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

On the face of it, the recent print seems a little disappointing. Market reaction yesterday was quite negative, as it pushes lower interest rates further down the road. But if you look at core inflation, it's come down from about 6% to 3%. 

If you look at the shorter-term inflation numbers, they're below the 2% threshold and trending down. Inflation is heading in the right direction, boding well for rate cuts down the road.

Yes, and that's a bigger concern than interest rates right now. Fed Reserve's total assets on its balance sheet have gone up by more than 10x over the last 14 years. Massive amount of liquidity that's been pushed into financial markets. 

Last time Fed started to tighten, they overdid it and were forced to reverse course pretty abruptly. They're likely quite mindful of this and will be more measured this time around.

Potential for lower interest rates combined with some moderation in QT is quite positive for the financial markets.

Huge dichotomy in terms of valuations between growth and income stocks. Hard to paint the market with one brush. Pockets of good value, but also parts that are quite rich. Be mindful. If you overpay for something, it could hurt your returns, plus it leaves you exposed if multiples were to contract.

The wonderful thing about compounders is their performance over a long time horizon, say 5-10 years. In Canada, we're lucky to have some phenomenal compounders. Examples include CSU, GIB.A, ATD, and BAM. 

For anyone investing, that's where you want to keep your attention. Don't just focus on 1-year performance. The power of compound investing is when you buy something that's really good, and you can't believe how much it's grown over 5-10-20 years later.

You lose out on this if you have too much of a value-only mindset and you're looking for things that are distressed. Look for great companies at a reasonable price. The trouble with a lot of compounders today is that a lot of them would be classified as growth stocks. There are, for instance, a good number of compounders in the tech space but the valuations are rich. 

If you look at companies that can grow, the valuations are very strong. And if you look at companies that don't have the growth, valuations are very weak. This is the time to know the compounders you want to buy, and just wait for things to fall to your price. There are some attractive income opportunities to invest in while you wait.

The two very best in Canada that he's ever come across are CSU and MEQ. MEQ is a smaller company, many similarities to CSU but doing it in a different space. For both, valuations are rich.

Even a small position in a diversified portfolio doesn't hurt or help, so it's kind of a waste of time. Don't go that route. If it's something you like, put it on your Buy list, and just watch and wait. Have it be a meaningful weight of 3-4%, learn about it over time, add on any weakness.

Gold is a weird investment. You can justify so many reasons why it should perform, did perform, or didn't perform. If you take it down to the company level, they haven't created value for people. A segment of the market that he prefers to avoid. In general they don't work, except for the very expensive ones like FNV.

All of the easy gold in the world has been found. The geopolitical risk to finding more is stratospheric. A find can change in a heartbeat, when a government isn't just going to let someone take gold out at massive prices. Instead, they'll expropriate it.

Gold price has been riding high, mainly because central banks around the world have been accumulating it to diversify currency risk. That could change at any time, leaving gold not as strong.

If you're determined, look at royalty companies or a physical gold ETF to diversify your portfolio.

Laura Lau
Long-term holds, preferably an monopoly or duopoly, pricing power, innovation, sleep at night. Not a lot of stocks can do this.

Brianne Gardner
Good profitability in terms of where we are in the business cycle. If she can hold it forever, she will. If she wants to trim it along the way, she will. Fundamentals, cashflow, strong management. Sleep-at-night stocks are the ones you want to hold.

David Burrows
He looks for companies that are good to begin with, but getting better. He loves companies that the world sees in one light, but things are changing, and they could get revalued to a higher level. He tries not to fall in love, he will sell. High-quality companies in areas of the market that are going through some kind of structural change that will benefit them for an extended period of time.

Laura Lau
Yes, but you have to be pragmatic. You can't always fall in love, because sometimes things change. A company may not be able to keep up, or the innovation isn't there. Or, for risk-management purposes, you do have to trim.

Laura - MU
Most stocks in Canada actually fit in the "dating" pool, as we are a cyclical economy. Even the banks are cyclical. Time to own deep cyclicals is when they're at their worst. In the US, the most cyclical part of the economy is semiconductors. Within that space, the most cyclical are memory chips, prices went down 50%. Now is the time to buy. Tailwind of more AI content in phones, PCs, and data centres. Yield is 0.56%.

