A Comment -- General Comments From an Expert (A Commentary)

Losing Money in the Stock Market: Buying companies that are constantly issuing shares

Some companies use their stock like an ATM machine, continually issuing shares to raise capital and diluting existing shareholders at the same time. Yes, we know that’s the main reason for the stock market. But, companies need to be self-sufficient at some point. A company that issues new shares year after year will find it hard to grow per-share earnings, even if the top line growth looks good. Sometimes companies will need to issue shares in order to acquire another company and we would consider that different. It is the companies that issue shares all the time and then either do nothing with the capital or, worse, use it to fund ongoing negative cash flow that we caution against. For example, we will pick on one company, the one we found in Canada with the most shares outstanding. You can connect the dots. IAnthus Capital Holdings Inc. has 6.7 billion shares outstanding and its 10-year stock performance is minus 99.3 per cent, according to Bloomberg.
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We've gone from risk-on trading in 2023-2024 when the Mag 7 dominated to risk off where Europe is up and the US and AI are down. The USD is down, the Euro up by 4%. Everybody is running for covers in bonds and preferreds (yielding 5%). Diversification is paying off now. The last time the market went all in then sharply backed off en masse was 1999-2000, the internet bubble. In 2011, we saw similar volatility during the Euro debt crisis (i.e. Greece) and 2018 when Trump launched the trade war against China. Rising interest rates will hurt tech stocks and small caps and will limit the USD.

US stocks and companies won't face tariffs, but inflation as a result of them and also benefit from any tax cuts. As the US market does down, Europe and emerging markets are rising. But the EM's debt is in USD, so are at the whim of the USD, which is lagging and so EM stocks are rising. You can hold US stocks and enjoy the rest of the world. Be diversified.

Interesting, because it seems a bit more optimistic today. We've been on a rollercoaster ride for almost 2 months now with tariffs. Up and down, day to day, depending on what Trump says or is rumoured. We've even seen 2 or 3 swings in the same day.

It is unusual, because usually we see this on Fridays. Last week, Friday was down almost the entire day and then came back in the last half hour or so during quadruple witching hour. That might be helping propel markets today if people sat on their hands on Friday.

We do have rumours out there that maybe the US will cut back on tariffs somewhere. But a tweet could come out and the whole thing could change again.

Over the last month or so, NA and Australia have underperformed. China has done extremely well, and so has Europe. At a time when US is threatening tariffs against pretty much everybody, it's interesting to see the significant movement in capital with Europe and China attracting money flows.

In Europe, capital is going back in. But not to the same extent as into China, as China was more depressed. Europe has been more quietly climbing, but has held up fairly well. Historically, Europe hasn't gone up and down as much as China has. 

China's the one that's been acting well in the shorter term. He's been looking at the broad-based index, and he's seen broad strength. Consumer and tech names are both doing well, though he hasn't followed infrastructure names as closely.

When you look at country-level capital trends, you look over weeks and months rather than daily or intraday. Sizable shift over the last number of weeks, seems set to continue at least in the near term.

So far, people are continuing to see gold and silver in their traditional roles as safe havens in times of volatility. Gold's up at $3000, and silver's up at $35. They continue to run. Sometimes it looks as though gold wants to consolidate around $3000, but then it just quietly keeps creeping higher, which shows that there's a steady flow of $$ going into it.

At his firm, they primarily use point-and-figure analysis. He's also used candlestick charting, moving averages, Bollinger bands, and RSI. For RSI, he doesn't consider going over 70 to automatically be "overbought", as it can stay overbought for a while depending on the chart.

Which timeframe to use depends on your investing timeframe. Day traders might look at intraday charts; so if you're not then don't, because it's more distracting and psychologically upsetting than anything. A swing trader is someone who trades from a few weeks to a few months, and they should look at daily charts. Long-term investors should look at longer-term weekly charts.

At his firm, his hold periods are 3-18 months. So he looks primarily at daily charts.

Looking at the multi-decade chart, TSX is in a long-term uptrend. Hard to say where it might top out. Previous peaks have been tied to panics in the market. It's something we need to keep an eye on as we move into this period of uncertainty where we don't know if there's going to be a recession in NA or not.

