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

In this environment, if you just put your portfolio in a drawer, you're going to be disappointed when you open that drawer. You have to be an active manager to add alpha. He's not interested in regaling guests at cocktail parties with stories of how he did well on high-beta names. He's in the business of taking wealth and growing it responsibly over time. For reasons to be optimistic about the 2023 markets, look at the Gauge under Insights on goodreid.com.

Alpha is the added value that you provide. If you add value to a particular benchmark, that's alpha. In a more technical way, it can be defined as the reward you gain off a risk-free asset, such as a government treasury bond. Think of it in the generic way, as just the additive amount. For example at his firm, they're trying to add alpha, which means they're adding to a benchmark. As a peer group, he uses a broad group of several thousand similar managers under the Morningstar umbrella. He wants to be in the high percentiles of that group. His firm's record is found at Performance on goodreid.com.

We're all faced with that as investors. What's the difference between being patient and being stubborn? There's a small difference, but it's of a magnitude that makes a big difference. He likes to get up each morning and look at the market with fresh eyes. Is a company working at solving problems that would provide a catalyst for the stock price to go up? You wait for it to work. If you feel that it's not working, at some point you move on. In the investing world, they say that an incredibly successful investor will be right about 70% of the time, and wrong 30% of the time. You want the companies that comprise the 70% to be up a lot more than the companies that comprise the 30%. Your losers may fall, but it doesn't hurt you too much.

Agrees that it will come down steadily in the next while. In the second half of this year, the comps YOY get tougher. So if the price level remains relatively flat, you'll see inflation come down from about 6% to about 3%, just where prices are maintained at a reasonable level. We're not seeing the price level continue to go up. He's not in the camp of rate cuts this year. The Fed is so data dependent, if you don't see inflation come down below 2%, which it doesn't look like it's going to, it's going to stay north of 3%. Great steady progress since it peaked last June, but it's not going to hit their target range. Interest rate cuts will be pushed out into 2024.

There's the parent, and 4 subsidiaries. It depends on what you're looking for. For income, BIP.UN. For growth, BN. Those are the 2 he uses. Longer term, a lot to like in terms of what it's doing to maximize value of assets. By investing in BN at the top of the pyramid, it has some unique arbitrage opportunities among the different assets. BN also has strategic capital allocation benefits. The subsidiaries pay out most of their income as dividends to shareholders and to the parent company. Because BN has more of a growth orientation, it retains that capital, with a yield of only 0.8%. 

Absolutely. Search has been an ambition of MSFT for quite some time, it just hasn't been very good at it. If MSFT hadn't gone through its anti-trust problems all those years ago, there might not have been a GOOG. It could spark an arms race in AI between the 2 companies. MSFT didn't develop these capabilities internally. It partnered with another company that was emerging on that front. GOOG has become dominant in Search because of all the money they've spent on it. Difficult to unseat them from that spot. Important to watch market share and see how things change over time.

The Market Is Not The Economy. People are often surprised to hear that the economy and the markets are two different things. In many cases, the companies that are publicly traded are far different from the average company out there and from companies that employ the majority of workers (i.e. small businesses). Also, the indices we look at (S&P 500 or Dow Jones for example in the US) are not necessarily reflective of the underlying economy. The Down Jones actually only contains 30 companies and is 40% technology companies. This could probably not be a further representation of the real economy.
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Today's inflation number of 6.4% YOY was a little hotter than expected, but lower than last June's 9.1% in the US.  Hotter than expected, but inflation is coming down in commodities, housing and used cars. This will lead to central banks to pause rate hikes and pivot later this year. Since 1950, when inflation is lower after a high year, the S&P has returned 12.6% on average and 75% of the time we are positive on the year. 70% of the S&P stocks are trading above their 200-day moving averages, so this looks very promising. Since 1950, back to back years on the S&P have happened only 3 times (mid-70s and 2002). He likes energy especially, financials and health care. Also, discretionary as inflation cools and China reopens.

She owns many oil stocks, such as Shell. Collect the dividends. As long as oil stays above $60 a barrel, these companies continue to make cash. Many trade under 10x earnings. Chevron and Exxon's PEs are getting stretched, so she prefers dividend names like Kinder-Morgan, Devon and Pioneer. Targets collecting a 12% return this year.

Believes energy the most under valued sector in the market. 
Important to value individual stocks, rather than worrying about macro issues. 
Company fundamentals more important than inflation/interest rates concerns. 
Opportunities in tech with recent market sell off.
Investors must be careful when buying, even at the bottom of the market.
Investors willing to put in the work to uncover cash generating stocks - will be rewarded. 
Utility sector presenting good buying opportunities with rising interest rates (recent selloff). 

Investing Behavioral Biases: Cognitive & Emotional. To simplify the classifications, a cognitive error can be defined as an information processing error (statistical and/or memory). It is often the result of faulty reasoning. Conversely, emotional biases are much harder to correct because they stem from impulse and/or intuition. Often an investor needs to first recognize these issues, then find a way to minimize the effects. One cognitive bias I see every day in the financial world is called anchoring bias or the anchoring effect. Anchoring bias can be defined as "relying too heavily on an initial piece of information offered when making decisions".
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It's a plus that the Fed has come out to say they are data-dependent, because the Fed is no longer behind inflation, but we're still at the mercy of the market saying, Maybe Powell has more rates to come.

Expecting 2023 to be a better year for investors. 
Believes US Fed will slow down interest rate hikes.
Looking forward, economy is getting better.
GM sales up 50% from Q4 last year.
Chip shortage ending. 
Inflation pressures will be offset by economic recovery. 
China re-opening, and economy picking up. 
Good companies will make money in any market. 

Exponential Growth for Stocks and Companies. To tie the concept of compounding returns, and exponential growth into a business and the performance of a stock - we can look to Amazon as a prime example. The way that companies and businesses operate can be very similar to that of an individual investor; they take earnings made during the year and reinvest them back into the company so as to generate compounding returns. A company reinvesting its earnings is essentially performing the same compounding wealth effect that individuals are when saving for retirement or just in general. The chart on the left might give an investor pause as the price momentum may seem ‘unsustainable’, however, the chart on the right shows a business that is growing at a good pace and likely earning a return on its reinvested capital. Both charts are Amazon’s price history since inception - the chart on the left is linear and the right is logarithmic.
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