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

In the industrial economy, we've made a lot of cars forever and now the population's doubled. We lost a lot of technical people and machinists during the pandemic, and now they're back and getting retrained. Airbus can't make enough planes, and Boeing has its own problems. 

So the industrial economy is still emerging. Simpler things have come on faster, with more complex things being more delayed but they're coming along.

We're going to see lower inflation and higher growth. Wages are going to go up. The depression from the pandemic and inflation will gradually dissipate, the economy will do nicely, and it will be a bit of a boom time.

Thinks they'll lead, but hoping by not as much so that the rest of the economy can pick up and go along with them. The big technology play is still in the early stages of unfolding.

Copper, especially, is going to be needed to fuel the electric world we're moving to and the data centres we keep hearing about. But it's tough to find things to invest in with copper.

That, combined with some really solid earnings from the banks, is giving everybody some optimism. 

We happened to get that last year. When we're talking about markets, we need to specify whether we're talking about Canada or US, large caps or small. Lots of attention right now on valuations for US mega-caps, and they are quite high. If you look at the spread between Canadian and US equities, and the spread between small caps and large caps, investors will find that there are still tremendous opportunities in the Canadian market specifically. 

We're trading at a huge discount to the US, especially in the small- and mid-caps. He's not finding growth stocks at distressed multiples of 5x PE as he was a year ago, as those same stocks are now 8-10x PE. But if you're buying a company growing 30% a year, at 8-10x earnings, that's a very attractive setup. So he's still quite constructive.

Canada should trade at a discount. We're a smaller market, our companies are smaller, and there are fewer eyeballs on us. But in some case we're seeing a 50% discount in valuation multiples compared to the US. That's even more pronounced when we get down to the small- and mid-caps, as there's just less investor attention down there.

For someone like him, who likes to go hunting in that sector of the market, he's still finding very attractive opportunities.

Nice thing about Canadian market structure is that it's an oligopoly with essentially 3 big players -- RCI.B, Telus, and BCE -- and they all compete for market share. Smaller names have not been able to erode market share from the big 3. These names are good for letting you sleep at night.

Lots of technical change happening such as how phones are being used by the younger generation. If you want to get more into the technology side of telecom, there are more interesting places to go than just those big players. For instance, STC for more growth.

What Type of Investor Are You?

Willingness to accept risk

An investor's willingness to accept risk relates to whether they are a risk-seeking individual or not. This piece caters more to the psychological side of things such as how much volatility they can withstand and what kind of returns they expect. It also looks at what an investor wants to get out of their portfolio.

Ability to accept risk

This piece focuses more on the facts of one's financial situation and less on the qualitative side. This looks at items like age, knowledge/experience, portfolio size, employment status and salary. Someone who is more able to accept risk is someone who is young, gainfully employed, understands investing and has a large portfolio to begin with. 

Willing versus Able

Of course, just because someone is able to accept risk does not mean they are willing. You could be a conservative natured person but have a large portfolio. So the two items do not always align and this can cause problems. 

Typically, the more conservative outcome of willingness or ability trumps the other. A lot of investing comes down to psychology and if you are not comfortable with your asset allocation (i.e. willing), you will make the wrong decisions at the wrong time no matter how wealthy or young you are. However, just because you may think you are willing to take on a lot of risk, if your portfolio is too small, you literally might not be able to take those risks that you want to! So again, generally, the more conservative result of risk willingness and ability wins out.

Once an investor has an understanding of these factors, they can then determine what investor type they are (balanced, income, conservative, etc.). From here, you can then determine how to actually structure a portfolio that matches your investment style.

Understanding yourself and your goals should really be the first step when building a portfolio. While we cannot know the ins and outs of your situation like an advisor can, this questionnaire offers a good starting point for an investor to think deeper about their investor type. Finally, if your advisor has not done some kind of questionnaire that is at least as rigorous as the one we provide, they are probably not doing their job!
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Canadian stocks will outperform American ones this year, after being bearish Canadian for the past 10 years. The Dogs of the Dow theory says take the worst-performing stocks one year, but they perform better the next. The same goes with sectors, which were materials, oils and staples last year, and these are the TSX's heaviest sectors. Secondly, it's likely a new federal government this year will better support business, particularly the resource sector (oil). (Alberta oil production hit a record under Trudeau, notes BNN.) Thirdly, one report he read says that US PE valuations are twice as expensive as they normally are compared to Canadian ones. Fourth, the yield is higher than normal here than the US.

Silver: he's bullish metals this year, and he's been holding Wheaton for a while. Silver broke out 12 months ago after basing the year before, and has been consolidating. Not bearish on silver at all, though it may be pausing for a while. Gold has broken out after a very long base, and this suggest multi-year upside. Gold has a different chart from silver. The greater the base, the greater the case. He's bullish gold for the next couple years.

Shorting is not for everybody. It's risky. Shares can be dragged up with an overall market move. He avoids shorting.

He's looking for earnings growth and a broadening out of it. We've had a very narrow and strong leadership by a handful of tech names (the Mag 7). For this bull market to sustain itself, it's really important for earnings to broaden out beyond those names. What will largely set the tone in the coming weeks is AI and what its related companies tell us about going forward.

We'll hear from banks to start off earnings season, as we typically do. There we have rising interest rates and a steepening yield curve, and the banks will provide some insight into that situation.

The market's swinging quite dramatically here and, for him, that speaks to the narrowness of the market. There's uncertainty. If we do get some bad forward guidance on earnings, that won't be good for the market.

True. There's a saying that "a rising tide lifts all boats". You want that broader participation. There are an awful lot of companies that just aren't making any, or any significant, money. When you look at the topline (revenues) versus the bottom line (earnings), you're seeing earnings growth expectations of 10-12%. But we're seeing nominal GDP of 4%. It's getting ever more difficult to reconcile what economic growth will deliver and what earnings will be.

When it's more concentrated that tells you that if those companies miss, look out below. It becomes a higher-risk market when earnings aren't broad.

That's it. The market went from pricing in a dramatic amount of rate-cutting six months ago, to virtually pricing out the entire rate cut path. Now the Fed still thinks it's going to cut rates a couple of times, but the market is now down to 1 rate cut for 2025.

Import prices will be lower with a stronger US dollar, sure. But that's a small part of the pie compared to labour costs, healthcare costs, and everything else related to supply/demand that's driving inflation. Domestic inflation is driving prices higher, and has little to do with exports.

Trump incorporating tariffs is a concern. It makes it far more difficult for the Fed to add stimulus until we actually see more economic weakness. Right now, the economy and labour markets are still ticking along.