Christine Hughes A Comment -- General Comments From an Expert A Commentary N/A Sep 17, 2014

He's diversified globally. In a 30-stock portfolio, he'll have 4 Canada, 13 US, and 13 international. We had the risk-off period when all the fear from tariffs was out there. And now we've had this big market rally back, given that they want to reduce tariffs. The moral of the story there is that you cannot time the markets. So don't be sitting in cash, you have to be invested because of what happened Monday, when we had a 1-day rally of 3-4%.

Be diversified. Whether we get stagflation and rates go higher, or a bull market again with rates going down, you still have to be invested.

It doesn't matter where a company is domiciled, it's where the revenue streams are coming from. Look at the companies, not just at the price.

When you're thinking about buying a stock, you have to answer 3 questions. 

1. Why am I buying this stock? Need to write down 5 reasons why. What do they do, what are the metrics, what is the future for them?
2. What are the risks involved with holding the stock?
3. How does it fit in my portfolio? You want to avoid correlation risk as much as possible.

It gets you through the slow times, the bad times, the down markets, the recessions. Companies that can earn a return on invested capital (net operating earnings after tax compared to the amount of capital that's invested) is a huge sign of how management's allocating capital -- well or not.

There are lots of tools out there for investors to check this themselves -- annual reports and financial websites.

A metric he focuses on. In your own life, if you have money left over after all the bills are paid, you then have financial flexibility. To learn more, the December newsletter on his website explains what they do, why they do it, and why they're not going to change. The March newsletter talks about risk on/risk off, and how investors have to deal with the volatility. Go to libertyiim.com.

We've seen a big rally from the bottoms of liberation day in early April, almost 20% in the S&P. On the S&P, we're now in positive territory YTD. The TSX is up 3% YTD.

She gets that the worst-case scenario is no longer priced into the market with the 90-day pause on tariffs. But there's still a lot more to unfold. When she looks at the economy, the data coming out is not looking great. It's mixed, at best. Then there are other things like increasing geopolitical risk. 

In Canada, consumer confidence is coming down. Housing starts are the lowest they've been since 2009. Job numbers are not great, unemployment is starting to tick up, and that's without the impact of tariffs yet. Highly indebted consumer. Mortgage prices will come up as they get rolled over.

In the US, consumer confidence has really plummeted since Trump was elected. Retail numbers were OK, but the number released this morning reflects a lot of pre-tariff surge in buying. Manufacturing is in contraction territory.

The economy is murky at best. We're already seeing softening GDP numbers in both Canada and the US. She wouldn't be surprised if Canada's already in a recession or at the start of one, and we're just waiting for those data prints to come out. In the US employment's still strong, but the main hiring has been done by government; with DOGE, not sure if government jobs are going to come to the rescue this time.

Not much to be excited about with respect to the overall market. But there are particular areas of the market she's excited about, which are more conservative and stable. That's where she's putting her focus.

On the overall market optimism, she and her team are a bit skeptical.

Doesn't own any right now. She's not confident on consumer spending and the retail space. The rental space would be interesting, but none of the particular companies captured her attention yet. Industrials already had their day during the pandemic -- cheap space, easy to replicate, and prices will come down.

Hard not to own them, but she is underweight the sector. There's going to be some increase to credit loss provisions. Set up well for a recession in Canada, but she'll be keeping her eye on any particular weaknesses this quarter.