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

He sees short-term gains in the market. Inflation data is encouraging a continuing rally. Maybe the worst is over. One of the Fed chairs made encouraging comments today. The chart of US inflation shows inflation falling back to the traditional top end of inflation. Energy and transportation costs have declined, though food and mortgage costs remain robust. The signs are encouraging, but we're not there yet. The US 10-year yield chart is starting to break out now (above 4%). The bond market is telling us something, and rising yield are the fly in the ointment. The S&P has seen an uptrend since last September; he sees more strength.

Any government or regulator influence cans turn an investment into a wild card -- that is the biggest factor. You need to find clarity from governments around the world about Bitcoin. He owns no Bitcoin.

The bears who get airtime are wrong. They were calling for Schwab to go under during the regional bank crisis. Did Schwab go under?? During pullbacks like this, buy, but don't worry if you missed it today. There will be more opportunities to buy because the bears will keep speaking doom and gloom.

One problem of only looking at share price:

Most beginner investors tend to avoid stocks that have a share price above $100, and they often lean towards stocks priced below $100. This is because intrinsically, without having any further information, we would be led to believe that a $10 stock is “cheaper” than a $1,000 stock. Investing in such a way is misleading though, as what is most important for the relative “expensiveness” of a stock is its market capitalization. Market capitalization, or often referred to as market cap, is the total value of a company, and it is calculated as price per share times the number of shares. Naturally, we might think of the $6 Sirius XM stock as being “cheaper” than Markel, however, its market cap of $25.9 billion is larger than that of Markel’s at $18.2 billion. The reason for this is that Sirius XM has 4 billion shares outstanding, whereas, Markel has only 13.8 million shares outstanding. Sirius XM is also more expensive on a valuation basis than Markel, with a P/E of 21.5X against 18.3X, respectively. This leads us to the conclusion that looking at share price independent of any other factor is misleading, and it should not really be factored into our investing decisions.
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Possible 1 - 2 more interest rate hikes, but majority of rate hikes have occurred. 
Inflation trending lower - good for US Fed.
Good year for stock market & corporate earnings despite global political issues.
Seeing value in financial & healthcare stocks.
Most of investor money flowing into tech creating opportunities in other sectors. 

Not worth waste time on predicting interest rates. 
Building a conservative bond portfolio a safe bet.
Advice: own some bonds for steady rate of income & safety in capital.

Would not recommend long position bonds at the moment.
1-5 years good time horizon to invest in bonds.
Short term (6 months/1 year) rates also very strong. 

Canadian average mortgage rate is above 5%.
Low interest rates since 2008 not sustainable.
Rates are normalizing - not high by normal standards. 

Corporations will pay up for stocks if investors don’t.

Corporations—at least the good ones—are long-term thinkers. They know business ebbs and flows, and stock valuations do not always reflect long term prospects. Case in point: Apollo buying Great Canadian Gaming (GC), one of the stocks we covered at 5i Research. Apollo bought GC in the middle of the pandemic, when essentially the company had no businesses operating. But Apollo knew the Covid would end one day, and casinos would open again. It tried to ‘steal’ the company, and shareholders managed to squeeze out a higher bid from them. But Apollo was still able to get GC at a cheap price 

The lesson is to think long term, and remember that while valuations on the stock market may fluctuate, underlying business fundamentals reflect future business prospects.   
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It'll take time to break the sour mood. Dominant thing now is central bank policy. So far, Q2 earnings have been quite strong. But the Fitch downgrade yesterday was a pretty big shockwave and markets responded instantly by selling off. 

The impact of a credit rating downgrade is that the cost of capital goes up. Looking at the US and the national debt, there's a higher cash cost for borrowing and that's significant.

Probably not as well as the consumer thinks they are. We've come through Covid, and when people have had some of their liberties restricted, they tend to care less over the short term. They're going to go on vacation and they're going to spend. Now's their chance to catch up. It's human nature.

It's easy to panic. But if you look at the data long term, the best thing an investor can do is to get in at a reasonable price into good companies that can compound their capital. Then sit there and let it compound for as long as possible. 

Jumping in and out of the markets is a massively flawed strategy. You have to fight that inclination. If you look at the data, people who miss the significant up days in the market have returns that could be 1/3 to 1/2 lower than someone who just stayed in. What helps is if you know more about what you own, and you have companies with strong balance sheets and lots of cashflow that can survive. That gives people more confidence to sit and wait through the bad times.

What's happened this year is liquidity in markets has gone down, yet the S&P 500 is up almost 20%. For the top 5 components in there, the median return is almost 50%. These are all companies that were hated at the end of last year. Tech doesn't work in a rising interest rate environment. 

You never know when things will turn and the returns will come. So you have to get in the right way and be patient.

He prefers the software side, as it's better at compounding capital. Look at perhaps exceptional compounders like MSFT, GOOG, or CSU. Market volatility can work in your favour, as you can pick up good companies on a rough day. For example, the selloff yesterday hit those names really hard.

Difficult to make predictions or to see a pattern yet. He's looking to buy high quality Canadian equities for the longer term. Right now is a very good time to be buying, particularly relative to the US market.

So far this year, TSX is up 6%, while the S&P is up 19% and that's predominantly driven by the tech rally. The TSX PE ratio is about 13.9x earnings, vs the S&P at 19x earnings. That means that the US market is about 50% more expensive than the Canadian market. So the Canadian market is quite good value. The last time we saw this was in 1997, and then Canadian equities went on a tear and did extremely well.

Canadian market is trading at the best discount to the American market than it has in many years. Now's the time to be a little bit greedy on Canadian equities.

Dividend yield of the TSX (3.4%) is much higher than the S&P 500 (1.5%). That means that with Canadian equities, you're getting more than twice the income that you would holding US equities. With inflationary times, it's good to have more money in your pocket. For more information, see the Gauge under Insights at goodreid.com.