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

Doesn't like them, because he doesn't like paying to protect himself against currency movements and paying out extra fees. As a long-term investor, the currency won't make any difference over the long term. 

Bank earnings are hard to predict, but he's more bullish on the US economy. US consumers locked in mortgages, and so they're in a much stronger position than Canadian consumers. You should probably own US banks over Canadian.

The street has gotten ahead of itself, expecting too many interest rate cuts too soon. Any weakness in the inflation numbers will spoke the street and it's entirely possible. Doesn't expect 6 cuts this year. Pounce on any selloff!

Company Highlight: Dye & Durham (DND)

Dye & Durham Limited (DND) stock was up 72% on the month, but down 15% YTD and up 2% over the past year. This stock ranked 2nd from the bottom in September and has had a roller coaster ride for some time.

DND is a leading provider of cloud-based legal software and payments technology solutions designed to improve efficiency and increase productivity for legal and business professionals. It has approximately 1,400 employees and more than 60,000 customers around the world, with operations in Canada, the United Kingdom, Ireland and Australia, and more recently, South Africa.  Management anticipates that by growing its business organically and through M&A over the long term, it will be successful in building the company to a billion dollars of adjusted EBITDA.

Results for the third quarter ending September 30, 2023 were announced at the end of October: Revenue at $120 million was flat compared to the prior period; Net loss was $13.5 million compared to a loss of $11.5 million; total debt was down $45 million and cash on hand was $20.4 million down some $20 million.

In late October DND announced a large refinancing of convertible debt to reduce outstanding by $95 million through the issuance of a new convertible debt issue. By December 7th the offer was to purchase existing $95 million convertible debt with a combination of cash and new debentures at a higher rate. This should result in 41%  of company debt now fixed (vs 24%). DND believes this to be a useful move to secure more flexibility.

During the period one of the principal investors bought 300,00 common shares for $3 million; and management announced significant progress toward achieving a leverage ratio below 4 and that the strategic review of non core assets was moving ahead.
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A year ago, the street expected a recession, but now it expects a soft landing. If there is a recession, will it be broad or only in certain sectors? The softening US dollar was a story last year and it continues to influence the market (shares have risen as the dollar weakens). Watch the USD. Also watch the US election this year. The last few years have followed exactly the pattern of a presidential cycle: years 1 & 2 are not strong, year 3 is very strong and year 4 is also strong. But in year 4, January-February are choppy, then March-August are strong, then September-October are choppy, then the rest of the year is strong. Let's see if 2024 follows this pattern.

Believes interest rates will determine performance of stock market in 2024. Does not think US Fed will be cutting interest rates back to historic lows anytime soon. Stock market, and related indices higher than anyone would have predicted. Investor fears of multiple compression in tech stocks has not materialized (tech stocks nearing record highs). Believes stock market and related indices higher than anyone would have predicted. Is expecting rotation into dividend, and Canadian bank stocks in 2024. 

December Market Update:

The U.S. S&P 500 ended the week up 0.3%, while the TSX was up 1.3%. All but one sector rose this week. Consumer staples and consumer discretionary added 2.9% and 2.2%, respectively. While industrials edged up 1.9%, financials and real estate added 1.7% each. Information technology gained 1.3%. Energy ended the week slightly up 0.5% while materials gave up 0.3%. The most heavily traded shares by volume were Hut 8, TC Energy, and Bitfarms.

ISM Chicago PMI declined to 46.9 in December from 55.8 in November, lower than the expectation of 50, indicating contracting in manufacturing activities. On the other hand, US mortgage rates stabilized this week, averaging 6.6%, down from 6.7% one week earlier, but remain on a downward trend. The Canadian dollar was 75.62 cents USD.
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Lots of issues that can happen, as there are every year. Generally, we should see a reasonable up year next year, especially in Canada. Interest rates are at peak, or will remain stable, and may go down in the second half of the year. 

Canada has a far more interest-sensitive market, and banks and utilities should do better because of that. That's what's held back the TSX for the last little while.

A lot of things that pushed markets up over the last year will still be there. US interest rates are in that period of peaking. Inflation will come down. Rates won't be cut in March or April. Chance that Fed will move cutting of rates into the second half of the year, and that's a smart move. Don't need to push rates down until inflation is at the level they want. If they cut rates too quickly, risk that they may have to push rates up again if inflation takes off. Wise to wait until inflation gets to the 2% they want and then lower rates.

Lower rates on the short end will be good for the stock market, funding, and IPOs.

Yes, that's why banks and utilities in Canada will do well. Those kinds of stocks will do well around the world. If you own these types of companies, not only will you get the dividend that you've been getting all along, but you'll get some capital gain that you haven't been getting in the last little while.

Europe tends to have more dividend-paying companies, whereas the US tends to be more about growth. It's more about the stability of rates, rather than rates coming down, and they should all do better.

If you're a long-term investor, you have to keep your money in the stock market. Very hard to get out and then get back in again. If you have the long-term view that stocks grow your wealth, then you have to put your money to work on an ongoing basis.

Makeup of the S&P 500 is dramatically different than 20 years ago. More tech companies now, no longer dominated by lower-PE industrial companies as before. So you can't sit back and wait for that 20x PE.

You look for really good companies that you like, put them in your portfolio, and hold for the long term. Stick to this strategy, and you'll always do well. Could also dollar-cost-average into an ETF on an ongoing basis.

Yes, he manages the Black Swan Dexteritas Global Tech Hedge Fund. In the first 6 months of the year, the markets just kept trending up. But the past 6 months will be indicative of 2024 because it was more about active management. 

August, September and October were all down, and then it just snapped back. During those down periods, you have to put a bit of a hedge on. Then, with a bit of luck and skill, you take it off when it starts moving back up.

Interest rates. You can also get a feel of the price action through the capital flows coming out of the options market. You can get a sense of when you'll get a change of wind in the markets. The options market is now bigger than the actual stock market.

It's more like an evolution. AI came up with all the new layering of the semiconductors that allowed processing to be a lot quicker, and with bigger data sets.

Now it's all about translating that back to the customers or the enterprise through "natural language processing". A sub-sector of that encompasses the large-language models. Allows data to be processed and generates human-like text or voice. Computers are becoming more human-like. They speak to the user, and processes the information that comes in.

Data sets are expanding every second. A process can actually mature with every bit of data that comes in.

Utilizing Valuation Multiples and Takeaways:

Over and undervaluation is the most common use, as we can identify which side companies lie on by comparing to their industry and peers.

Another key element for P/E and P/S is deciding to look at trailing or forward measures. Trailing looks at how a company is valued based off the previous twelve months, while forward looks at the next twelve months. Forward measures typically have greater significance in stock analysis because investors are more concerned about future growth, but there are still useful insights that can be drawn from analyzing both concurrently.

Valuation multiples are a broad topic. It is always good to consider multiple metrics when valuating an investment decision and additionally compare these to the industry and peers. Doing this ensures an understanding behind the value of what is being paid for and how it stacks up to other opportunities.
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