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

Worry about the macro, focus on the micro. Amid market dislocation due to inflationary pressures, a banking crisis, interest rate hikes causing a prolonged recession, and other factors, more than ever, investors are concerned about where to put money to work in the most efficient way. However, we think the best approach for long-term investors amid uncertainties is “worry about the macro, focus on the micro”. As there is a small sub-segment of the market that regardless of what happens with the macro picture, the business will continue to do well (or are only mildly affected), due to such a strong secular tailwind in the business models. Some of the prominent transitions include brick-and-mortar retail to e-commerce, software licensing to software subscriptions (SaaS), programmatic TV to streaming and cash to electronic as a payment method, etc. As long-term investors, these are the opportune times to establish or add to positions that not only persist through the downturn but also come out much stronger when the economy recovers. Therefore, we think the current drawdown could offer opportunities for attractive entry points into these names.  
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Avoiding Home Bias in Your Portfolio: One of the most common problems we see in Canadian investment portfolios is a large bias toward Canadian domiciled and traded stocks. Often times a portfolio can be weighted in excess of 60% to Canada when it makes up less than 5% of the world economy. Many investors might not even realize this could be a problem for a portfolio but the risks here are easy to highlight at a high level:

1. The TSX has underperformed the S&P 500 over 1, 2, 5- and 10-year periods (in some periods, vastly underperformed)
2. The TSX is largely a ‘bet’ on the financials and energy sectors which is actually a concentration risk

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US Federal Reserve "pause" on rate hikes not a guarantee that market is in good shape. 
Believes Teck Resources ownership is better suited for Canadians (as opposed to foreigners).
Economy not out of the woods yet with regards to recession.
Concentrating capital into large (money center) banks due to liquidity concerns.
Tighter lending will help US Federal Reserve calm the economy. 
Aggressive actions by J.Powell have created a stock pickers market (mis-priced opportunities). 

Two big indicators of economic growth. One is interest rates, and the full effects haven't been felt yet. The second is recent turmoil in US banking markets, because any lending they pull back on will have profound ripple effects going forward. These will take time to play out, and we could have a recession over the short term.

Volatility within the banks is across the whole sector. US banking crisis in Q1. Valuations have come down, so the sector is very attractive and offers lots of value. See his Top Picks.

Because governments in NA and Europe have such aggressive EV goals and timelines. If you flip it and look at EV commodity prices and shortages, at some point things aren't going to line up well. Either the EV car prices will be so high that people won't buy them, or they're going to have to stretch those goals out because it's not economically feasible. That's what worries him about the auto space in general.

The first thing you want to look at is business economics, which includes profit margins and free cashflow. Other things to look at are the balance sheet, management team, growth platform, and valuation. Ticking all 5 boxes gives you a candidate for your portfolio.

Textbook good governance principles say that multi-vote shares are not good. Which isn't to say that there aren't some great companies that have adopted these structures. The founders get the upside of the public markets, but still retain control. In Canada, they were more prevalent, but this was due to regulatory artifact. 

No. The big 3 in the US are RCL, CCL, and NCLH. Terrible charts, with NCLH and CCL almost back to Covid lows. Highly leveraged balance sheets, 10s of billions of dollars in debt. Betas of 1.6-1.7. Spending is highly discretionary, and the economy is slowing. Pent-up post-Covid travel demand has been satisfied.

Valuation is never really a good timing tool. Sometimes things trade higher because they're becoming better businesses.

The sector is only a 4% average weighting across his portfolios. The price chart is telling you what the cycle is doing. We can play all these games about "better than expected earnings", which will create a lot of ink and headlines in the next few weeks. But the mathematics of the cycle are cold and unemotional and brutal. Earnings growth and the economy are slowing. Oil is telling you that, with the price down from over $130 and now struggling to stay above $80. Steer clear of most of the oil patch right now.

Copper is highly cyclical. He doesn't own any copper producers and wouldn't be buying any right now. Economy is slowing down, and is likely to go into an outright downturn later this year. This will affect copper demand. 

Long-term, the demand is there for all the traditional uses like plumbing. And the sexier part of it is EVs and greening the economy, which is all legit. But right here right now, there's no avoiding the cycle. There will be better entry points.

In his equity portfolios, he doesn't try to time markets by whipping cash balances up and down dramatically. Right now, they have about 5% cash across their 3 portfolios. They moderate market and cycle risk in the composition of their portfolios. 

For more defensive, they'll go with lower beta, and more telcos and utilities. When they're being more aggressive, they'll lean towards financials, industrials, and tech. They have a parallel workflow called a bull market game plan, preparing for the time to be aggressive.

Questionable Investment Advice: New Highs Are the Best Indicator for New Investment Ideas. I scan the new high list every single day without fail. Why? Well, simply, there are way too many stocks in North America to follow. Of course, I have my list of favourites. But in the small- and mid-cap sectors, there are still hundreds of companies I have never even heard of. This is where the new highs come in. A stock that hits a new 52-week high — or, better yet, an all-time high — tells me someone, somewhere likes the company. My job now is to find out why.  Think about it: an investor who pays more for a stock than anyone else in the world ever has must really like it. That doesn’t automatically mean it is a good investment. It just means someone else thinks it is. But as a single source of new ideas, I have found it very useful over the decades.
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