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

General Investing Mistakes: Letting Emotions Guide Your Decisions. We know this one is tough. No one likes losing money, and fear can be a very powerful emotion. Panic selling has probably cost investors more, collectively, than any other action. But greed is also powerful. Visions of a cushy retirement dance in your head when you have a stock rising every day. A stock up 50 per cent might even make you so happy you want to buy more of it. Here’s when things get tricky.

We love momentum stocks, and the best move is often to buy more of a stock when it is up a lot. Obviously, the company is doing well in such cases, and more investors are taking notice. More buyers can indeed change the valuation of a company.

But let’s not forget the basics here. Don’t let greed push you into having one company represent 30 per cent of your portfolio. Sure, sometimes this will work. But when it doesn’t, a whole portfolio can be killed. Stay calm, manage your portfolio positions and look at the fundamentals over emotions — always.
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Somewhat over-optimistic. A lot of the interest rate hikes have not been priced into earnings yet. We still could see a bit of an earnings recession in the last half of the year, followed by good news the following year. We could still see some weakness of 10-12%.

If the government is going to achieve its inflation target, it's going to have to increase rates more. You can't get inflation down without there being a slowdown in the economy in general. 

The Fed has signalled it's going to increase 2 more times this year. Increase in rates is going to harm the overall economy. Not disastrously, as it's not 2008, but it will impact earnings.

We're seeing all this enthusiasm for AI, and it's reminiscent of last year when everyone was chasing meme stocks. Same kind of mentality. A bit different from 2000, because a lot of those companies weren't making money. Whereas the AI ones already are. 

It's the old FOMO, with people chasing and trying to get on board.

Look at certain core positions that you hold. In his case, he's always overweight the US market, simply because it has the greatest breadth and depth of any market on the planet. So it's always a core position. He very rarely sells his core positions, but looks to add on any kind of weakness, and that's what he's doing now.

There are quite a number of these high interest savings account ETFs these days -- some from Purpose, BMO, Horizon, and others. He was buying these quite a lot a couple of months ago, and he still holds some. But he became concerned when OSFI stated that it was concerned about these ETFs and liquidity issues if there was a run on Canadian banks similar to SVB in the US. This was a warning flag. It wasn't a big risk, but he wasn't completely comfortable with them, so he sold most.

Instead, he moved into Government of Canada treasury bills. There's a slight discount to the rate you get, but there's a lot more safety.

He prefers equal weighting when it comes to, let's say, Canadian banks where there are only 6 of them. Otherwise, when there's a large number of stocks, he's much more interested in market cap weight. 

The basic reason is because the CRA won't let you. They don't allow naked call selling either. In both cases, you're dealing with cash and not a security. CRA views naked put writing as essentially an ongoing business, rather than dealing with a security.

In non-registered accounts, people use naked put writing to generate income. It's all supposed to be cash secured, but he's met people who leverage it 2-3 times. If things go the wrong way, they get clobbered. That's one of the reasons that CRA doesn't want it in registered accounts.

When people looks at some of these ETFs, they usually focus on the dividend yield. He always says "never trust yield", because there's always something going on if the components have a lower dividend yield than the actual yield of the ETF. 

Some companies like Harvest often use leverage to achieve their ends. That doesn't suit his perspective for clients. There's nothing wrong with it, if that's what you want.

Covered call ETFs are good for taxable accounts, as you're getting the dividend tax credit and the added yield comes from the sale of the covered call, which is treated as a capital gain. 

Just remember that sometimes when you're dealing with covered calls on US stocks, dividends coming from those are treated as income in Canada. The capital gains part is still OK.

Thinks it will do well. Frenzy will die down, and you'll see a drop, but that's an opportunity to buy. When you're dealing with MSFT and AAPL and so on, they're tremendous companies. The froth will disappear, but it just makes good buying down the road.

He has no exposure to China. When he looks at China, he sees both an economic and a strategic military challenge down the road. There's no transparency there. The army is involved very much in the economy. He doesn't exclude China completely, but you have to be careful there.

Other South Asian countries, like Vietnam, have done very well. India looks like a great place to invest, but he hasn't been.

He tends to focus on the US. Europe, for example, has some great companies but ridiculous left-wing labour laws where you can't fire anybody.

They're still going to talk tough as they try to get inflation down to the target rate of 2%. You can see the inflation data starting to come down quite quickly. Yesterday, we saw some pretty low CPI numbers at 3.4% YOY.

BOC is forecasting that we'll be in the 3% range by year's end. Not at 2%, but still a significant improvement. Doesn't think central banks are going to feel compelled to raise rates any more than they already have. Slowdown in demand, supply chain issues being resolved, and commodity prices coming down should all help inflation come down to an acceptable range, justifying no further rate hikes. At least in North America, but the UK is a different story.

Both stocks and bonds have been very volatile this year because of inflation, rate hikes, and the fear of recession. Market breadth has not been good, with just a handful of tech stocks lifting the US markets in particular.

In fixed income, there's an incredible opportunity in short-term corporate bonds, which are yielding 6-8%, which are equity-like returns. You're not going to see that very often, and it won't last very long once the rate hike cycle is over and inflation comes down. It's probably the best risk/reward right now.

Lots of equity opportunities out there. The small-mid cap market has been neglected year after year. 

Banking sector is looking very attractive in terms of valuation, same with telecoms, utilities, and pipelines. These sectors are trading at reasonable levels with attractive dividend yields.