I took a look at my portfolio’s benchmark today, $DISV, and it confirmed a conclusion I had come to earlier in the day:

if you don’t have the capital to call yourself a hedge fund manager and hire some analysts, you’re better off building an international portfolio that isn’t concentrated around large-cap US companies. Seeking alpha in the stock market is for hobbyists, not investors with a preference for investing passively! Alpha is the excess return between a portfolio and its benchmark.

Alternative to Stock Picking and SP500

There are at least three biases that exist in the status quo investment advice:

1. US dominance (regarding VOO, ZSP.TO),
2. Favouritsm given to 100 (NASDAQ 100) / 500 US-listed large-cap stocks over 5,000+ global stocks (1,500 small-cap value, 3800 core equity) (regarding QQQ)
3. Market-cap weighted holdings even though market cap is not correlated to future returns and may increase portfolio risk instead of decreasing portfolio risk (regarding RSP, VEQT.TO, EQL.TO)

To correct for these biases, without picking individual stocks, a well thought out portfolio made up solely of ETFs, would look something like the below. This is what I would recommend to everyone, at least as long as it’s not mainstream. I plan on investing exclusively in DISV and VSUX exclusively since my portfolio already has a lot of US and Canadian equity exposure.

• International ex-USA
  • $DISV (35%): small-cap value
  • $VSUX (30%) Index ETF
• USA (25% of the global economy)
  • $AVUV (15%): US small-cap value
  • $EQL.TO / $RSP (10%): US equal-weighted SP500
• Discretionary (10%)
  • Either stock picking or one of the ETFs

If you don’t know how to use Norbert’s gambit to buy the US-listed ETFs, then I recommend to just buy VEQT.TO.

You can adjust this mix to max out at 90%, leaving you with 10% for discretionary investing. US investors can just ignore the 10% domestic allocation and use it for discretionary.

My Portfolio

I’ve done a lot of research these past few weeks hunting for small-cap value stocks and mid-cap growth stocks and although I’ve started building positions in the stocks I believe will outperform my benchmark (GOOGL), I have decided that this will be the last time I do such research.

The thing is, you only need 20 stocks to reduce your portfolio risk to something close to systemic/market risk. The problem though is that you will miss out on stocks if you aren’t constantly revaluating your current picks and other stocks.

Although I use GOOGL as my benchmark for picking stocks, my portfolio’s benchmark is the following:

• $DISV (60%): small-cap value
• $VXUS (40%): core equity

Once I’m done building up my portfolio and buying the discretionary stocks on my Buy list, future deposits will be invested in DISV and VXUS. I value my time and these ETFs can definitely save mine while meeting my investment preferences.

For those new to investing, feel free to read How to Invest in the Stock Market as a Canadian which I’ve been updating since 2022.

Dollar Cost Averaging

Another reason to not pick stocks is that when you go to invariably dollar cost average via a portfolio rebalance, you are trying to time the market and you can end up getting burned. It’s much better to take it easy for at least 3 months before you dollar cost average for the first time. Unless it’s a profitable sub 20 P/E large cap.