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

Argentina election results a shock. Libertarian leadership being rewarded as Argentina stock market trends upwards. Opportunity for investors to be rewarded, but would advise caution. ARGT (Argentina Index) a good way to get exposure to country as a whole. If Argentina economy recovers, could be very good for investors in energy, consumer goods, materials and various exports. Currency risk is major concern as promise of move to USD might cause turmoil. 

“Good investing is not necessarily about making good decisions, it’s about consistently not screwing up.”

Morgan Housel, the author of The Psychology of Money, is certainly not as famous as some of the other investors quoted here. But maybe he should be. His book has sold four million copies and has been translated into 53 languages. We really like his style.

His quote above summarizes parts of his book: Essentially, he outlines how you don’t need to be a genius in the stock market, you only have to not mess up over a long period of time.

Compounding even mediocre returns can result in huge wealth if you can manage to avoid the screw-ups and bombs that can destroy a portfolio. We like to say, “Water your flowers (winners) and pull your weeds (losers).” If you can eliminate big problems, your portfolio will do well, since even the small winners, over time, will compound into big winners.
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The normalization of interest rates is important for investors since they have more choices in making asset allocations according to their risk profile than they did when rates were very low. This includes bonds, GIC's, stocks, etc. People are no longer being forced into the stock market to get better returns so the stock market can't trade at massive valuations. Valuations have come down which allows us to re-assess what we want to buy. Interest rates are not that far off the average so they may stay at these levels.

The question was on preferred shares as a substitute for bonds. This would be a mistake since preferred shares can be volatile and have equity risk. Bonds have much less risk and therefore are the better choice for fixed income type investments.

The question was on cyclical stocks. These are generally resource based and he doesn't like to buy this type of stock. If you want to buy, wait for an improving economy.

Energy is in a bear market now. He's overweight it. At the end of next January he will make some difficult decisions. Crude oil is in a difficult state now and needs a fast recovery. Moving into exploration could be an inflection point. We're heading towards an OPEC+ meeting at month's end. He'd be surprised if oil fell below $70, but oil tends to surprise. We're seeing a nice bounce today 2% and he's pleased.

He's overweight oil, 15% of his portfolio. December is a major month for oil future. He expects crude to trade fairly well, then chop around. JPMorgan expects more production constraints from OPEC+ who meet soon. China expects China to ramp up oil in Q1.

Believes high quality companies acquired below intrinsic value is the recipe for investing success. Has been purchasing stocks given weakness in markets. Prefers companies that are able to reinvest earnings into compounding returns. 

“The stock market is a device for transferring money from the impatient to the patient.”

This is a famous Warren Buffett quote, and we could have filled this whole article with his wisdom. Investors have grown increasingly impatient over the past 50 years. This year it was estimated that the average holding time for a stock has shrunk to 10 months. It probably should be 10 years.

Investors trade around short-term results and inconsequential news. They sell if the stock doesn’t perform well right now. Buffett knows this, and famously takes advantage of this short-term focus. In times of market crisis, he is usually there, gleefully buying from panicked investors who forget that every market crisis, at least so far, has been temporary.
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After a pretty challenging 3 months, it's been a great November so far. Seasonality factors are helping, though they were delayed a bit because of what's happening geopolitically. 

Markets are now responding after the downturn. Seeing falling bond yields, which is helping. Subdued inflation data is helping too. Lifting market expectations that just maybe the Fed is done with its aggressive rate-hiking cycle.

We've had a 1-year bull market from October 2022 lows. Looking at 15 observations going back to 1950, the second year of a bull market has never been lower than the first, with an average return of 13.5%. So we want to be constructive on markets and equities going forward.

When assessing covered calls, be clear on your investment strategy. Are you looking for income, or are you looking for total return? Often you'll see better returns if you just invest in the underlying security. If you don't need the income, he prefers the underlying securities. 

Covered calls mean you lose out on some upside. They tend to do better in a sideways or down market. Plus, these ETFs tend to charge higher expense ratios.

With rates coming down, bonds are seemingly back in favour. He likes shorter- to medium- (7-10 years) duration bonds. The ZAG ETF follows that strategy. You'll see some performance if rates continue to move lower. 

If you want something without duration risk, you could look at shorter-term bonds with a floating rate. Shorter-term yields are higher than long at this point. But you won't get that lift if bond yields come down.

Seeing a moderation. He's in the camp that thinks the Fed is done, and yesterday's print reinforced that.