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

Is the rebound artificial? In March 2020, he wrote about the 3 types of recession: event-driven, cyclical, or structural. The pandemic was event-driven. It was deep and sharp, and we came out of it quickly. In the end, make sure you're paying a fair price for what you're getting. If you compare to the end of 2019, the market is up about 30%, and corporate profits are up about 22%. Modest multiple expansion, but not wild. Now in 2021, we have more of the telltale signs of an early cycle environment than in 2019. Companies are restocking, inventory expansion, consumer never in better shape, rate of saving is high, corporate profits are booming, corporate margins are the highest ever at just over 13%, low interest rates. A lot of good things happening. A correction can happen any time, but long-term investors are in a good spot here.

Dollar cost averaging. Dollar cost averaging is fine, but always be aware what percentage a stock is in your portfolio. Always set high and low constraints on a stock's percentage of your holdings. Keep a properly diversified portfolio.

Stocks with high valuations. Sometimes expensive things get more expensive, and you never find a good entry point. That's OK for him. He's made peace with the fact that he's not going to participate in every winner. There's lots of choice out there. The sleep at night aspect, and security of his clients, is important to him. He'd rather miss a good opportunity that has a risky profile than make some money by luck. He prefers companies with a lower risk profile, and his returns still compete extremely well with his peer group.

Evaluating portfolio performance. He always compares his returns to the market return. We live in a relative world. If the market's up 30%, and he's up 60%, that's great. At the same time, sometimes you hit a rough patch in the market. If the market's down 5-10%, but you're up 5%, that also is extremely good. On a risk-adjusted basis, risk assets will outperform things like treasuries. Have faith that capitalism works and you'll be paid to take some risk, letting you outperform the other opportunities out there.

Picking stocks. There are 10,000 publicly traded companies out there. His large cap portfolio only has room for 18 of them. So a lot of really good companies just don't make the cut. The problem with some, as with MA and Visa, is that the multiples can be priced for perfection. He can love the company, but not the stock.

US consumer sentiment dropping for August. Same with homebuilders. He sees this as a short-term indicator. With the Delta variant people are worried, and sentiment will fall. Interestingly, these indicators have historically been great contrary indicators to the market. When sentiment falls, that's the time to buy.

It's a manic-depressive market. Either everything is great or terrible--no middle ground. Extreme fear of the Delta variant means that the reopening is finished and we're headed to a strong sell-off. However, if Delta can be TAMED (with cases peaking), then stocks will sharply bounce back. Nothing in stocks is black-and-white, and the reality is likely somewhere in between.

There's shortage of worries: inflation, and the Delta variant which is already impacting China a little. He's not interested in travel and other reopening stocks, because they're priced to perfection. That's why they are showing weakness with the emergence of Delta. But energy infrastructure, health, utilities and financials are attractive, are defensive and can pass the test of time. So, no airlines or movie theatres. Covid may transition so that'll we'll handle it with annual vaccinations. Likely, the ripples will be felt for a long time, just like the 2008 crash was felt for years.

Educational Segment. The NFTs and Ethereum is brining forward a whole new way of valuing art works. There are two digital pet rocks that traded over $100K each. The amount of liquidity in the system is mind numbing. This makes him think about inflation. What if it is not transient. Right now, cash is trash.

A viewer asked about BMO ETFs lowering dividends. The dividends are affected by the underlying stocks. At the height of the pandemic, the stocks were priced lower so dividend yield was higher. These are also all option based strategies. The option premium from call options are now lower with less volatility.

Market outlook. We are 90% through earnings. Focus is back on geopolitics and sentiment. Elections are also coming up. There is lots of uncertainty coming up. Consumer confidence is less than in March-May last year. An unusual set of economic numbers with stimulus driving markets and now tapering talks.

Market. It has been an excellent environment since the lows of last year. He is still finding outstanding opportunities that can be bought on attractive valuations. He focuses on the higher quality names in the small- and mid-cap space. His firm avoids resource and mining stocks, not to say they are not also doing well. He looks for companies that are retaining as much capital as possible so they can get those high growth rates.

Enough talk about the Fed taper tantruming. People talk and trade, because they're afraid of missing out (FOMO) which is fuelling this year's stock rotations. The stalk is not stupid, but reveal lazy thinking. It's the perfect parlour game, just chatter, like the Clue board game. Much more important things to consider include the state of the American consumer, the impact of the Taliban taking control of Aghanistan, the Delta variant, lower interest rates, and low price-to-earnings multiples. Instead, buy into weakness of targeted stocks.