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

Lower equity prices are presenting market opportunities for long term investors. Higher equity prices will negatively affect short term traders and speculators. Trendy stocks in bull market are risky asset class for individuals approaching retirement age.

Technical analyst Mark Sebastian on the VIX The VIX jumped this past week from 17 to 29. There are two kinds of volatility: spikes and swells. Spikes jump briefly. Swells sees the VIX rise for 2-6 weeks until the stock market enters a correction. (When stocks sink, the VIX rises and vice versa--at least that's how it work when things are running properly. We saw yesterday this inverse pattern breaking down between the S&P and the VIX, and this is not good. It means, we're seeing a swell now, and swells are ugly. Volatility could last into early February, so plan your buying with this in mind.

Shares plunged today. No surprise. He's been warning of junk stocks, those without solid earnings, for months. Now is a true shake-out. You can't afford to own or two high-flying PE stocks. The good news is stocks were oversold today. Bad news is we're in the heart of earnings season. Bonds rallied; Russia could invade Ukraine this weekend.

Not keen on resource stocks. They try to have a low beta, low cyclicality strategy. Resources, mining, oil & gas, and any commodity are all volatile businesses, where the CEO can't predict the price of his product. Low ROICs. They make a good trade if you can time it right, but not good long-term investments. Energy in Canada is down over 50% over the last 60 years. He likes energy infrastructure, to get some exposure to the sector, like the mid-streamers. Those ones are much more stable, solid, cash generators, great dividend payers, dividends are rarely cut and usually increased yearly.

Aren't oil stocks with huge cashflows screaming buys at these levels? Good point. Trend is away from fossil fuels, so a lot of selling over the decade by pension funds and institutional investors. You should not pay high multiples for these stocks. Price of oil is very volatile. OPEC likes to control the price. These stocks will rise, and fall, with the price of oil.

Investing 2022 vs. 2021. In the US, handful of big, very expensive tech stocks drove the market up. Since mid-last year, more than 50% of those stocks were down quite significantly. In Canada, oil & gas and banks were responsible for 18% of the 24% return on the TSX, extremely concentrated. Most stocks had muted returns, even worse in small-mid caps. You have to pick your spots, be company-specific. Lots of sector rotation, computer-driven momentum trading based on algorithms. If your stock goes down, it's a buying opportunity, as sometime it will come back into favour. If it gets overvalued, think about trimming. Be in it for the long run, and stomach the volatility whether it's justified or not.

Market glutted with tech IPOs? No question. Huge indigestion last year on the IPO front. There's always the good (overvalued), the bad (shouldn't have gone public in the first place), and the ugly. Not necessarily easy to pick out the diamonds in the rough.

Right time of the cycle for industrials? Industrials is a broad category. Momentum investing and sector rotation often cause the industrials to get tossed around together even though they're in very different businesses. It's his biggest segment. Never a bad time, just because they happen to be industrials, to get into good companies.

Precious metals. Reality is inflation is not transitory, it continues to grow. Once out of the basket, very hard to control. We're at 7% already, and inflation is much higher than this, as we use different calculations than in the 80s. Copper is signaling that, but gold and silver have not caught up. Once they do, they'll become inflationary hedges and ring the true alarm for what inflation is at. Gold is the ultimate hedge for inflation. Central banks and Asia continue to acquire physical gold, but the price is not reflecting this. To protect against inflation, he recommends holding physical gold, producers, and royalty companies.

4 criteria for metal producers and the sector. Geography. Reserves on the ground. Management. Low cost of production.

Holding cash vs. buying into dividends. He wants to hold higher levels of cash right now, as he's concerned about markets. He still owns good yielders for the cashflow, but he'd wait to buy more.

Asset allocation model. To be disciplined, if you have a position at 5%, which declines by half, buy into it to bring the position back to 5%. This discipline of holding something that hasn't really changed but the price, and selling into something that's done well, is 80% of a portfolio's return. If nothing fundamental has changed, he'll continue to hold a company.

Platinum. He owns platinum through the BMG ETF, as they have silver, gold, and platinum. Better value is in a silver or gold ETF. So he has a lot of cash in the Sprott physical gold and silver ETFs, and they have more upside than platinum or PALL. For silver, he buys the coin.

Commodity ETF considerations. For any commodity ETF, ask yourself if it's pay-per-contract, or are they taking the physical commodity aside and putting it in a vault. Is it a closed-end fund of the commodity? A very important distinction. If anything happens to the derivatives market, the future contracts that back that product might not be there.