Brianne - GRT.UN
Dipping her toe in, tactical trade opportunity, not too committed for the longer term. Focuses on industrial and logistics space. Stable 4.55% dividend. Real estate sector is negative YTD, hasn't done well over the past 2 years. Sees stability in the industrial space. Interest rates coming down reduces debt payments, leaving them with more cashflow and profitability, allowing it to expand and grow its portfolio. An 8/10 for her. Potential upside from analysts is about 18%.

She owns it and wants to continue, but 2024 could be the year you serial date. Lots of opportunities out there beyond the Magnificent 7.

David - SU
For dating, there are lots of companies and industries that are a little more cyclical. There's a time to own them, and a time not to. Energy sector's retrenched over the last little while, coming up to when it's better seasonally. Long-life assets are interesting, and SU has them. Great dividend of 5.04%. Good job paying down debt.

Could start as a date, as you have to take a little risk, but then might turn into a long-term relationship. 

Laura Lau - MSFT
A monopoly in software. And then you layer on the AI. Subscription business is just going to get bigger and bigger. Has the trust of businesses. Yield is 0.74%. 

Brianne Gardner - MSFT
Quality partner. Great, stable business. Dependable, can trust management. Long-term play, even after 60% return over past 12 months. Participating in the AI boom, and AI isn't going away. ATVI acquisition will start paying off this year. Street has $450 price target. Continuously outperforms top and bottom lines on earnings, 20% earnings growth expectations, 15% revenue growth expectations. She's committed for the long run.

David Burrows - JPM
A company that you can trust. Over time has been through a lot of ups and downs, wants to continue to grow, continues to invest in itself. The absolute leader in the banking industry. Opportunity is the consolidation in regional banks. Invest a lot in technology. Great for earnings and dividend growth. Yield is 2.39%. Financials tend to do well in a world of rising interest rates over time.

Look for companies that do well in good time, but that has also proven itself during the most difficult times. That's the kind of stock you want to marry.

David Burrows
They have to continue to do what they say they're going to do. Ideally, outperform. He doesn't want companies that are promising the moon, but wants companies that are delivering. When you go through difficult periods, scrutinize the holdings you have to see who's following through. 

The companies that today's guests have chosen to marry, MSFT and JPM, have been very predictable in the way they deliver.

Laura Lau - RACE
The stock raced away from her :)  Great company and brand name. She was concerned about the very high valuation. Don't make a lot of units per year, so if there are issues and you don't meet expectations, the market's not very forgiving. Going forward they're expanding production, which will help support the valuation.

Brianne Gardner - GE
Heavily invested in the industrial space, wind turbines, airline engines. Before January 2023, the stock wasn't working, so it wasn't on her radar. Up 96% last year, and another 12% YTD. Yield is 0.22%. Didn't check all her boxes. Ranks 4/10 on value, 5/10 for fundamentals. Sometimes for the one that got away, everything happens for a reason.

If you do hold it, not a bad time to take some profits off the table. Spinning off healthcare and energy.

David Burrows - RACE
Lots of fish in the sea, and he's wanted this for a long time. He just didn't think they could afford it. Has shown it's recession-proof, as there's so much demand. At the very highest level of luxury goods, even recession doesn't seem to slow it down. Beautiful cars, and more people want them than can have them.

Expensive for a reason, and sometimes great companies are that way. Sometimes you just don't get another opportunity. Could probably be bought here, but it's expensive. 

Laura Lau - HSY
Great company, but facing an issue: biggest input, cocoa, has doubled in price. Either they increase the price and people buy less, or margins get squeezed. People will still buy for Valentine's, Easter, and snacking, but they'll buy less. They'll buy something that's cheaper.

Also facing headwinds from the GLP-1 obesity drugs.

There's still upside this year despite yesterday's sell-off (on hot inflation data), but it did break the white-hot momentum in the market. He's surprised by the rally so far this month, since he expects February to be a down month.

Bitcoin rises above $51,000. He bought it before the ETF was approved. He got back into this week recently, because marketing machines are competing to get people to buy the ETFs. Cryptos trade on technicals and momentum more than any other. This will keep rising past $60.