Chris, 54, put his entire TFSA into oil stocks, believing the depressed price represented a once-in-a-lifetime opportunity.ROBYN BECK/AFP/Getty Images
This is TFSA Trouncers, a series that profiles Canadian investors who’ve accomplished incredible feats with their tax-free savings accounts. If you have grown your TFSA to half a million dollars or more, fill out this form. You may choose to be anonymous, but we do require an e-mail address and may request a screengrab of your portfolio for fact-checking purposes. We’ll also be profiling people who haven’t been so lucky with their TFSAs.
The tax-free savings account held by Chris is now worth nearly $800,000, thanks mostly to his purchase of oil stocks at huge discounts when their prices collapsed in 2019 and 2020. Contributions to his TFSA have been maxed out to $102,000.
Chris, 54, lives in the Toronto area and works as the chief financial officer for a company. He got the idea for buying oil stocks from the television appearances of an investment analyst and his written reports.
“I have always been a fan of the show Market Call [on BNN Bloomberg]," he said. “One analyst that impressed me was Eric Nuttall [with Ninepoint Partners], who specializes in Canadian oil stocks.”
Before COVID-19, Chris would “mirror” Mr. Nuttall’s monthly fund holdings and sell or buy according to the changes he made. Part of his portfolio was in oil stocks before the pandemic hit in early 2020.
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After the pandemic broke out and the global economy ground to a halt, demand for crude oil tumbled. Saudi Arabia and Russia were also ramping up supply in a price war. The world was awash in crude oil, causing prices to slide.
Moreover, the supply glut filled storage facilities to capacity and traders of oil futures faced the undesirable prospect of taking physical delivery. Panic selling ensued, driving the oil price down more sharply – even to below zero, for a time.
“Eric Nuttall was on Market Call just after that COVID-19 market crash and hinted that he had heavily invested in a certain oil stock priced at 19 cents but he did not give away what company it was,” Chris said.
“I surveyed his top-10 holdings and deduced that it was Athabasca Oil Corp. (ATH-T),” Chris recalled. “I immediately decided to buy a large position, along with several other oil stocks.”
In fact, Chris put his entire TFSA into oil stocks, which is “not a long-term recipe for success because of the poor diversification,” he noted. But he truly believed that this “was a once-in-a-lifetime opportunity.” Such incredibly depressed oil prices could not last forever.
Indeed, after his purchases, Russia and Saudi Arabia patched up their differences and reigned in supply. Oil demand also climbed as COVID-19 wound down and the global economy revived. Storage space emerged and oil prices rebounded.
Helping out was a new paradigm within the industry. “Instead of drilling for more oil at low returns on investment, companies turned to solidifying their balance sheets by reducing debt and improving shareholder value with dividend increases and share buybacks.”
Over the next two to three years, the stock prices for many of his oil companies zoomed upward “by 300 to 500 per cent, or even more” – to the point where his TFSA climbed above the $500,000 level. Athabasca Oil, purchased at 19 cents, now trades near $7.
Chris locked in some of those big gains, but still has some oil stocks since he thinks there is still some value in the sector. But he has diversified into other sectors: i) industrial stocks, where he has found better growth prospects, ii) gold stocks, because of the global uncertainty triggered by “the election of our yellow-haired ‘friend’ to the south” and iii) tech stocks with growth potential.
One of his choices in the industrial sector is AtkinsRéalis Group Inc. (ATRL-T). It’s an indirect play on AI: the company is a market leader in the nuclear infrastructure space and can supply the power needed by data centres.
In the gold sector, his top pick is Agnico Eagle Mines Ltd. (AEM-T). He likes that the company has exposure only to North America (less operational risk than mines in other regions) and stable leadership with experience.
In the tech sector, he owns shares in Constellation Software Inc. (CSU-T), a proven growth-by-acquisition story in the software space. Another position is Celestica Inc. (CLS-T), which builds “the picks and shovels for data centre and AI infrastructure.”
What an expert says
Dan Hallett (CFA, CFP), director of asset management for HighView Financial Group, provides his thoughts on the TFSA of Chris.
There is plenty of anecdotal and academic evidence that strongly argues investors should not try to pick individual stocks. Most investors don’t approach stock analysis and business valuation with rigour. Even when you can do this, success requires the right temperament. Kudos to Chris for his combination of bold views, the conviction to put real money into his ideas and the temperament to ride his bets to big returns.
But make no mistake: filling his TFSA with oil stocks was a big bet. And his success was at least partly a function of luck. I’m glad, however, that he appears to have diversified his exposure across at least a few sectors.
Still, his TFSA appears to be concentrated in relatively few companies. Getting future big bets correct will become increasingly challenging unless Chris is truly skilled. His skill is tough to gauge from this brief story but he appears to be thinking about stocks in a very reasonable way.
Most of our clients have already taken plenty of risk to build their wealth – often from an operating business. Our job, as wealth managers, is to make sure they never have to build their wealth anew. Accordingly, we take a more diversified approach. It’s not an exciting or fast way to build wealth, but it relies less on luck and more on patience and time. Credit to Chris for his bold approach – but so few are suited to this concentrated method.
Larry MacDonald is a regular contributor to The Globe and Mail, author of The Shopify Story: How a Startup Rocketed to E-commerce Giant and blogger at Shopify’s Journey.