentlessly appeals to bourgeois values.

You can find what you need at Wal-Mart or Home Depot or Superstore…but at Costco you find what you didn’t even know you’re supposed to want in order to show off who you want to be.

3. There are only 842 Costco stores worldwide. About 579 of them are in the United States. 107 are in Canada. There are 2 in China.Costco could easily quadruple the amount of stores they currently have and still just be in the beginning phase of their empire. This stuff travels. Look at the extreme excitement in China when the first store opened.

Costco has been around too long and is too strong to just be a fad. They have tapped into a business model that works and has captured the loyalty of multiple generations. The products, the prices, the experience…whatever…it’s the psychological branding that interests me with this corporation. I expect the stock to double by the end of the decade.

McDonald’s

I bought a bunch of McDonald’s stock back in 2011 at about $97 a share. Today, McDonald’s is worth about $275 a share. Along the way I’ve collected a nice 2%-3% yearly dividend from it as well.

Why do I think this is a good buy?

Obesity.

For hundreds of thousands of years, the human experience was hunger…constant, grumbling, dangerous hunger. It was only around the time of recorded history and the introduction of agriculture that there were examples of societies that knew hunger a bit less than historically common. Nevertheless, it was only 90 years ago that people in the West were walking around like scarecrows during the Great Depression. Famines stopped being an Asian thing in the 1970s. Famines stopped being an African thing by the end of the 90s.

There are still almost 800 million people living on the razor’s edge of starvation and malnutrition is still widespread, but increasingly, due to technology and economics, a bigger problem is looming around the world…a literally bigger problem.

People are getting crazy fat and it’s only going to get much, much worse.

Thousands of years of hunger has been solved for 90% of people around the world, but people are genetically hardwired to enjoy food and want more of it than they need…because hey…you never know when a famine might arrive…just ask anyone throughout the entirety of human history!

McDonald’s has been around for 83 years and they know what they are doing. They have generations of employees and decades of trial and error and reams of empirical evidence regarding what people want to eat, and how much they’re willing to pay for it. McDonald’s has turned our natural inclination to consume calories into an exploitive and manipulative science.

McDonald’s is the biggest restaurant in the world and it won’t relent. Wokeness isn’t going to change their brutally competitive capitalist spirit, so while their gay employees could use an extra 50 cents an hour, instead they’ll get a rainbow flag sticker in the door window of the entrance and keep on raking in the corporate profits.

This company knows what they’re doing and how to do it and if the global economy keeps rising there will be more and more people ready to get fatter and fatter.

Progress = Obesity = McDonald’s domination.

Doesn’t matter what the current share price is, if you’re looking to hold something for the long run, McDonald’s is worth it.

So there you have it. Four big, somewhat jaded, recommendations for investing with analysis you aren’t going to get from watching BNN. I make my investment decisions beyond looking at the annual reports and I don’t buy anything I’m not willing to hold for ten years minimum. So far this works for me more often than it doesn’t, but always own your decisions and when in doubt, just follow something like this outline from the Rational Reminder.