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

The message is very simple, and he's been doing this for 35 years. Nothing stays cheap forever, and nothing stays expensive forever. If investors forget about earnings, cashflow and so on, and simply buy what's going up, it usually does not end well.

This is not to suggest that MSFT and NVDA and others are not phenomenal, free-cash flowing businesses. It's just that a lot of them are priced for perfection and don't offer the same value they did several years ago.

His answer is that people need to be long-term investors. Warren Buffett has said that even if he knew there was going to be a recession tomorrow, he wouldn't sell anything that he has. These companies have been around for so many years. If you bought them years ago, you'd have had great performance, growing dividends.

That's always been the message. If you wait until the first rate cut happens in the States, if you wait until things turn around, these stocks have already rallied.

He's been buying. His focus has been trimming things that have been doing extremely well and aren't as cheap as they were. He's always looking for great companies on sale.

Sure, and the host works for one of those companies, because BCE is up there. His view is very simple. Interest rates will soften up, though they'll never go back to levels we saw before. 

The economy is slowing, consumers are reacting to higher interest rates, so rates will be cut a few times. Once again, investors will say, "Hey, what about dividends? I'd forgotten about those over the last few years." He expects to see a rally -- certainly in Canada which is more interest-rate sensitive with banks, telcos, etc, and even south of the border.

One of the things he looks at is sustainability of dividends. Are you paying your dividends through free cashflow? WBA cut its dividend not that long ago, and they've struggled ever since acquiring Boots in the UK a decade ago.

Need to focus on those businesses that still have growth, generating consistent free cashflow, and covering dividends through free excess cashflow and not getting themselves into trouble.

He owns Loblaw, which owns Shoppers, and that's one of the reasons he likes it so much. The US is such a different market. He owns CVS, which is much more broadly diversified than Walgreens. The business is being transformed all over NA, because after Covid they found it was so much cheaper to send you to get a vaccine at a pharmacy than to go to a hospital.

US is a tough place for retail, brutally competitive. Some of these stores are in tough locations and it's likely that the company hasn't put enough money into them.

Yes. The whole sector is dealing with cord cutting. Young people today don't have cable; he used to fight over the remote control with his brother and sister. Now we're streaming everything, half of it for free. But we still need the internet and a smartphone.

When Trump had that surprise win, the US futures fell 10% overnight. By the time things settled down in December, things started to go up again. The point is that this has nothing to do with Donald Trump. Presidents get elected every 4 years. Going to cash on the basis of a political event makes no sense at all.

Short term, he has no idea. But there's no question in his mind that central bankers are being so careful, that they'll keep rates high as long as they have to to slay the beast of inflation. Even if that takes another 6 months to a year, so be it. But at some point, consumers will suffer with high interest rates and things will slow down. 

This might be a next-year story, but that's not very far off in the investment world.

Very focused on where to find value. Canadian market has lagged badly for many years. Partly because we don't have large-cap tech stocks. As well, we're completely out of favour because of low productivity, and currency's been weak. For him, that's an opportunity. 

He recommends that Canadian investors have a solid weighting to Canada. The bulk of his global stocks are in the US, but he does have a number of stocks in Europe and Japan. He's not in EMs. Always very value focused.

He started in this business in 1989. The US market was about 30% of the MSCI world index. Today it's about 70%. Just goes to show that there are so many good companies elsewhere that have been totally ignored. With so much money flowing into US ETFs, etc., it's leaving some of these companies stranded and trading at crazy valuations.

Pharma can't raise drug prices the way they used to. We're all going to suffer, because if these companies can't spend the money on R&D and get a return, they're going to have less money to spend on R&D. It's hurt the industry.

Always possible that a company will come out with a world-changing drug like Ozempic, but he'd never invest on that basis.

Absolutely. Halfway through the year, so a good time to look at the big picture. TSX is up about 4% YTD, compared to the S&P 500 up 14%. But if you take a look at the equal weight S&P 500, it's up only about 5%, similar to Canada. 

Equal weight S&P 500 is an important barometer of the US market, simply because it's not skewed by 3 or 4 multi-trillion dollar companies.

Not surprising that markets are very volatile right now, lots going on in the world. And we continue to adjust for inflation and higher rates. Biggest disruption and risk seem to be geopolitical -- Middle East (escalating as opposed to abating), Russia's invasion of Ukraine into its 3rd year, US election with a lot riding on the outcome.

A lot of external factors are influencing markets right now, leading to a complicated and fluid situation.

There are pockets of value and opportunity. He still thinks Canada is a great place to invest. We're a very stable country economically and politically, inflation is really coming down, and the TSX valuation (15.3x) is a lot cheaper than the S&P 500 (24x). The TSX also looks better for tapping into a stream of income.

Interesting point. First time in 2024 that's happened, where the numbers were not as expected. But no, the thesis for investing in Canada has not been derailed. 

We saw a BOC interest rate cut recently. Going forward, if there are more cuts, certain sectors should benefit more than others. These include banks, utilities, and telcos. So he's fairly constructive on that area. These companies offer big dividend yields. In a rising interest rate environment, fixed income also offers interesting investment opportunities. Investors tend to sell some of these higher-yielding names and shift into fixed income for the better-perceived risk-adjusted return.