Recent decisions to discontinue the production of frozen juice concentrate have made me nostalgic for sipping reconstituted lemonade on hot summer days.
But investors are free to continue to indulge in the Pink Lemonade portfolio which is still running strong.
The portfolio favours Canadian value stocks on the upswing and it generated average annual gains of 17.9 per cent over the 26 years through to the end of January, 2026. In comparison, the Canadian stock market, as represented by the S&P/TSX Composite Index, climbed at an average annual rate of 8.1 per cent over the same period.
(The returns herein are based on backtests using monthly data from Bloomberg. They include dividend reinvestment but not fund fees, taxes, commissions or other trading costs. The portfolios are equally weighted and rebalanced monthly, unless otherwise noted.)
The portfolio picks its stocks by starting with the largest 300 on the Toronto Stock Exchange (TSX) by market capitalization. It then proceeds to narrow in on the 20 with the lowest price-to-earnings ratios (P/E) and then buys the 10 with the highest returns over the prior six months.
While the portfolio’s long-term returns have been exceptional, it’s fun to also try new recipes and variations. Today, the focus is on expanding the portfolio from 10 to 20, or 30, stocks.
More precisely, the 20- and 30-stock portfolios both begin, like the original portfolio, with the largest 300 stocks on the TSX. The 20-stock portfolio then looks for the 40 stocks with the lowest P/Es before buying the 20 with the highest returns over the prior six months. The 30-stock portfolio seeks the 60 stocks with the lowest P/Es and then buys the 30 with the highest returns over the prior six months.
The 20- and 30-stock portfolios gained an annual average of 18.8 per cent and 17.4 per cent respectively over the 26 years to the end of January, 2026. As expected, both of the portfolios were slightly less volatile than the original thanks to their additional holdings, which provide more diversification.
You can examine the return history of all three portfolios, along with the market index, in the accompanying graph.
The long-term gains are grand but the lemonade portfolios didn’t always win. They managed to avoid the market downturn of 43 per cent after the internet bubble burst in the early 2000s but the portfolios lagged in many of the other crashes of the past quarter century.
Most dramatically, the portfolios were hard hit by the financial crisis of 2008-2009 when the market index fell 43 per cent from its former highs to its lows in early 2009. The 10-, 20-, and 30-stock portfolios plunged by 45, 54, and 56 per cent respectively from their former highs during the period. Despite the dire declines, all of the portfolios recovered faster than the market and hit new highs in 2009 or early 2010. The market index managed to erase its losses by early 2011.
The portfolios also trailed the market in the sudden pandemic-related crash of 2020 that saw the index fall 22 per cent. The 10-, 20-, and 30-stock portfolios dropped 40, 33, and 32 per cent respectively from their prior highs to their lows in March, 2020.
The Pink Lemonade portfolio requires a bit of effort to maintain. But investors who were relaxed and rebalanced it annually rather than monthly still fared well with average annual gains of 14.4 per cent over the 26 years to the end of January, 2026.
It is important to remember that the Pink Lemonade portfolio isn’t without risk and it will sour from time to time in the future. But, with a little luck, it’ll continue to offer sweet returns over the long term. It might even allow investors to break free of the winter freezer and fly off to enjoy fresh juice in tropical climes.
Details on the stocks in the Pink Lemonade portfolio and the others regularly followed at the Globe and Mail can be found via this link.
Norman Rothery, PhD, CFA, is the founder of StingyInvestor.com.
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