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

What if you're 20-25 years away from retirement? From a risk management point of view, you still always need to keep a cash buffer. Put capital into opportunities that are going to create value over time. Proven business models. Ignore the higher risk, higher valuation names. Interesting places to be might be staples or higher ROE stories that the market hasn't liked for the last few years. Just be cautious how much capital you push into the markets because if they continue to deteriorate, you'll have spent all your bullets, and you're going to have to sell at a discount if we see further macro pressure. And macro pressure is still building. Oil's high, inflation's running, interest rates are going up. That's not messaging that tells investors to add all their capital to the markets right now.

Infrastructure stocks. One issue is lots of leverage. Though higher interest rates increase returns, there is a lag, so there may be credit issues with some of the plays. He likes airports and rails. Ports have been mixed. He wouldn't touch shipping right now, but it will be interesting at the bottom of the cycle. He has some exposure, and it could outperform the broader equities. Good, safe category for long-term value creation.

Canadian banks. In this environment, the Canadian banks will probably come down a bit. In 2008, the banks were down by 50%. Be opportunistic when you deploy capital. TD has some hair on it. Pick one of the big 5, buy on the next weakness, and you should be fine. We have a monopoly structure here in Canada. But beware that there could be more downside.

Time to jump into tech? FAANGs have come under pressure. Post-Covid activity of going out and being social is somewhat negative for online shopping. Don't look at China for the proxy trade, as the political risk is high. Higher interest rates are negative for tech. You just want to wait a bit.

Commodities trading. If you hold them, you can trim them at the top, and add to them at the bottom. This strategy can be a good source of cash.

Overlooked sectors. Telcos, but in a rising interest rate environment it will be a good yield proxy. Generally, defensive consumer names. Pharma and biotech of size.

Alphabet was reported to be pausing hiring for two weeks. The market reaction was far milder today, but it's still silly. After all, the Fed is tightening, so what CEO in their right mind will hire more?

U.S. corporate earnings so far have flagged a strong USD as a headwind. Will earnings be revised downward? JNJ, which she owns, is maintaining their earnings guidance this year, which is encouraging, because it means earnings in general are growing. The US banks state that the consumer is still healthy, loan balances remain healthy, card balances are growing and default rates are low. However, it remains uncertain the impact of higher interest rates on consumer spending and lending. JPM is raising loan provisions. Generally speaking so far according to earnings, the consumer remains strong. A lot of pessimism in the market now can be a positive, contrarian indicator. Also, there's a lot of cash on the sidelines which drives rallies like today.

Market view for value investors. All intelligent investing is value investing. Buy something for less than what it's worth, and hope that it goes up in value over time. The key words are "over time". The last 6 months have been tough, and investors are making bets for the next 2-3 years based on that. July has started nicely, not for the TSX, but for good reason. He wants oil and gas prices to go down. Bottom line is that US markets having fallen 20%, and with the NASDAQ down close to 30%, you should be buying. After 20% drops, S&P 500 returns are generally very strong 1-3 years out. If you're selling now, you're being emotional and selling stocks after they've fallen and already priced in a lot of the bad news. Now is the time to put money to work.

Do investors need to decide about a recession before they jump in? The markets have already told us we're in a recession. We're in a bear market. Stocks have fallen 20+%, and many have fallen more. The market anticipates a recession well before it happens. The good news is that when the recession is announced, the stock market will look forward for the next 6 months. At that time, central banks and governments look ahead to see how they can facilitate improving the economy. Don't be afraid of a recession. Data shows that markets start to rebound once the recession announcement has been made. If we're in a recession, it's the weirdest one he's ever seen. Consumer spending is strong, full employment.

Will raising rates to tame rampant inflation slam the brakes on the economy to the point of negative growth? Absolutely possible, and that's what will probably happen in the next few quarters. That said, stocks have already fallen a fair bit. Time will tell what's priced in and what's not. He's finding many stocks to buy at these levels.

Copper miners. No, he wouldn't buy these right now. A year ago, everyone was talking about the copper shortage and demand from EVs. Now, copper's at multi-year lows and demand has dried up. One would have thought that inflation and the war in Europe would drive commodity prices to ultra-high levels. They did, and then they crashed. He's not interested in trading vehicles.

Strong USD affecting US services sold abroad? Yes, this does apply to large multi-nationals like GOOG. Temporary issue. Won't affect the underlying business, but could hurt earnings for the rest of the year.

Portfolio construction: percentage cap on sectors? Tries to limit each stock to 7-8%, within reason given the size of a client's portfolio and what stage of life they're at. Sectors change all the time. For example, is NFLX media or tech? Is AAPL tech or consumer products? It can get challenging. Oil was the big winner this year, but who knew what weighting you should have had? Invest according to your conviction, being diversified across all asset classes and geographies. He doesn't quantify one sector as more conservative than another, for example, telcos vs. utilities. But he sleeps at night by owning companies with beautiful balance sheets, recurring revenues, and high quality products and services. Those factors will protect your portfolio over the long run.

Where's gold going? He's as shocked as anyone that gold's not doing well in an inflationary environment. Shows how hard it is to predict which sectors will do well. He'd be interested in some of the royalty streamers like FNV, as there's less risk. He has no views on the direction of gold.