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

Stocks drifted down a little today. We're due for a pullback and he's sitting on cash to deploy.

Believes interest rates will take longer than expected to fall. A strong US economy, falling inflation and low unemployment stats point towards no need to cut interest rates. Risk of inflation rearing its head is high if rates are cut too soon. Upcoming corporate earnings & inflation numbers will be most indicative of economy going forward. Strong 4th quarter earnings in 2023 also builds case for steady interest rates. If investors focus on quality management teams with strong balance sheets - they will be rewarded. 

Market Update:

The US economy grew at a slower pace than expected, increasing at a 3.2% annualized rate, slightly missing expectation of 3.3%, driven largely by the downward revisions of the private inventory investments. On the other hand, the key Federal Reserve inflation rate, the core Personal Consumption Expenditures (CPE) price index, indicates a price pressure in January, in line with expectations, keeping a June rate cut on the table. The Canadian dollar was 73.76 cents USD. The U.S. S&P500 ended the week up 0.4%, while the TSX was up 0.7%.

A lot more greens this week than reds. Energy added 5.5%, while information technology and materials added 2.1% and 1.4%, respectively. Consumer discretionary and industrials edged up 0.2% each, while financials remained flat. Real estate edged down 1.7%, while consumer staples ended the week slightly down 0.4%. The most heavily traded shares by volume were Cenovus Energy, Athabasca Oil Corporation, and Baytex Energy.
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Things are pretty good. Our economy is growing right now, albeit at a fairly tepid rate. He's fairly encouraged by what's happening in the market. Portfolios are performing well. Banks reported this week with some pretty good numbers, perhaps not across the board, but overall relatively strong.

Buffett likes railways, owning BNI, which is the largest US railway. Railways compete in an oligopoly, and that's why Buffett likes them so much. Oligopolies have pricing power.

Looking at the Canadian market, we have CNR and CP. When you have only two companies in one market, that's an oligopoly. Fewer market participants, homogenous products, inelastic demand. More pricing power, higher profit margins. Of course, you still need favourable market conditions for an oligopoly to be successful.

His firm has written an article on oligopolies. It can be found on the goodreid.com website under Blogs, or in today's Investing section of the Financial Post.

Insurance companies certainly do well with higher rates. You could argue that there might be slower growth in that regard. But they're able to play with the asset mix of their investments to compensate. 

That is one mindset. There's nothing wrong with it, but that's not how they're wired at Goodreid. There are a lot of different ways to make money. Then you just have to be disciplined and stick to it. 

When looking at technical indicators, he's looking at things like overbought/oversold levels. Overbought is bad, as you expect that money to purchase stocks is running out and there's going to be a sell cycle. 

Put/call ratios, breadth indicators are all positive because the markets have been doing very well. But we're getting above historical norms, which means we're ready for a downward cycle. Volatility is very low. When the indicators get beyond their norm, either at a high point or a low point for that specific indicator, expect the market to reverse.

He expects widening breadth, so small- and mid-caps will start soaking up some of the sunshine that large caps have enjoyed, rotation out of bigger caps.

Yes, but fundamentals have to drive these things. Look at NVDA, where the stock was doing very well and earnings propelled it even further. That wasn't an index move, it was a fundamental aspect of the company. The money coming in will give you some support, but you still need the fundamental story. Stocks can still go down even after they've been in the top 10-20 of the S&P 500.

Typically around 10% below the current stock price. You may want to overlay the 50-day moving average, and use that as an exit strategy as well.

A yield of 4-6% indicates quality. If you find a yield of 15% or more, you probably don't want to touch it. There's something wrong with the pricing and future dividends are questionable.

Typically 4-6% is what the banks offer, and those are good quality, blue chip, buy-and-hold stocks. Utilities like Telus and BCE are in the same category. Some issues with debt in all these companies, and that's a problem in a high-interest environment.

Buying on Market Fears:

Being a contrarian in investing can be tough, and the difficult part is it is never quite clear if being a contrarian about a stock is right or wrong, until enough time has passed. I find that the more worried and concerned I am about buying a stock, typically, the better the decision it has been to buy. It is when I am excited about buying a stock, or the decision seems too easy or comfortable, that I have to second guess myself. The reasons to this are fairly logical, when a good, high-quality stock has dropped by a lot, it can be nerve-wracking to buy at that point, as many thoughts may be going through one’s head – ‘did I miss something’, ‘is there more downside left’, ‘has the narrative changed’. But, usually in hindsight it has been a good buying opportunity, and it is important to battle through the emotions following a large price decline, and ‘buy the fear’.  
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There's a good chance that the Fed won't cut rates until 2025, given that the US unemployment rate is 3.7% and GDP is rising. Housing markets remain good. Long-term bond rates are too low; you're not getting real returns to justify holding a 10-year bond. He used to recommend corporate bonds 100%, but recently has been adding government bonds given the tight spreads in corporate. Also has been adding floating rate bonds where rates are well over 5%. Investment-grade and junk bonds are extremely tight, near historic spreads. Due to compounding, high-yield bonds are outperforming everything.

Doesn't like preferreds; they lack the growth of equities, are volatile and lackthe safety of bonds, though you get the after-tax yield. Bonds are the better option--you know what return you will get.