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

Driving the market to new highs near-term: interest rates are coming in, investors including himself are not taking gains including in the Magnificent 7. True, markets are overbought in the near-term, but he doesn't see a catalyst for a sell-off. Next year is a different story.

“Stocks go down faster than they go up, but go up more often than they go down.”

David Gardner is the co-founder of Motley Fool, an investment service that likes to stress the common-sense aspects of investing. Any investor knows that fear is a more powerful emotion than greed, and that stocks tend to plummet far faster than they rise. No one typically panic buys, but every so often, millions of investors panic sell. Yet, over time, stocks have been one of the great wealth creators.

Yes, markets have bad years. Sometimes, they have two bad years in a row. Three bad years in a row is very rare. In the other years, equities go up, maybe not dramatically, but often steadily. 

Anyone entering the market needs to know that they could immediately lose money. But they also need to know that if they stick with stocks long enough, they will likely end up ahead. Gardner’s quote nicely sums that up.
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After three months of loses, the market has definitely changed direction this month. The reason is that investors are confident that the US Fed and Bank of Canada have stopped raising interest rates. The Nasdaq continues to lead, driven by chatGPT a year ago kicking off. In Canada, he's picking his spots given this technical recession.

Open AI headlines very surprising. Will be interesting to see how impacts Microsoft(positively). Learning models and AI will be very important part of life in the coming decades. Question is how much investors should pay for future earnings in tech names. Fundamentals often disconnected from tech names. Impact of A.I. on day to day user cases also difficult to predict. Historically, markets trend positive in the final months of the year.  Believes market is over valued and due for a hard landing. 

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.