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Brian Madden A Comment -- General Comments From an Expert A Commentary COMMENT Feb 21, 2023
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Premium contentWorking out better than expected. But it'll be a bit of a tough road as time goes on. A lot of what Canada does and sells is under pressure and likely to remain that way for some time.
Tomorrow's the deadline, and he doesn't think we'll have a new deal. Get used to it ;) Trump seems adamant that there will be no extension, and he seems to be taking a pretty tough stand on Canada.
Definitely uncertainty out there, which is surprising when you see that markets are at all-time highs in both Canada and the US.
But he looks at the market long distance from an options perspective. So he likes the uncertainty, as it keeps both options prices and implied volatility higher.
He couldn't tell you. His firm has maintained pretty cautious optimism. Businesses have to adapt to whatever the market throws at them. Investors have been more optimistic than he would have thought.
He's out there still trying to find value and maintain the positions that haven't gotten too extended.
He wants companies that are trading at attractive valuations. PE is not the be all and end all, but it's definitely where he starts his analysis. Both META and MSFT had pretty good numbers this quarter and the stocks are doing well today. If you plan to own all of them and want to buy more, then buy the ones trading at cheaper valuations.
He is a bit surprised by the rates of 15% on average across the board, as they're a lot lower than when first came out on "liberation day" April 2. And the markets are acting accordingly. Markets have done quite well over the last couple of weeks, but tariffs have brought it back down a bit. Could be a buying opportunity.
For those more sanctioned nations, they're seeing 35-40%. Canada is a big surprise with the rate going higher. Surprised they haven't been able to hash out a deal. We should really get rid of the slogan "Elbows up" and just get back to the negotiating table. It's worked will for the EU, Japan, and the UK, and we can live with 10-15%.
The rise to 35% isn't going to bode too well for Canadian equities. Trump continues to say that the issue is fentanyl at the border, but there's also the matter of Canada recognizing the Palestinian state. No tariffs were announced on China or Mexico because they're still negotiating. How could we not have achieved the same level of consideration? Suspects there are more issues underlying the US-Canada relationship that we're not aware of.
Talking to colleagues around the office, it's a buying opportunity. The market's done so well since we got over the hump of "liberation day". Now you're seeing it pull back 1-2%.
Tariffs are being announced across the globe, and it's good to get a settlement and finalization of the numbers. As long as you have a number, then you can work around that.
There are 4 main asset class categories: cash, fixed income or bonds, equities/stocks, and alternatives. Knowing how much to put in each one for your investment portfolio means that you've achieved your target asset allocation.
If your investments are for the long term and you have regular income, you can continue paying down any debt and potentially take on a bit more risk on your profile. So you want a bit more in the equities and alternatives portion of your portfolio. But to understand how much to allocate among the 4 classes, you need a good understanding of your risk profile.
One risk factor his firm tends to focus on is maximum loss. In the 2008 financial crisis, markets dropped 50% in 6 months. How would you react if your portfolio did that? Or 25%, or 20%? At what point can you not take it anymore and want to sell everything? You never want to reach that point.
A low-risk investor is one who can stomach only a 10-15% drawdown. A moderate investor can handle 20%.
If you're retiring in a couple of years, it depends on whether you need your portfolio to drive your income. If so, you probably want to be in the moderate range. If you have enough assets built up and there are more for the next generation, then you can have more in equities and alternatives giving you more of a growth profile.
If you're a newbie investor, what's key are investment knowledge and experience. He'd recommend a more aggressive portfolio because you have the time to ride the ups and downs. Make sure you partner up with an investment advisor who can explain the risks, someone who can "hold your hand" when markets do what they're doing today to make sure you don't sell out too early. You need to stay for the long run to see your investments through.
Many people think that the younger you are, the more risk you should take in your portfolio. But it depends on the size of your investment portfolio. Very wealthy people can take on a bit more risk because they want to grow their investments over a very long time horizon. It always depends on the time horizon and what the goal is for your money. If it's to sustain your lifestyle, and you're close to retirement, perhaps a more balanced and conservative approach is best. But if there's more money than you need, then you can consider more of a growth profile so you can keep your investments growing down the road.
Again, his team is advising on asset allocation. A properly defined portfolio let an investor ride the ups and downs. When a new client comes in, they don't put all the money to work at once. Stage it out over the next several months, taking advantage of buying opportunities as we're seeing today.
Inflation is slowly declining as central banks are in the late inning of interest rate hikes. Investors hope banks reverse course later this year, but job numbers remain high and inflation in sticky. Sentiment is neutral. There's fear of missing out in “zero days to expiry” options trading on single stocks and U.S. indices. He remains cautious, patient.