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Gordon Reid.Illustration by Joel Kimmel

Gordon Reid isn’t the type of investor who tries to time the market. Instead, the Toronto-based portfolio manager prefers to stay fully invested in stocks he believes will do well over time.

“Timing the market has proven to be a very ineffective way of managing money. You can be right once or twice, but to be right on an ongoing basis about movements of markets is very difficult,” says Mr. Reid, president and chief executive officer at Goodreid Investment Counsel, who oversees about $500-million in assets in separately managed client accounts.

“What we do is try to be better in all market environments,” says Mr. Reid. “When markets are very strong, we try to add value, and when they’re very weak, we try to add value just by being better on a relative basis.”

It’s been a successful formula in recent years: Mr. Reid’s balanced portfolio – which currently includes about 77-per-cent North American equities, 12-per-cent Canadian fixed income and 11-per-cent cash – was down 4.5 per cent over the past year, as of Aug. 31, after fees, compared with a drop of 11.5 per cent for its benchmark Morningstar Global Equity Balanced category. Mr. Reid’s balanced portfolio has seen an annualized return of 7.3 per cent over the past three years, as of Aug. 31, after fees, versus 3.5 per cent for the Morningstar benchmark. The performance is based on total returns.

The Globe and Mail recently spoke to Mr. Reid about what he’s been buying and selling.

Describe your investing style.

We look for conservative companies that represent value and quality. On the quality side, we want companies that compare well against their own history, their peer group, and the market as a whole. On the value side, we like to buy companies at the lower end of their historical valuation range. For example, if a company normally trades at between 15 and 20 times earnings, we’d like to buy it in the 15 to 16 area and let it increase in that range.

We don’t stay away from specific sectors, but we do stay away from certain characteristics, such as momentum stocks that trade at extreme valuations, where investors are more focused on the stock price than the company. Our focus is on the company. We also stay away from deep value companies in the junk heap, where there’s an aspiration that it will resurrect itself. We are in the middle: growth at a reasonable price.

What’s your market outlook?

I think we’ll need to learn to live with a higher level of inflation and a more normalized interest rates compared to the very low rates we’ve been experiencing in recent years. How are markets likely to cope with that? We believe that U.S. corporations are incredibly efficient at creating profits – and that we are only in the beginning stages of the information technology revolution that has the potential to challenge the Industrial Revolution for its impact on our society, our economy and, by definition, our markets. I think there are a lot of good opportunities ahead, but you have to keep your head on your shoulders and make sure you manage to balance risk and reward responsibly. That means not making big bets on one side or the other. I think there’s a lot of promise for the markets longer term.

What have you been buying recently?

Our most recent purchase was health care company McKesson Corporation, which trades in New York. It’s one of the largest distributors of pharmaceuticals and also provides health information technology and medical supplies. It’s a defensive position: Regardless of what happens to the consumer or the economy, people need their medications. The company is also growing in the double digits in revenue, cash flow and earnings. It’s also reasonably priced, at about 15 times earnings. It ticked all the boxes for us.

What have you been selling?

To make room for McKesson, we trimmed two of our long-standing positions a few weeks ago: One is Apple. We continue to like Apple but, from a portfolio management standpoint, it was becoming a higher weight because of its success. We first bought Apple in 2006 and have trimmed seven times since then to protect client assets against overconcentration. We also trimmed home renovation company Lowe’s for the same reason.

What’s one stock you wish you bought?

Microsoft. It went public in 1986 and had tremendous success through the 1990s. This was followed by about 10 years of it trying to reinvent itself and the return on the stock was very weak. But since around 2012, the stock has skyrocketed, up tenfold even with the most recent correction. CEO Satya Nadella has done a great job reinventing the company. Its cloud offering and games division is now amongst the industry leaders, and its traditional business model for its software offerings has been transformed into a more predictable and consistent revenue stream. The stock still trades at a reasonable multiple relative to the market. It’s a stock that we may buy at some point.

What investing advice do you give friends and family when they inevitably ask?

I give them the same advice that I give to our clients, which is to extend your investing time horizon dramatically to increase the likelihood that your investments will match historical returns. If you go back to the Great Depression, 95 per cent of rolling 10-year returns have been positive. Also, choose a seasoned portfolio manager with a history of adding value to market returns – and stick with them. Not every period is going to be favourable. Sometimes money managers are out of the sun; that’s just the way it is. There are a lot of one-hit-wonder managers who do well in a variety of areas and disciplines, but it’s the people who have done well in a variety of different environments, and have the experience to guide you through periods like today, that tend to do better over time. Of course, I’m biased, given that’s been my track record with clients in my three decades of managing their money.

This interview has been edited and condensed.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
MCK-N
Mckesson Corp
-0.45%536.85
AAPL-Q
Apple Inc
-1.06%171.48
LOW-N
Lowe's Companies
+0.55%254.73
MSFT-Q
Microsoft Corp
-0.17%420.72

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