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

Half his portfolio is comprised of growers. But the other half is made up of more static businesses. Just as you own the corner store and it's profitable, it doesn't mean you need to open more stores. If it makes money, you can go do something extra with that free cashflow. And it always depends on what you're paying. If you're paying for growth, and you don't get growth, like AAPL or MSFT whose earnings have come off but are still expensive, that's not good. Whereas with other companies that are not pursuing growth, he can double his money very simply over the years without taking on that risk.

The long-term investor wants to own equities. It's well-established that equities outperform fixed income over the long term for the simple reason that equities have the unique ability to increase their earnings. Invest in equities for at least, by default, 5-10 years. The value of equities can fluctuate wildly in the short term. Have the mindset that this is a 5-10 year proposition. High-quality leaders and management of companies are not thinking next week, month, or quarter. They should be thinking 5-10 years down the road. Think as if you own the entire company, or at least a portion of it, which you do. Short-term things that are beyond your control are secondary to the operating and functioning of the business.

He groups the 29 business that he owns into a weighted grouping. Then he does a report twice a year to show the average ROC, growth in earnings, or debt/equity. It's difficult at the granular level to appreciate one business, so an aggregate assessment can help. Focus first on ROIC. Growth in earnings should be strong. You want debt/equity to be low.

Tech stocks are, by definition, long-duration investments. That is, investors are looking to receive cashflows 5-10-15 years down the road. Versus, for example, resource companies where the visibility might be only 5-10 years down the road. For long-duration assets, the present value is more at the whim of interest rates. Rates are probably close to plateauing. With rapidly rising rates, tech stocks were punished by short-term thinking. Flipside has happened. Rates might start going down later this year, and this benefits companies that rely on debt to finance. These stocks probably went too far to the downside, and now the rebound is due to the perception of where rates are headed.

He favours founder-run, founder-owned. Management has skin in the game. High, consistent ROIC of over 20%. Ability to reinvest cashflows and earn a high rate of return. Looks for the "hockey stick" true compounding of value. The conviction levels for stock weightings in his portfolio are 1, 3, 5, or 10%.

Doesn't own any Canadian banks. Banks and financials aren't what he wants to include in his stable. Banks don't really have a lot of opportunities for excess capital. Some have done acquisitions with varying degrees of success, but mostly just pay out a large chunk of earnings in dividends. Scale advantage, favourable regulatory environment. Further competition in the space erodes their moat. If he were to own any banks, the two that stood out when he reviewed them 3 years ago were TD and RY.

The world is in more debt than ever. As you increase debt, you're borrowing from future consumption, and recent growth rates start to drop. A famous study shows that once debt to GDP gets greater than 90%, adding more debt starts to inhibit growth. Debt is worse than before the pandemic. Demographics aren't favourable for growth going forward, nor is productivity. His best guess is that we'll be in a fairly low interest rate environment for quite some time. If you feel that interest rates and inflation are likely to stay low for the next 5-10-15 years, absolutely long-dated government debt will provide you with the best bang for your buck. 

What’s the difference between Mutual funds and ETFs? The most distinctive difference is that most mutual funds are actively managed whereas most ETFs are passively managed. This results in a simpler structure for ETFs and in turn, lower overall fees. Fewer internal transactions, less management and the lack trailing and commission fees all contribute to making ETFs a very low-cost way of getting specific investment exposures. It is not uncommon to find mutual funds with fees over 2% of assets, while the majority of ETFs are below 0.5% on fees. That difference can really add up a lot over time! 
Unlock Premium - Try 5i Free

He's watching inflation and interest rates like everyone else. Maybe we're moving toward a more normalized world. Rates are doing their best to stem inflation, which is not demand-led by a supply-shortage-driven inflation. This will take time. Rates won't go down quickly and would be surprised there are any cuts by year's end. Fundamentals will remain very important--good earnings and balance sheets. Will be a volatile period, so be prepared.... Western markets don't want to be so dependent on China, but that will lead to inflation, because the west will buy fewer, cheaper Chinese goods.

Tips for beginners

Buy a long-term ETF like from Vanguard, then overlay with a bank stock for stability. If you have more risk tolerance, consider TFII or Couche-Tard with a long-term growth horizon. Consider the PE you're paying.

Performance Metrics when Evaluating a Fund: Benchmark Holdings indicate the overlap between the portfolio holdings and the benchmark set for the portfolio. The ‘active’ measure in the third column measures the percentage of the portfolio, as position weight, that differs from the benchmark index. It is a metric quantifying the level of active management within a portfolio. While this metric might not give a whole lot to an investor, investors allocating to investments with a higher portion of ‘active’ holdings typically expect a differentiated return profile relative to a passive or a benchmark-driven portfolio. 
Unlock Premium - Try 5i Free

He has faith that Jay Powell will engineer a soft landing for the economy. Don't sell now, or else you will buy back those shares later for more. Bulls say that wages have barely budged, there are major layoffs happening, Friday's unemployment number was an anomaly, China and Europe are bouncing back, and Powell learned his lesson of Dec. 2018. Bears say that Powell created this inflationary pressure, wages will rise regardless, layoffs are confined to tech, the unemployment number is correct, and a bouceback in China and Euro could fuel inflation.

Oct. 7 saw a confluence of five Fibonacci cycles (potential reversals in the stock market). The week ending Feb. 24 points to a confluence--and a pullback. That pullback is not guaranteed and may not happen, but be prepared so you protext your profits. 4,192 is the current ceiling of the S&P, which the index just touched. The S&P could struggle to break past that. There are signs that this current rally is running out of steam. He thinks that even rallies like this need to take a breather.

We're doing fine without a recession so we don't need one. Inflation is down, job growth is stunning. Tech firms are laying off workers but they are small portions especially in light of the huge numbers that had been hired over the past few years. Google is even hiring in some areas while laying off staff in other areas. Rates could probably go a little higher but it pays to be optimistic and bullish as opposed to bearish. Technically we had a recession in 2022. Actual returns in recessions are hard to know and a normal recession usually doesn't hurt the market too badly. However the ones we've been having lately aren't normal. He feels that a lot of things have peaked in terms of worries, inflation, and interest rates so he will stick with stocks.

Paying attention to US tech sector and recent earning results.
Earnings trends in major US tech companies(Apple, Amazon, Microsoft etc.) will affect Canadian holdings.
Cloud growth still at high 20% growth rate. 
Seeing lots of opportunities in markets, as recent selloffs have reduced share prices.