Kamran Jebreili/The Associated Press
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.
Joseph, 36, is a theology student at a university in the Toronto area. In his spare time, he focuses on more worldly matters, notably managing a tax-free savings account currently worth $1.1-million.
Joseph is also going through a divorce and the high-value TFSA actually belongs to his soon-to-be ex-wife. His own TFSA is up a lot, too, but is trailing hers – even though it is invested in nearly all the same stocks.
“I was lazier and let things run more in her TFSA,” he explained. Maybe investing legend Charlie Munger was onto something when he said: “The big money is not in the buying and selling, but in the waiting.”
Both TFSAs were launched in 2009 and annual contributions were mostly maxed out, for a total deposit of close to $100,000 in each TFSA as of 2025. He also has a registered retirement saving plan and non-registered accounts.
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Before taking up theological studies, Joseph spent nine years as an analyst covering large-cap Canadian equities for a major asset manager. He now applies the skills honed at his former employer to analyzing small-cap Canadian stocks for his own account.
Joseph made the switch to small-cap stocks because they are generally ignored by professional and large investors; trading volumes are usually too small for them. The market is less efficient at this level, and “there are more opportunities to find mispriced stocks,” Joseph said.
Small-cap companies also have a higher growth potential, given they are usually in the earlier stages of development. A study by professors Eugene Fama and Kenneth French, famous in finance for formulating the three-factor model in the 1990s, found that small-cap shares earned returns averaging 11 per cent to 12 per cent annually from 1926 to 2023, versus 9 per cent to 10 per cent for large caps. However, this premium may fade at times, such as during the current AI boom.
On the downside, small caps come with more risk, including business failures and limited access to capital. Studies by researchers, including Drs. Fama and French, have found small caps are also more sensitive to economic cycles, so they underperform during economic downturns and outperform during recoveries.
Many TFSA Trouncers have grown their accounts through big bets on one or two stocks but Joseph has done it in less risky fashion with a diversified portfolio of 10 to 12 stocks. The most weight he has ever given to one holding is 30 per cent.
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Downside risk is also minimized by looking for companies “protected by hard assets on the balance sheet or recurring revenue,” Joseph said. He looks for upside potential in “an earnings inflection,” which he says is triggered by new products, management initiatives, an improvement in business fundamentals or a combination of these factors.
His research involves reading company filings on SEDAR, a website compiling documents related to Canada’s capital markets, or talking to senior management at businesses in which he’s interested or invested. He also builds financial models of companies, and chats with fellow small-cap investors often yield ideas for stocks to buy or sell.
A lot of Joseph’s prospecting is done in the summer vacation months when trading volumes are low, which can amplify small-cap price fluctuations and create more undervalued situations. Bargains also pop up during tax-loss selling at the end of the calendar year.
Some of Joseph’s winners
Shares in Solium Capital, which sold software to track employee equity awards, were bought soon after Joseph enrolled in his TFSA and was one of his first big wins; the company was acquired by Morgan Stanley MS-N in 2019 at 10 times his purchase price.
Cervus Equipment, an agricultural-equipment dealer, was purchased by Joseph in 2018; it was later privatized by management at approximately three times his purchase price and was sold to Brandt Tractor in 2021.
Currency Exchange International Corp. CXI-T, a banknote provider for travellers in North America, was purchased when trading at cash value during the pandemic; its stock doubled as travel resumed.
McCoy Global Inc. MCB-T, which designs and sells tools for constructing oil and gas wells, was purchased by Joseph a few years ago at net working capital; it’s now trading nearly four times higher as energy activity recovers and McCoy works on coming out with “an exciting tech offering,” Joseph said.
Magellan Aerospace Corp. MAL-T, a supplier of aerospace components, was bought by Joseph a couple years ago when aircraft production was depressed because of COVID-19 and Boeing’s safety concerns. It’s starting to recover with the help of rising global defence spending, particularly military aircraft. It now trades about 100 per cent higher than his purchase price.
Joseph’s recent investment moves
Joseph says he added to his position in banknote wholesaler Currency Exchange International after the company shuttered its Canadian bank subsidiary following “years of losses and management distraction.” This should allow earnings to improve next year and management to refocus on helping the business grow, he says. “The downside is protected by the cash inventory the company holds on the balance sheet with no net debt.”
He added to his holding of D-Box Technologies Inc. DBO-T, which has recurring revenues from a proprietary seating system that generates motion for immersive experiences in theatres and other venues. Activist investor Dan Marks’s turnaround efforts appear to be taking hold: adoption of D-Box seats by cinemas reached 1,000 screens worldwide in January and the company is now showing a small profit on strong revenue growth.
He also bought a small position in East Side Games Group Inc. EAGR-T. They develop mobile gaming apps and have popular offerings based on hit TV shows: The Office, Trailer Park Boys and RuPaul’s Drag Race. “The stock is cheap at less than three times EBITDA, the CEO owns 50 per cent, they have a new RuPaul game launching this year which should drive a revenue and earnings uptick,” Joseph said.
What an expert says
We asked Geoff Saab, vice-president and portfolio manager at Doherty & Associates, for his thoughts on Joseph’s TFSA. Mr. Saab is also the author of Low Risk Rules: A Wealth Preservation Manifesto, and he blogs at lowriskrules.com:
What Joseph has done here is very impressive. But readers should understand that it is very difficult to replicate. The fundamental analysis that drove these results requires both specialized technical knowledge and time to research and implement, so it’s not for everyone.
Overall, I think his investment approach is prudent, and I like the way that he works to minimize risk through understanding the fundamentals. The Canadian small-cap market is indeed less efficient and offers opportunities for active managers. But there are also downsides. It can be very illiquid – it can be far easier to build a position than to sell it. And in the short run that can exacerbate volatility in stock prices.
As the balance in the TFSA accounts grows, the stakes get higher. Shifting to a lower-risk approach makes sense. It also becomes more difficult to take meaningful positions in smaller companies when managing larger sums [because of their small floats and trading volumes, it is hard for a large investor to acquire a position without driving the price up high]. Joseph should look to begin allocating at least part of the portfolio to safer blue chips, perhaps using their dividends as a source of capital to add to his small-cap holdings. There is a lot of room for him to flex his analyst muscles to identify opportunities in mid- and large-cap stocks, which would serve to reduce overall volatility.
I found it interesting that his wife’s account has grown more than his thanks to relative inactivity. This serves as further proof that owning high-quality assets is far more important than trying to time the market, or trade in and out of positions.
Larry MacDonald is a freelance business journalist and author. His latest book, The Shopify Story, was published in the fall of 2024.