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

Some companies will do well, with or without tariffs. Tariffs are largely on goods, while 80% of the Canadian economy is services like Descartes and TD.

He feels that Jevon's Paradox may apply to lower AI cost structures which will promote demand and benefit large cap tech companies. There is an open door for the substitution for software and semi-conductors so it could be more challenging for large tech when people have more versions available.

Believes lower interest rates will help prospects of Canadian REIT sector. Falling rates will mean less interest expenses for real estate companies. Seeing lots off opportunity in office space market. Expecting market trend to reverse as more people return to working at the office. Doesn't see a sharp recovery, but will see a gradual recovery. Good time to buy cheap REIT stocks. Even with a hybrid working model - demand will continue for "in person" meetings. 

Threat of Tariffs:

The past month, as the U.S. has been threatening and imposing tariffs on countries including Canada, we have been inundated with questions from our customers about tariffs and trade wars. Investors are wondering if they should sell their Canadian stocks. At the same time they worry about U.S. protectionist policies on U.S. assets, even going so far as to wonder if U.S. securities held by Canadians could be seized if things go the wrong way and the U.S. wants to exert more trade pressure on Canada. So, if selling Canada and avoiding the U.S., where should investors go?

First, as usual, our best advice is not to panic. This is not the first trade war. Stocks globally have survived dozens of such events. In addition, Canadian stock markets have had multiple months now to factor in worries, and stock valuations have adjusted somewhat. We certainly would not advise wholesale restructuring of portfolios on the possibility that something might happen. U.S. tariffs on Canada have already been delayed. They could be delayed further or reduced, or they may not happen at all. It is a moving target, certainly.
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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.