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

Extreme volatility. So you have to be patient. You will get a chance to get into the high-flyers on your wishlist.

The NASDAQ's gone up about 7% in only the last couple of weeks. So it's tough.

Here we are in earnings season. Though only a handful have presented earnings so far, he thinks everyone's paused and not changing price targets, waiting for each company to independently report. Then we'll get to mid-February, and everyone will start changing their price targets. 

Even with a lot of these that have run up, he's holding on with rolling stops below. 

If viewers need help with options, get in touch with the guest at Black Swan Dexteritas. :)

Within 3% of price target, take off 1/3. At price target, take off another 1/3. 

For maximum percentage holding, he rarely goes over 7%. His contracts state that he can't hold anything at more than 10% of a portfolio.

Enbridge (ENB) vs. TC Energy Corporation (TRP):

Both ENB and TRP are top players amongst Canadian oil and gas companies and present solid opportunities for investors, particularly due to the high yield both offer. TRP presents an interesting alternative to ENB but at a smaller size it inherently takes on more risks. On a growth basis, both companies are quite in similar terms of outlook with marginal growth in revenues and drawdowns in EPS expected in 2024, but ENB does have a slight edge. ENB is also stronger in other financial areas while also giving investors a better yield.

The decision between ENB and TRP can be summarized by whether an investor places more importance on stability versus value. TRP is cheaper compared to ENB, but for justifiable reasons such as a weaker growth outlook, lower historical return and lower dividend yield. Growth for both companies will be tied to demand from the oil and gas industry, but ENB has the edge as things stands due to its size and shareholder returns.
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Bitcoin, but it's going lower and in a bad place now. If it rises past $40,000 consider it a gift. Sell it.

He thinks that central banks have contributed to inflation with rising shelter costs. They're pivoting now as inflation comes down naturally. The rate hikes are down, and rates will decline perhaps gradually to the 2% target. Small-caps have been neglected by the markets, but are cheap. Bonds are also a bargain as are dividend payers like telcos, utilities and pipelines (e.g. Enbridge, Boralex) and enjoy growth tailwinds.

Believes consumers have exhausted stockpiles of cash built up during the Covid-19 pandemic. Inflation eating into the consumer in a meaningful way. Expecting upcoming S&P 500 earnings to grow. China softness and quarter earnings will be felt in the markets, and will be interesting to watch. If interest rates have peaked, and start to fall - will drive further economic gains. 

Believes Chinese economy will not continue to grow due to slowing population growth. Cheap markets in China are not expected to grow - does not see growth catalyst. Expected stimulus from Chinese government not materializing. Upcoming US inflation reads will be indicative of trends. Trend appears to be downwards for US inflation, however time will tell. Slower inflation will be good for markets - could be catalyst for economic growth. 

Believes S&P 500 record high a result of recovery in tech names. A.I. theme very powerful in bringing up strength in markets. Falling interest rates good for prospects of tech companies. Waiting to see if strength in markets is sustainable. Would advise investors to be cautious.  

What Are "Beaten Up" Equities?

There is a subset of companies that have been “beaten up” quite hard in 2023, and still have not recovered along with the market indexes, which is the case for a variety of different reasons. Firstly, liquidity tends to initially flow to large-cap companies in recovery due to their size and popularity. Secondly, some of these companies’ fundamentals have been negatively affected by the challenging macro environment in the last few years, leading to a decline in sales and profitability. The market is currently not pricing in the likelihood of a recovery in the near term for these aforementioned names. Thirdly, some companies are trading at historically low multiples relative to their valuation averages, as they have incurred structural changes which may have impaired either their growth prospects or fundamentals.
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Today, Goldman Sachs said it expects the Fed to cut rates this year, starting with 25 basis points in March. The market said this to begin the year, but has changed its tune following a series of strong economic data. Can the street still believe the Fed will cut 5 times this year? He doesn't.  Now, he doesn't see weakness in the economy, not even to justify 3 cuts. For a March cut to happen, there must be a sudden downturn in the economy and unemployment to hit at least 4.7%. For cuts, there needs to be a fall in inflation but also prices. Other than Costco, he doesn't see other companies cutting prices to pre-Covid. Food, shelter and transportation costs remain way, way up. If we saw 5 cuts this year, we'd see a price spike in homes, rents and cars, when they all must come down to beat inflation. Watch the railroad stock reports next (CSX, Union Pacific, Norfolk). Also, millions of immigrants, legal and not, have entered the US and taken the jobs that Americans don't want, so that can keep wages down or wage gains limited and limit labour costs, but don't expect wage rollbacks (which would justify wage cuts). Five cuts this year is nonsense; when the market realizes this won't happen, the market will get slammed. The market will sell in anger and disbelief, feeling that the Fed let them down. Meanwhile, the Fed will continue to look at the data, which he expects to show a strong economy. If you didn't know better, you'd think their next move would be to raise rates, not cut.

Believes 2023 will be known as the year of the "Non-Recession". Not 100% confident on a soft landing, but strength appears to be in economy. Could be trouble in second half of year, but expecting moderate gains. Excess savings and Federal stimulus can only last so long, but currently economy is strong. Appears investors are anticipating interest rates cuts, as bond yields begin to fall. Disconnect between investor expectations and investors appears to be norm. 

Dollar-Cost Averaging vs. Lump Sum Investing:

The DCA approach is when cash is invested in equal amounts over a specified time frame or investing a fixed amount from one’s paycheck. An example of what this could look like is if an investor has $100,000 to invest. Instead of putting that whole amount immediately into their portfolio, under a DCA strategy the investor could put $10,000 in at the start of every month for the next ten months, disregarding the price of the desired securities. This approach is ideal for risk averse investors concerned with downside risk and wanting to spread out the timing of investments. If prices drop immediately after the first installment, this approach is beneficial as investors can lower their average cost of shares.

Looking at an LS investment strategy, it is much simpler where the desired full amount of cash is immediately invested. Continuing the previous example of having $100,000 to invest, this would be immediately deployed into the investor’s portfolio/desired securities all in one installment. LS is beneficial for long-term investors who benefit from the potential for higher gains in a market upturn over a DCA investor.

LS investing offers higher upside potential and typically outperforms a DCA investment strategy. Since markets generally display growth in the long-run, investors adopting an LS strategy benefit by injecting their capital in one installment versus incrementally deploying it. Many empirical studies have found this true with LS investing, on average, producing higher annualized returns.
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