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

US election years tend to be decent, particularly if it's a first-term President. Going back to 1950, the average return of the S&P 500 for an election year of a first-term President is 12.2%. 

How goes January, so goes the rest of the year. Going back to 1950, 16.8% average, full-year return for the S&P 500 whenever January is positive.

First quarter of an election year tends to be more volatile. Stocks that have run up may hit an air pocket, and weakness is your chance to add.

Trending lower, even though the number this week was a little higher than hoped for. Interest rates are stabilizing, with debate on how many times US and Canadian central banks will cut rates. He sees multiple rate cuts this year.

Q4 GDP in the US was way above expectations at 3.3%. Labour markets are pretty solid, holding steady at 3.7% in the US.

More difficult to find once the markets have done well, as when the price goes up the yield goes down.

One of the screens he uses for low-beta stocks, with over 5% yield, is that the price is above the 200-day moving average and moving higher. He wants to see this good, long-term technical trend. The beta should be less than that of the market.

First, consider the expense ratios. Hedged versions tend to be more expensive. A non-hedged version in USD should be cheaper. He prefers non-hedged, unless maybe if the loonie were at 80 cents.

Thinks USD will remain firm, and loonie will be in a 70-80 cent environment. So you can determine when to hedge and when not, based on that.

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.