Back when I used to troll the dividend growth crowd over in the comments section of Seeking Alpha, a tried and true way to really get somebody’s goat was to just point out how their dividend portfolio didn’t beat some index, usually the S&P 500.

These folks would inevitably respond with how they didn’t care about beating the S&P 500 and how all they worried about was investing in good companies that increased their payments each year. Getting trolled in a comment section was just a bonus, I guess.

Your boy Nelly, meanwhile, was confident his deep value portfolio filled with the trashiest (but cheapest!) companies out there would outperform. Sometimes I did extremely well, like that time I loaded up on Cloud Peak Energy (a coal miner) and tripled my money. I got out right as Trump won, within a dime of the stock’s high. I also made nice gains with trash like Yellow Media, Automodular, Dover Downs Casino, Village Farms, and so on.

But these paled in comparison to some of my losses. I got my ass handed to me on Corus, which is still down more than 50% over my average price. I even averaged down twice on that stock. Winnipeg Free Press lost 90%. Danier Leather at least salvaged something during the bankruptcy process, and I once invested in a Chinese fraud that went to zero. There are more examples but I’ve successfully blocked them from ever entering my consciousness again.

Such a portfolio didn’t have much correlation to the market, which should have made it easier to outperform. At least in theory. But it was also filled with a lot of trash. These were shitty businesses that just needed a small change in sentiment to achieve a satisfactory investment outcome. Except that often didn’t come. Because they were shitty.

This all seems so obvious in hindsight, but younger Nelson actually believed it. Poor guy.

Beating the marketĀ 

After stubbornly holding on to this trash portfolio for a few years to try and be different from the masses, I finally got smart and switched to owning a diverse selection of blue chips with a bit of a value bias. It’s working much better.

Let’s compare my portfolio to the TSX Composite. My portfolio has one lingering retail stock, exposure to the U.S. tech market (no Canadian names), energy exposure only through pipelines, and not a nickel invested in any mining or materials companies. This avoidance of sectors is quite intentional. I view them all as crummy businesses without any pricing power. It’s exactly what I don’t want to own.

The TSX, meanwhile, has exposure to all these things.

So what happens if gold and oil soar, while the rest of the economy tanks? These two things generally move inversely to each other, remember. If this happens, my portfolio underperforms the market.

You can probably guess what happens if the opposite occurs. If gold and oil continue to be in the toilet, my portfolio kills the TSX Composite. It’s really quite simple.

So my “outperformance” (or lack there of) depends on two sectors I refuse to own. Nice. Real nice.

Should I compare to another index?

Canada has a number of dividend ETFs that focus on delivering plenty of income while minimizing the impact of a dividend cut. Perhaps I should compare my portfolio to one of those.

My favorite dividend ETF has consistently been ZDV, the BMO Canadian dividend fund. It pays a nice yield — the current payout is 6.5 cents per unit each month, good enough for a 4.75% yield — and it comes with a low management fee of 0.35%. I own five of its top ten holdings and 17 of the 50 total holdings (I guess 18 of 51, since we both have a small cash position). It’s probably the better fund to compare my portfolio to.

But at the same time, perhaps this isn’t the best method. Maybe whichever underlying index I choose loads up on some hot new stock that delivers nice gains. Maybe it gets lucky with a takeover or three. Or maybe I get unlucky and one of the biggest positions in my portfolio blows up. This kind of stuff should even itself out over the long-term, but can have a big impact on year-to-year results.

I think the solution is I track my portfolio versus ZDV or one of the equivalents. But I’m not going to be super serious about it. As long as I’m posting consistent gains and my dividend income keeps going up on a year-over-year basis, I’m good. I’m not going to sweat the small stuff.

Wrapping it up

If I do underperform but I still end up being worth $5 or $10 million, does it really matter? I’m already at a point where our family spends about 80% of our passive income and saves 100% of our active income. Can I call that a 120% savings rate? I WILL NOW.

Remember, a high savings rate can cure a lot of other sins.

As long as I go forward each year, I’m good. And I know that by loading up on large blue chips I’m not going to deviate from the market that much. And as much as it pains Nelson of five years ago to admit this, blue chip dividend growers have a history of outperformance. So I suspect I’ll probably do about as well as ZDV, even if I’m not religiously tracking it.

Which, of course, begs the question. Why not just buy ZDV and be done with it? But unfortunately we’re out of time.

Tell everyone, yo!