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

He finds that the most interesting and profitable area of the market involves smaller businesses still run by talented teams. He tries to find the smallest companies he can so that he can own them for a long time. 

Likes cashflow growth of 15%, doesn't like debt (a performance-enhancing drug). Ideally, likes businesses that convert earnings to free cashflow, because you can't pay bills with net income.

No, he hasn't seen that. Most people are happy with their S&P exposure. But remember that 90% of the world's listed companies are small caps. From a diversification and a return standpoint, small caps are attractive.

Investors have a hard time selling things that have done the best, but that's often the time to rebalance. It seems that the past few years have seen people rebalancing into things that have done the best, rather than into EMs, small caps, or private markets. He doesn't think that every $1 should go into 7 stocks.

Yes, and he visits the companies themselves. He and his team have been to about 15 countries in total over the past year, meeting with over 300 companies. Part of their job is getting to know the companies and the executives that run those businesses; the best way to do that is in person.

Sorry to hear that, no fun to lose money. You have to go back to the beginning and why you bought it. Separate the business from the stock. The stock may go up and down, but has the business performance met your expectations? That's the hard part, because most people think of the price they paid for a stock and not the value they were getting at the time.

Without more specific investor context, he'd say that this is probably the time to sell the ones you don't understand all that well or that have underperformed your expectations. Redeploy that capital elsewhere. Really important to forget your purchase price. Every single day you have to come in and "re-buy" everything you own. If you're not willing to do that, it tells you something about your conviction in that holding.

Whenever he can, tends to avoid commodities, currencies, interest rates, and government policy. When he does that, things go well. The caveat is that in oil & gas you can find companies that are in the very early stages of growth. 

He owns this one, though it's private. The last 5 similar companies that the CEO ran were all public. He's made $$ with the team before, and it's following exactly the same playbook. Trades on the gray market, but not that well. Lots of cash on the balance sheet to do M&A, but it's tough right now because oil and gas companies don't need capital and the CEO refuses to overpay for something.

Every day on the news we see such a confrontational approach, and lots of people wonder "why?" It's a repetitive and negative news cycle that never seems to end.

Tax cuts went into effect in 2018, and they're coming up for renewal this year. It's really tough to have those renewed, and perhaps become permanent, with the huge hole in the federal budget. It adds up to $450-500B. 

That's the real reason for the adversarial approach and why it's targeting everywhere from China to Mexico to Canada to EU. If that gap can be plugged, there's potential that those tax cuts can become permanent. The gains that those cuts could add to companies are significant.

The government is treating its country like a Costco -- you have to pay the membership fee to get in the door.

Yes, the Canadian economy can be affected negatively. Canadian equity markets are less than 5% of global equity markets. Even if you have a home-country bias, it's important to structure your portfolio differently. 

We live in a global world, and having US assets in the current environment adds an element of protection. As the CAD depreciates, or the USD strengthens, your portfolio could still have hedging in it that helps protect those values.

Perhaps, but it's similar to people talking about a recession. The mere fact that people are talking about it can influence behaviour and have an economic impact. For example, people in corporate boardrooms are deferring capital expenditures, hitting "pause" on spending. 

Even if it looks as though there's a way out down the road, or tariffs aren't as aggressive, in some cases the damage could already be done.

In the space, you can do the physical commodity, an ETF, or the producers. For a producer, either look at a producer like AEM, or a streamer like FNV. He owns no gold right now. It's been really hot, and he doesn't want to chase. Valuations and cashflows have really come up.

Current US administration fairly accepting of de-regulation. US banks have all exploded; average 1-year return is 50%. Future looks rosy, which can be contrasted to Canada.

Look at BNS and TD, whose valuations are so compelling. See his Top Picks.

Types of Pensions: Defined Benefit Versus Defined Contribution

To start, if you are the owner of a pension asset, particularly a defined income stream, consider yourself lucky! A pension is one of your greatest financial assets.

There are two types of company pension plans: Defined Benefit (DB) and Defined Contribution (DC). While not the focus of this article, we will provide a quick note on the key differences in order to better understand the context of the remaining article.

A DB pension means you receive a specific, known and periodic payout that is guaranteed by your employer regardless of how the pension investment performs. Your defined benefit amount depends on how much is paid into the plan and your years of service with that employer. The employer bears the investment risk and any ‘underfunded’ status.

A DC pension is entirely dependent on investment performance. The employee typically directs the asset allocation via investment fund choices. There are no guarantees about what your payout will be when you either retire or leave that employer.
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He likes Canadian energy where such companies make good energy, valuations are attractive and are coming back after being overlooked for US energy. Many are returning capital to shareholders as they control spending. Overall, are strong financially. Also, he likes the car-makers who also make a lot of money, have good PEs and are buying back shares. He likes Ford, but is neutral the Canadian auto-parts-makers.

Covered calls make tons of sense when the market is sideways or moving up a bit, but underperform in a raging bull market like last year. Owning blue chip names and selling some calls. If you're not that overall bullish, set premiums for a short time and a lower price. You give up some upside, but capture more of the premium. Also, if you do this several times a year, then your gains add up.

Options add or remove risk, depending on whether you forecast the current direction of a stock. Also, they can create a lot of leverage. You buy a call when you are bullish a stock; you have the right, no obligation, to buy a stock at a certain price by a certain date. A put is the opposite. A cash-covered put means you will sell a put--give somebody the right to sell you a stock at a certain price below the current price by a certain date; the cash part means you actually have the money, and aren't using leverage.

If the options on a stock are expensive, he will use a call spread because it reduces the outlay. Uses this occasionally. If you buy an expensive option, try to sell an expensive option. A drawback is that if a stock moves quickly and your option is out a couple months, you will realize the full upside. Get the direction and timing right.