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

David Burrows
They have to continue to do what they say they're going to do. Ideally, outperform. He doesn't want companies that are promising the moon, but wants companies that are delivering. When you go through difficult periods, scrutinize the holdings you have to see who's following through. 

The companies that today's guests have chosen to marry, MSFT and JPM, have been very predictable in the way they deliver.

Laura Lau - RACE
The stock raced away from her :)  Great company and brand name. She was concerned about the very high valuation. Don't make a lot of units per year, so if there are issues and you don't meet expectations, the market's not very forgiving. Going forward they're expanding production, which will help support the valuation.

Brianne Gardner - GE
Heavily invested in the industrial space, wind turbines, airline engines. Before January 2023, the stock wasn't working, so it wasn't on her radar. Up 96% last year, and another 12% YTD. Yield is 0.22%. Didn't check all her boxes. Ranks 4/10 on value, 5/10 for fundamentals. Sometimes for the one that got away, everything happens for a reason.

If you do hold it, not a bad time to take some profits off the table. Spinning off healthcare and energy.

David Burrows - RACE
Lots of fish in the sea, and he's wanted this for a long time. He just didn't think they could afford it. Has shown it's recession-proof, as there's so much demand. At the very highest level of luxury goods, even recession doesn't seem to slow it down. Beautiful cars, and more people want them than can have them.

Expensive for a reason, and sometimes great companies are that way. Sometimes you just don't get another opportunity. Could probably be bought here, but it's expensive. 

Laura Lau - HSY
Great company, but facing an issue: biggest input, cocoa, has doubled in price. Either they increase the price and people buy less, or margins get squeezed. People will still buy for Valentine's, Easter, and snacking, but they'll buy less. They'll buy something that's cheaper.

Also facing headwinds from the GLP-1 obesity drugs.

There's still upside this year despite yesterday's sell-off (on hot inflation data), but it did break the white-hot momentum in the market. He's surprised by the rally so far this month, since he expects February to be a down month.

Bitcoin rises above $51,000. He bought it before the ETF was approved. He got back into this week recently, because marketing machines are competing to get people to buy the ETFs. Cryptos trade on technicals and momentum more than any other. This will keep rising past $60.

Common Investor Mistakes: Anchoring Bias

A classic mistake by new investors who may want to ‘anchor’ their beliefs to a specific value or price. Typically when a stock or the market as whole moves beyond a previous threshold (such as an all-time high), investors might anchor their expectations to that certain price, and begin to feel that any price above all-time highs is too much. 
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The S&P is making new highs, there's optimism that inflation will be tamed and a recession avoided, but beneath the surface are cracks. We're seeing the widest dispersion between GDP and GDI in 20 years. GDP has been growing, while GDI (income) is flat or slightly negative. GDP appears to be doing well, but the economy is living beyond its means. Consider record-high credit card balances while in December in the U.S. the savings rate was 3.6%, among the lowest in decades. Employment numbers are contradictory, with companies reporting few job losses, but households reporting more when surveyed. This lack of spending power will put downward pressure on inflation, and falling interest rates will benefit stockholders (particularly Canadian dividends) bondholders and real estate. But this move is taking its time, not fast.

Annual ETF conference in South Florida giving investors details on new ETF products (Bitcoin very popular). CPI reading this week will be indicative on state of economy. Expecting a slight uptick on inflation. Believes market is over confident in amount of upcoming interest rate cuts. Upcoming corporate earnings (especially NVIDIA) will be interesting to watch. Suspects NVIDIA is due for a correction, and is short on the company (valuation way too high). 

Best strategy that thematic/portfolio construction investors can do is think about how they can separate themselves from index funds. Would advise potential investors to build 50-60% of portfolio in index funds, and then add riskier/unorthodox assets (ETF's etc.). Other examples of different assets classes include renewable energy business which are currently out of favor. Out of favor utilities/medical marijuana are also out of favor sectors that would add beta to an investor's portfolio. 

Market Overvalued?

Let’s look at an example of when the market was ‘overvalued’ using the forward P/E multiple for the S&P 500. We can see that in mid-2020 when the markets were recovering from the rapid drawdown earlier in that year, the forward P/E was at a staggering 25X. Yet, Over the next four years, the market gained 60% (roughly a 14% CAGR), AND the forward P/E came down to 20X. This is just one example of why basing one’s investment decision based solely on one figure and estimate can be misleading. As a reminder, it is not timing the market that is important, but time in the market. 
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This year 40% of the world's population is voting in an election. 70% of the population is down the middle and just trying to get by. The macro economic situation has a lot of potential to get markets going but inflation has been a challenge. Governments all over have borrowed a lot of money (as have individuals) so the share of their tax revenue going to service debt is increasing, which means less for social programs, services, etc. This in turn affects politics. The Fed doesn't want to cut rates prematurely and then have to raise them again so they will wait longer. Getting rates down to a 2 to 3% level will be stretched out and we shouldn't expect a return to ultra low rates.

The question was on emerging markets. You want to be in the India market over the next 10 to 15 years, and not in China. India has a growing population with demographic tailwinds. A specific suggestion is HDFC (HDB), the second largest bank in India.

The question was on Bitcoin. He is not interested in it as an investment. Maybe it could have value as a hedge against inflation. He hasn't quite figured out just what it is for. If you want to own some, just take a very small position but watch it carefully.

This rally can continue, but he expects a pullback late this month. We had a similar conversation 12 months ago. But it's interesting that industrials and transports are starting to break out. Take profits, but keep your core holdings.

Believes interest rates will play major role in economy going forward. Seeing rise in unemployment and weakness in markets, combined with mortgage stress. If rates are lowered too quickly, inflation will rise again and sink economy further. Higher earnings results also worth watching as latest quarterly results come in. China appears to have consumer deflation, but appears that economy is poised for growth. Foreign investors skittish on investing in China (political risk) - making economy slow. Expecting NVIDIA to drop off soon - very over valued.