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

The question is whether it's 1996, 1997, 1998 or 1999? That's what people are concerned about. This has been the sharpest rally that the S&P has probably had in 50 years. 

Inflation data keeps coming in that's not perfect. CPI on Tuesday was a bit higher for the second month in a row. PPI this morning wasn't great. Futures were very strong this morning, but have sold off a little bit. This market's been on such a tear and investors have just been fending off some of the bad news.

The one thing needed for equities to continue to work here is interest rates. Are we going to get a drop in rates? Market thinks 60% chance of a cut by June. He doesn't know. But if rates aren't cut and the economy's still holding in, that's a good sign. Valuations are a question mark, too.

He's not sure markets will continue to go up till the end of the year. But they probably will, as there's some really good momentum here. 

There are plenty of places to put capital to work right now on both the Canadian and US sides and still do well. In equities, yes, but having a balanced portfolio is always a good thing to do. When you have all these headwinds  like an uncertain election outcome, wars, higher valuations, there's nothing wrong with having a certain percentage of your portfolio paying you 5% or better in fixed income.

If you want to put your money to work in the equities market, you want to be in high-interest savings. Absolute liquidity, while you get your 5%.

Only want to be in the bond market if you have a 1-3 year time horizon. For non-registered accounts, you want to look at coupon bonds. For example, buy them at a discount of $91-94, and they go to $100. You get paid only 1-2% on the coupon, but most of the return is capital appreciation so it's taxed more effectively without necessarily any more risk.

In a registered account, GICs are great.

To buy the Canadian banks right now, after this recent rally, you have to think that interest rates are going to start dropping soon. He doesn't know if that's going to happen.

If you're going to buy in the space, BMO and RY are the two to consider. Accretion from acquisitions. BMO is 2 points cheaper. Still, he'd rather go with insurance -- MFC first, IFC second.

Yes. Economy is much stronger than most economists predicted and investors expected. Inflation is coming down, but 3% is going to be the new 2%. Target was 2%, but in the end will be satisfied with 3%. 

That last mile of inflation is always stubborn. Central banks have to decide how damaging that incremental 1% is vs. let's let the horse (economy) run. Higher for longer is going to be accepted because the offset, strong economic growth, is just as good if not better.

Yes. It's multi-cycle and multi-year. As you go through the cycle, it's hard to know where you are and if you're even in it. The revolution will challenge the Industrial Revolution in terms of its effect on society and economies. We think of AI as it is today, but it's going to be increasingly impactful day by day.

Estimates give a 1-2% bump in GDP, and these will look low in retrospect. Tremendous opportunity.

Markets ebb and flow, spending very little time in fair value territory. They're either somewhat overbought or oversold. Trying to predict that, and especially trying to trade that, is extremely difficult. Most investors who try to do that end up net losers in the end. They sell too early, and then it's difficult psychologically to get back in once something keeps rallying.

For that portion that you have dedicated to equities, his advice is simple. Stay invested, don't worry about the ebbs and flows, keep your eye on the horizon, and you'll do well over the long term.

See blog under Insights at goodreid.com. You have to balance all the attributes in making your investment decisions. Profitability, growth. Also dividend yield. Worst case is to get into a growth company that's paying a high dividend just to keep you around. They're not fulfilling their primary mandate of being a growth company.

Big difference between liking a product and buying its stock. You have to investigate what the value of that stock is. There might be way too much already built into the price for what you're getting.

For each stock, he creates bands of normal trading for the high and low ends of a cycle. When it pokes its head through the top end of the upper band, he asks some serious questions. If not comfortable with the answers, he sells.

What is a Stock Market Index?

Many market indexes hit new highs this week, but have you ever really thought about a stock index? What it is exactly, and why are they so important (if at all)?

A stock market index is meant to show how a market is doing on average. It typically includes the largest companies in a country, and there are 11 different sub-sectors in North America. Committees try to set up their indexes so they represent the economy/market. If a company is taken over, a new company is added. If a company’s shares become too illiquid, it is dropped from the index.

Most indexes have highly regulated criteria. For example, the S&P 500 has, amongst others, the following criteria for any company to be added: its shares must be highly liquid; at least 50 per cent of its outstanding shares must be available for public trading; it must report positive earnings in the most recent quarter; and the sum of its earnings in the previous four quarters must also be positive.
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50/50 and maybe mix in some bonds. The index fund is the bedrock of the investment, though.

Invest a third of your money in an invest fund before you look at individual stocks. It's a safe approach.

We're entering a new cycle with AI being the big story. He's bullish overall. The market bottomed last October/November, but the appetite for growth is coming back, so IPOs could return later this year. He likes medtech and fintech, driven by AI. You need 3 things to set for the next growth cycle: great valuations, investors are out of the small/midcap, growth asset class and interest rates are flat or falling.

Insightful Investing Quote:

“Sometimes you're flush and sometimes you're bust, and when you're up, it's never as good as it seems, and when you're down, you never think you'll be up again, but life goes on.” – Fred Jung

This is one of my favourite non-investing quotes that I relate to the markets. The emotional joy of making money in the markets is never as extreme as the emotional pain of losing money in the markets. But the key is understanding that the financial markets are inherently cyclical, and it is all a part of the natural ebb and flow of money. To this end, I try to enjoy the purchases I made at lower prices, and I am grateful for the opportunity to buy at lower prices.
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The Central bank is not supposed to meddle in the U.S. elections so in theory they shouldn't be doing a new set of interest rate cuts. There is growth so the economy is not slowing down and therefore why are rate cuts needed. Maybe rates should stay at 5% with low unemployment, decreasing inflation and continued growth. Since last October there has been a very strong S&P and large cap tech market. The S&P could continue to go up or turn down and that will depend on the catalyst of interest rates. He is looking to add high quality businesses that are doing well and also a little bit ignored. Money will flow around the stock market and push things around so these types of quality businesses may get a boost from that movement. He is therefore not negative on where things are going.

The question was on owning gold bullion itself. If investing in gold he would not recommend going into the futures market. Gold holds its value over time but there could be stretches of 5 years where it goes nowhere. The price of gold has just broken out. The cleanest way to play gold in the stock market is through royalty companies.