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

A perpetual strategy using a call and a put option to protect a portfolio against downside risk. Say stock X reaches a top at $60 and it falls below $50. No. You're talking about buying a put option to protect a stock you own. If X peaks at $60, you could buy a $60 put option with a 6-month term, that'll cost you $1. If the stock falls, put option rises in value, which is equivalent to a short. He doesn't like this strategy. If you're worried about a stock at a certain point, then go back and examine why you bought it. Otherwise, why keep it? Sell it.

Market Outlook There has been excessive exuberance in the market. Since Halloween there has been massive market volatility, but the VIX has not moved. You had growth in the economy and the Central Banks were expecting a cut in interest rates. The market has gotten ahead of itself and now the market is only expecting a cut with modest belief. He would caution investors about the trade talks in China, but once that is resolved the market will re-focus on market expectations, which are much more realistic compared to a few weeks ago. Be cautious, don't strap on new exposure just yet.

The market has been on a tear this year, so Monday-Tuesday were a cool-off. Not to worry. It's healthy and it happens. 78% of TSX stocks have been up year-to-date and so it's a little overheated. Retail sales have been negative for 5 of the last 6 months in Canada, so some took this as an ominous sign, given consumers are overleveraged. But last month we saw a year-over-year sales uptick. Also, housing starts perked back up, led by Toronto and Vancouver. The union saved some GM 300 jobs today (3000 were originally laid off), and he tips his hat to the union.

How to calculate the PEG ratio? Price earnings to growth ratio. You gauge whether the mulitple on current or expected earnings is reasonable vs. the growth prospects of a company. Companies growing faster warrant a higher PEG because the PE in a few years will be much higher. So, it's price divided by the earnings. Some may use the earnings estimate for 2019 or the blended forward 12-month estimate. Find the PEG in analysts research reports (a concensus among some) and look for a 5-year growth rate, because a recession could artificially deflate earnings for one year.

There's a divergence between US and world stocks, and the gap has been widening the past year as US stocks decelerate. It's harder to find value in America. Pulling US stocks down is any comment from the Fed and companies reporting weakness. Investors are waiting for something to happen on the US-China trade front, there's bark than bite here. He can't see Trump causing pain for middle-class voters.

20-30% of family offices are in private equity, so worth investing in? Yes, it's easier for smaller investors to invest in private equity firms. Large family offices are sophisticated and fee conscious, but it's hard for small investors to understand their fees or what they are buying. Also, so much institutional money is flowing into infrastructure an private equity that it's driving down yields and returns. Warning: the low-hanging fruit has already been picked. These are illiquid investments. If you pay too much for them, it'll be hard to get a return.

Emerging market sovereign high-yield bonds Don't buy them Greece is a good example. The rule can suddenly change and it's not worth the extra return. Too risky. Countries are not like companies--they change rules and an investor can't do anything.

A huge loss on the markets today. We've had quite a year. Take a step back and keep perspective. US earnings were up 1.5%, mostly positive, and better than expected. Many have been shorting volatility. Even a tweet can shift things entirely. Trump's latest tweet, threatening more tariffs against China, is not a surprise; he's done that before when negotiating. The sell off this week means investors are taking risk off the table. He's actually hoping stocks falls more to meet his buy targets. A deal will likely happen. Meanwhile, hold some cash. Economic data globally still isn't great.

Market. There is no need to worry about Trump's latest tweets about trade with China. It is just Trump being Trump. Put yourself in China's shoes. Is there a bigger risk of US markets collapsing and Trump having to give in? He thinks you have the potential to see China say for the US to raise tariffs. He would not be surprised if China called his bluff. More tariffs are bad for the world, but he thinks this is the only way to bring China to the table.

Preferred Shares that have declined dramatically. There is a place for preferreds in everyone's portfolios but you have to understand the sensitivities. When rates are falling, the reset preferreds have price risk, but they are beneficial as rates rise. The reset preferreds are much more risky.

Return of Capital in non-registered accounts. The bad return of capital is when you earn a dividend and half of it is return of capital. Good return of capital is when a young ETF grows hugely. As dividends are coming in and the ETF is growing due to new investment by unit holders, they return some capital so everyone gets the higher dividend.

China – purchasing stocks, not ETFs in order to diversify. The Hong Kong – listed shares vs. the 'A' share markets differ quite dramatically over time. China has growth issues with the average age being 42. They are still a major growth engine for the world but with 50% more volatile than the rest of the world. He has no direct exposure right now to the Chinese market. He is looking for a pull back later this year in order to step in.

Educational Segment. Financial Planning. The Financial Planning standards counsel puts out a document every year with guidelines for assumptions that planners should make when doing planning for clients. The average Canadian is almost 41 years old. You have a 10% probability of one of a couple getting to 101 years of age. 25% is the chances of getting to 98 and 50% for getting to 95. Net returns after fees in conservative portfolios are only 3.16% so retirees want to go into aggressive portfolios. Canadian stocks do not have the exposure to the high growth sectors. He thinks financial planners have a high likelihood to underperform. People are not saving enough.

Market. Everything in the model looks really good. He is looking for the NASDAQ to be the growth part of his portfolio. The trade deal affects some parts, but Tech situations are up. The TSE has not had any rate of return in years. S&P and NAZDAQ stocks have done very well. You have to have some growth in the portfolio or it will underperform. Bank stocks, for example, have done nothing. There is 2% inflation eating away at your nest egg every year.

He didn't take any action today, despite the sudden market drop. A lot of times in investing it's best to do nothing. Let things go. Interesting today was how oil and copper acted. If Trump's tweet is the precursor to not getting a China trade deal done--that would be a very bad outcome. Six months from now, we could be tallking about much higher rates, so now could be a pause. You need a pro-growth portfolio with some defense. Oil stocks will be a place of value (a top pick today) and plough right through in the coming months. The US dollar will roll over soon.