Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 527

Defence beats offence in investing

Offense sells tickets, but defense wins championships.
- Paul 'Bear' Bryant

The momentum of Nvidia's stock price seems unstoppable. Many are comparing Nvidia’s historic run to a certain stock from the late 90’s, Cisco Systems (I drew the same comparison back in May). And so I thought this would be a good time to revisit a section from my book, Low Risk Rules that compares an early-90s investment in Cisco to a more conservative alternative.

The results might surprise you. With the benefit of this hindsight, how might you build your portfolio today?

In the late 1990s, while the whole world was on offense, seemingly getting rich on the promise of this amazing new thing called the ‘internet’, I debated a friend who refused to play the growth stock game. Steady and stoic, he invested defensively in Canadian bank stocks. “Bank stocks never go down for long” he told me. I mocked his conservatism in what I perceived as stocks more well suited for a retiree’s account. “You go ahead and wait for your measly little dividends,” I told him, “while I get rich".

History, of course, has been very kind to the Canadian banks—a government-protected oligopoly who have just become more entrenched into the economic fabric over time. And not so kind to the internet stocks of the 1990s.

Does boring pay off?

So I became curious. What if, instead of chasing internet stocks back in the 1990s, one had just stuck to this boring approach that the younger me looked down upon?

I ran some numbers—keeping it simple with two very high profile and successful companies.

In the low-risk corner… Toronto Dominion Bank (now known as TD Bank)—a Canadian banking powerhouse that also built a strong US presence with retail branches and discount brokerage.

In the growth corner… Cisco Systems. One of the hottest stocks of the 1990s, and the most valuable company in the world for a brief period of time. It would have been too easy to pit TD Bank against Pets.com, so let’s go with Cisco. An undeniably great company, Cisco is still around (and thriving) today.

I started keeping track in mid-1996, just as the internet bubble really began to pick up steam. This allows us to take fully into account Cisco’s meteoric rise. As you can see in the chart below, in early 2000 the investment in Cisco would have been about 8x as valuable as your investment in the boring, old, plodding TD Bank.


Source: Morningstar.com

However, the subsequent crash wasn’t kind to Cisco at all. It was dead money for a decade, only starting to recover well into the middle of the 2010s. Meanwhile, like the Tortoise to Cisco’s hare, TD Bank plodded along and, except for a scary episode in the 2008-09 global banking crisis, has generally outperformed the faster grower.

There's more to it though

But here’s the thing with the chart above—it’s not quite accurate. It completely ignores the dividends you would have earned on the TD shares. When we take those dividends into account, and reinvest them in TD shares, the picture looks very different.


Source: Morningstar.com

This isn’t even close. Your investment in the ‘boring’ bank shares has outperformed the exciting, high-growth company by more than 2x, and it’s done it with a lot less drama.

My friend who refused to take part in the internet stock craze, who I openly mocked, had the last laugh. He has experienced decades of steady growth in his portfolio of safe, dividend-paying stocks. And meanwhile, I spent far too much time in search of the next great growth company, completely ignoring these massive wealth creation machines because I perceived them as ‘too boring’.

Lest you think I’m cherry-picking, the reality is that I actually gave the growth stocks the benefit of the doubt here. I could have chosen any number of optical equipment makers who languished post-crash, but instead I chose Cisco, a company that since the turn of the century has grown revenue at 4.9% per year and earnings at 8.5% annually for 20 years. That’s a solid track record through several economic cycles, including a crash that laid waste to the industry that Cisco sat at the core of. The problem, and the reason for the underperformance of Cisco, is that expectations were so high, that the odds were stacked against anyone betting that growth would continue.

It took me a few market cycles to finally learn that the simple investment strategy I had mocked is actually far superior to more elaborate, exciting, and seemingly intelligent strategies.

Most amazing of all is that it’s surprisingly easy to follow, as long as you don’t let your biases and weakness get in the way of doing what’s best. Always remember, as the old sports saying goes, defence wins championships.

 

Geoff Saab is the author of Low Risk Rules: A Wealth Preservation Manifesto, and writes a free newsletter at lowriskrules.substack.com.

 

  •   20 September 2023
  • 2
  •      
  •   

RELATED ARTICLES

Why buying speculative stocks often proves irresistible

Irrational exuberance in growth versus value

Can you value a share just using dividends?

banner

Most viewed in recent weeks

How to minimise tax with a will

Inheritance tax implications in Australia may surprise some, as poor estate planning without proper wills or trusts can lead to costly tax bills and delays for beneficiaries.

Testamentary trusts post-budget: Estate planning, tax reform and the ‘death tax’ debate

Proposed Budget changes to taxation are casting new uncertainty over testamentary trusts, prompting closer scrutiny of estate planning structures and the real implications of reforms still taking shape.

Meg on SMSFs: The CGT changes don’t impact super but what about Div 296 tax decisions?

New CGT rules could tip the scales in the super vs non-super debate. For those facing the Division 296 tax, the case for withdrawing has gotten more complex. A "comparison rate" tool may help assess decisions.

High quality businesses are on sale

Beneath the dominance of the ASX's largest stocks, much of the market has been left behind. High-quality companies are now trading at levels rarely seen, offering opportunities for investors willing to look deeper.

The investment mistake killing your returns

Retail investors face an increasingly complex product environment, but simplicity may be the most overlooked advantage in building a portfolio you can actually live with.

Welcome to Firstlinks Edition 667 with weekend update

The downfall of the giant and three lessons for investors.

  • 18 June 2026

Latest Updates

SMSF strategies

Meg on SMSFs: How wide is the ban on LRBAs?

The government's recent deal with the Greens has put SMSF property borrowing on the chopping block. The change raises tricky questions about timing, exceptions and what SMSFs will still be able to buy.

Shares

Why Australian shares are falling behind the world

Australia’s market boasts a long record of outperformance, but recent results tell a different story. Is the ASX’s lagging performance a temporary setback or evidence that structural forces will keep global markets ahead?

Taxation

The strange effect of the 30% minimum capital gains tax

The 30% minimum tax on capital gains sits at the heart of the budget's proposed reforms. Yet the mechanics reveal anomalies that introduce unexpected distortions that raise questions about its design.

Shares

The next phase of Australian equity leadership

For years, banks have powered Australian sharemarket returns. But changing economic conditions, stretched valuations and global trends suggest the next generation of winners may not be found in familiar domestic sectors.

Economy

Global market growth hinges on Iran War and AI rollout

Global growth is facing mounting pressure from war, higher oil prices, inflation and trade tensions. But a wave of AI-related investment may prove powerful enough to support economic activity and reshape the outlook for markets.

Retirement

The retirees who can't spend

Why do so many retirees pass away with their wealth intact? Conventional wisdom blames pension rules for the reluctance to spend, but a case study from New Zealand shows that the answer may not be as predictable.

Investment strategies

Here’s my investment philosophy. What’s yours?

Investors often hear they need an “investment philosophy,” yet few know what that really means. Beneath the jargon sits a simple idea: a handful of core beliefs that shape every financial decision, for better or worse.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.