We are getting up near the high end of the long-term trading range. The TSX has had a good runup in recent months. Will probably have a pause at some point, especially as we're around that nice round number of 25,000, but hard to say exactly when.

Most charts are based on time. Point-and-figure charts take out the time element, and use price movement. At his firm, point-and-figure charting and analysis form the foundation of everything they do. He uses percentage charts.

Here's why. The charts use rows and columns, with each row being $1 (or 1%) and marked by an "X". So if the price goes up $5, that's 5 rows up and 5 X's. Before you get into the downtrend, which is marked by "O's", you need a reversal that's called a "3-box reversal". So, if you're going up and up and up, you need a 3-box reversal to tell you that there's been a real shift.

The idea is that the trend is your friend until you have a decisive turn back the other way. This filters out the day-to-day choppiness. You're trying to distill back down to the trend; otherwise, the day-to-day squiggles in a chart can drive you crazy.

So at his firm, he uses these charts in head-to-head battles to determine where money is moving over the medium term and longer term. This method identifies meaningful changes, not just small ones.

The federal election was just called for April 28. The tariffs are on everybody's mind and rightfully so. He's fiscally conservative and socially liberal. The Canadian dollar will be rewarded with a new government that's friendlier to business. It will be a close race. Mark Carney is a significant notch up from Trudeau, being the smartest world leader now in terms of the global economy having run two central banks. Who will negotiate the best long-term outcome for Canadians? Today's rally was naive; tariffs will have a great impact and be inflationary.

With gold at $3,000, he wouldn't add to gold stocks, which have never been cheaper relative to the price of gold, given the fast-rising prices of mining gold. At $3,000, he would sell or buy dips. At $2,700-2,800, load the truck.

We're likely oversold and will see no more than a dead-cat bounce today (stocks rallied on tariff reports). Based on two podcasts he recently heard, it sounds like Trump wants to shift from a taxed-work economy to a taxed-consumption economy largely through tariffs. He expects the tariffs to be far more aggressive than the market thinks. April 2 is a big day. Today's rally is misplaced. He likes the consumption tax for spending more, whereas the harder you work, you should pay less tax. Long-run, this policy will benefit the US, but be very disruptive in the short term, creating sticky inflation. He doesn't love Trump's style, but Larry thinks he needs to do this. The chart shows resistance at the 200-day moving average and a Fibonacci at 38.2%. The market has been toying at 5,750 on the S&P all day. If we can close above there, we could rally to 5,900. We'll see if we reach new highs above 5,900 after April 2, but he strongly doubts it. The tariffs will be much harder than the market expects and we'll see more choppy volatility, and likely fall below that 5,500 low. Bottom line: caution.

Losing Money When Investing: Buying leveraged ETFs

More akin to gambling than investing, leveraged exchange-traded funds (ETFs) and exchange-traded notes (ETNs) use derivatives to try and get two, three, or even four times exposure (up or down) to an underlying asset, such as a stock index. They can be useful for high-risk day traders, but their structure is horrible for investors holding longer than a day. The reset of derivatives results in a natural, ongoing, daily net asset value decay. The leverage works as all leverage does: It’s great when things go your way, and can be devastating when things do not. Let’s look at an example: FNGD is a Microsectors FANG+ Index 3X Inverse Leveraged ETN, tracking the inverse performance of a group of technology stocks. With tech being strong the past five years, its five-year annualized return is a blistering (sarcasm) negative 74.8 per cent, according to Bloomberg LP. Why do people buy these at all? Well, as usual, the answer is greed. At times, these products will soar in a very short period of time. That gets attention and investors want some of the action. But we think they are simply horrible products and it is best to avoid them.
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It seems they are. Whether they welcome it or not is another story. The year has started off with an ironic twist, which is that the on-again, off-again clumsy aspects of the MAGA economic agenda are really rattling investors. And none more so than in the US, which is the ironic part. 

The other major equity indices worldwide pretty much are all outpacing the S&P 500, and most are in positive territory YTD. It's a function of a tremendous amount of confusion. "Uncertainty" is the buzzword of the year, for both households and businesses on both sides of the border. It's sort of boomeranged back at the US administration because the impacts seems to be felt most acutely in the US.