Two rules guide retired consultant

Sudhir Jain, 70

Occupation: Retired oil industry consultant, fiction writer

Portfolio: Income - TransAlta Corp., Killam Properties Inc., Superior Plus Corp., BCE Inc., Biovail Corp.; Speculative - Western Financial Group Inc., Bombardier Inc., Viterra Inc., Sherritt International, Xceed Mortgage; Trust Units - Boyd Group Income Fund, Extendicare REIT, Rogers Sugar Income Fund, Pizza Pizza Royalty Income Fund, New Flyer Industries Inc., Westshore Terminals Income Fund.

A re-evaluation

After losing money in 1999 and 2000, retired Calgary oil industry consultant Sudhir Jain got out a list of all his transactions over the previous several years, did some analysis, realized he had erred in focusing on individual stocks to the detriment of his overall portfolio, and came up with two rules. "You have to look at your whole portfolio and not individual stocks, because individual stocks will fluctuate."

The Two Rules

Rule No. 1: Limit the number of stocks to between 30 and 35. "I had 92 stocks at one point and they were all over the place," he says. He also realized his portfolio was hugely unbalanced, giving rise to Rule No. 2: Limit exposure to any one stock.

The Details

"I look very carefully at balance sheets. What I want to see is that the amount of debt is not excessive in proportion to the revenue base." He also compares a company's market capitalization to its revenue. While that ratio varies from industry to industry, in general he says it's a good thing if revenue is, for example, close to the market cap, while it's a red flag if revenue is, say, a 10th of market cap.

His Big Picture

Mr. Jain allocates his stocks into three categories: income stocks (30 per cent), trust units (40 per cent), and "relatively safe" speculative stocks (20 per cent). "Those are the ones that have dropped and everybody's written them off, but that I think have a good chance."

How He Selects Trusts

"I look at the record of the people running things, and whether they've kept the income stable. I don't expect them to be increasing the dividends, because these aren't growth companies."

His View On Oil and Gas

Not only does Mr. Jain not like the volatility of the sector, he doesn't believe the current $70 (U.S.) price for oil will hold.

Best Move

When looking for income stocks, Mr. Jain avoids businesses with a finite life, such as an oil company with fixed reserves. Instead, he looks for companies with a sustainable business plan, such as the Boyd Group Income Fund, an operator of collision and auto glass repair facilities in Canada and the United States. He started buying it at 90 cents three years ago, and his average price is $1.30.

Worst

Nortel, but not because he rode it down in the tech wreck. Mr. Jain actually bought it in 2003.

Advice

"You have to change your portfolio with the times. Seriously consider what your goals are and weight your portfolio according. Limit the number of stocks in your portfolio with care."

Want to share your strategies?

E-mail tony.martin@sympatico.ca