My decision was to use some simple logic.

I knew I wanted to apply Enduring Value to this portfolio and I wasn’t motivated to beat the market for ego, fame or fortune. There also isn’t a financial product that cost effectively allows me to do what I want to do. What I realized through my research was that each individual company has different competencies that emerge once I began to conduct a situational analysis on them and compare within a group. Some companies have strengths in one area and weaknesses in another. Was it possible to compliment one with the addition of another without creating excessive or repetitive overlap?

I first turned my attention to the five largest banks: Bank of Montreal (BMO, Bank of Nova Scotia (BNS), CIBC (CM), TD Bank (TD) and Royal Bank (RY). I wanted a balance of exposure to a number of different banking operations and through my SA’s I determined that I wanted exposure to investment banking, retail banking and a growing presence to international banking outside the North American markets. RY fit well for its strength in investment banking, TD for its dominant retail presence and BNS for its unparalleled expansion into international banking operations. CM & BMO didn’t offer significant diversification away from the main three aside from yield and additional risk. I decided that exposure to RY, BNS and TD was sufficient for the bank section of the portfolio.

Next I turned to the insurers: Great-West Life (GWO), Sunlife (SLF) and Manulife (MFC). Each company does certain things well and has exposure to different domestic and international markets. Owning all three made sense to me for the long-term, but with GWO as part of the Power family (POW & PWF) I could easily gain exposure to Great-West indirectly through either of the two parents. I knew I wanted exposure to IGM Financial (IGM), a large wealth management company under the umbrella of the Power group, to gain a higher exposure to asset management outside of the banks I could invest into a lesser weighting of (IGM). To determine the exact ratio of how to balance IGM and a Power component initially proved to be difficult, so I bought MFC, SLF and a small position in IGM. Later I bought a heavy weighting of PWF for exposure to GWO and additionally to IGM. The decision between Power Financial (PWF) and Power Corp (POW) was simple: I didn’t have any desire to gain exposure to media assets which POW held and PWF was the better fit for more direct exposure to the key European and energy assets of the company.

For industrial exposure I chose exposure in Canadian National Railway (CNR), Canadian Pacific Railway (CP) and Russel Metals (RUS). I chose both railways companies for the distinct differences in their operations since CNR is largely a North-South operator and CP an East-West. CNR is a much more efficient railway and better managed than CP and I hold CNR in a higher relative weighting in the portfolio. RUS is a diversified metals distribution and processing company with a heavy-weight dividend. The company supplies steel infrastructure to the oil & gas industry in Western Canada and has operations in metal services and steel distribution throughout North America.

For telecom exposure I chose both Shaw Communications (SJR.B) for its western Canada exposure and more recently Rogers Communications (RCI.B) for its competitive advantages and dominant positions over national industry rivals. Both stocks hold the highest prospects for growth in my analysis and their increasing cashflow makes them attractive investments over the long-term in a capital intensive industry. While RCI.B currently holds a competitive advantage in their 3G network that will be eroded slowly over time, their competition face high costs and a changing technological environment that allows RCI.B to continue offering premier products that operate solely on their network.

For consumer stocks I chose to invest in North American cheese maker Saputo (SAP), pharmacy retailer Shoppers Drug Mart (SC) & Canadian woman’s retailer Reitmans (RET.A).