Opinions
James Telfser A Comment -- General Comments From an Expert A Commentary COMMENT Jul 25, 2024
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Premium contentTwo months ago, who would've thought we'd be at record highs for the TSX, with the S&P up ~20%, NASDAQ up ~28%? The S&P has rebounded nicely, a little more in fact than the TSX since those April lows. The S&P has had a really great run, and trying to reach those all-time highs again (we're 2% away) is a bit tougher. Compare that to the TSX, which has lagged the last couple of years.
He is moving a little out of the US and TSX, simply because he sees valuation discounts outside NA. So he's looking at European and international markets. An uncertain US dollar helps those markets in terms of investment. Falling interest rates outside NA also helps.
He doesn't look for particular countries or regions, he's more company-specific.
Geopolitical risk is always there under the surface. The thing is, Iran doesn't have many friends. Both Assad and Hussein are gone, Hezbollah has been smashed, and Hamas is under ongoing attack. So geopolitically, doesn't think there's a huge risk here. The US is pretty dominant in this area.
Trying to predict Trump is like trying to use a Ouija board. You just don't know, and he sometimes wonders if Trump really knows. In markets like this, it's very important that investors know what they're going to do. He often says that he doesn't know what markets are going to do, but he knows what he's going to do in different types of markets. You need to have a strategy if the market drops 5%, for example. For him, he ignores it. At 10%, he starts paying attention. At 15%, he starts adding back in. At 20%, he adds another 5%.
Look at your asset allocation risk tolerance (and understand what it means), and make sure you have good-quality assets. If markets decline, you can be reasonably confident they'll come back and it gives you a great opportunity to buy more.
The last thing you want to be doing is buying into a market that's at its highs for fear of missing out. The other bad thing is panicking and selling when markets are down. It's the old buy high, sell low; exactly the opposite of what you want.
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Not surprising. Lots of high-quality, public assets trading at significantly depressed valuations. It's encouraging. Likely to see more, and the premiums have been pretty nice.
It really comes down to the credit markets in this environment being quite robust. Credit spreads are quite tight. And now you have the benefit of more interest rate certainty. A survey would likely show a belief that interest rates are going to be lower a year from now, not higher. This creates a catalyst for companies to make a move.
A second big theme is that we know that private equity is a massive asset class, with more and more money going there. So a lot of capital is sitting on the sidelines, ready to be deployed. That's why we're seeing private equity come in and buy these assets, probably still at pretty good prices given the underperformance we've seen in the space. Doesn't see this aspect changing anytime soon.
A third thing, not much talked about, is that public market costs have actually gone up quite a bit. In this regulatory environment, it's expensive to be a public company, which takes substantial capital away from the business itself. Stripping that out becomes a meaningful synergy to the buyer.