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

How do you make money these days? It’s been very frustrating. Doesn’t own FANGs, but does own marijuana privately. We’re long in the cycle. Not a lot of breadth, which is usually a sign of the top, though the top comes when no one expects it. Interest rates still low, bonds don’t pay much, yet dividend payers are being sold wholesale. It’s FOMO. He can’t bring himself to hold or buy the big weed companies. He has a problem with the market cap. Can have a good company, but a bad stock. Hard for pot stocks to backfill the valuation. It’s a great industry, and Canada is breeding the frontrunners.

When will we get a real idea of cannabis market cap? Won’t see a lot of people take it up, if they don’t already use it, because people don’t want to smoke, period. People aren’t going to jump in just because it’s legal. Good long-term potential, but first we’ll need to see products that people are interested in.

Market. Hexo has an active shareholder saying they did a bad job of getting the stock price up. He disagrees. He thinks it has gotten very high. He does not own anything in this space. This reminds him of the Internet bubble in '98. A few players maintained and grew. With Cannabis, you have a timeline into next spring. NAFTA affects specific companies. MG-T has taken a drop because of the uncertainty. Rationality is not a factor today.

Gold. He would love to be able to explain the future for gold but just has to avoid it. The producers are not great capital allocators. Good is doing poorly mostly due to rising rates. Gold does not give any interest.

Market Outlook. Emerging Markets are an area of the world where there is a lot of macro misinformation. Now it is oversold, and he is positive on emerging markets contrary to what many people feel. He is not in Turkey and Argentina. He would focus on countries that have taken structural reform seriously and have a growing middle class. He thinks that the biggest story of our time is the rising middle class in Asia. N develop countries we have aging demographics, high debt levels, large mortgages. It is very uncommon to find that in emerging countries.

Given that Mexico had progress on NAFTA negotiations, what is the effect on Mexican Stocks? They bought iShares MSCI Mexico ETF (EWW-N) last quarter in advance of the macro misinformation was there before the election. He thinks it is a little overbought now and wouldn’t buy it now.

Is there a good ETF for the electric car sector? Difficult to get a pure play. There is an automobile innovation First Trust Global Auto index ETF (CARZ-O). There is an upside potential. ETF are double edge sword in some regards because they offer the diversification but for sectors like this it is better to be a stock picker.

Do ETF have an influence on the market when they buy large blocks? They are not very large in relation to other securities. They basically trade on the secondary market. ETFs offer transcended liquidity according to a friend of him. When the underlying went no bid, the ETF continued to trade providing price discovery. Don’t trade at the end of the trading session, don’t use market order, a few simple rules could help you overcome the criticism found in popular media.

Is there a and ETF that covers venture capital? There are Hedge Fund replication strategies such as IQ Hedge Multi-Strategy Tracker ETF (QAI-O). They don’t track a basket of hedge funds but rather track a basket of popular long/short trades that hedge funds place. His company would never invest in something like this.

Is there an ETF for an 18 years old to max out her TFSA? She has a very long-term horizon. If you are a passive investor and want to invest in the fortunes of our country you might look into Horizons S&P/TSX 60 ETF (HXT.T). If you have a higher risk tolerance and want a more globalized portfolio Horizons Managed Global Opp ETF E (HGM.T) is an option (he runs it).

Is there an ETF in US funds that you would buy now? Yes. A classic one would be iShares Core S&P 500 ETF (IVV-N). Cheap, low cost, liquid. He would be careful with the low vol or low dividend. He prefers the pure beta.

Market. These next two months can be tough on the market historically. He thinks the market will continue to consolidate with an upward bias into the fall. The S&P500 has gone basically sideways for most of the year. There has actually been a net cash outflow out of the market for most of the year, yet the market has stayed flat – he thinks this is a bullish sign for the future. If it doesn’t want to go down, it probably will go up. The longer the consolidation the more aggressive the upside will become.

Volatility over trade and foreigh currencies: He likes the opportunities that volatility brings. Lack of it breeds complacency. Valuations in tech are getting pretty high and he suspects there will be a rotation out of tech. He's moving into energy where there are bargains. (He has a 12-24-month outlook.) This has been a momentum market, but focus on the future, not tomorrow morning. Oil is down today, but the oil chart over the past year is bullish overall. In two or three years there could be c.2007 discussions of there being not enough oil. In Canada, these stocks have come off a lot since the TransMountain court ruling, but the new Enbridge line 3 should be operating by end-2019. In addition, Keystone or TransMountain will go through (he's confident that TM will under Trudeau).

Market. Kicking us out of NAFTA would hurt so many US consumers that he believes something will be worked out in NAFTA. Donald Trump is a tough negotiator but it would not be possible for the auto industry to go forward without NAFTA. Regarding the growth of Amazon, this company is doing remarkably well and is extremely well managed. He sees it as priced for perfection and, despite is continuing growth, he would wait for a pullback. Generally, he sees the market as highly valued. With rising interest rates, the deceleration of growth in China and the tariff issues affecting China, he sees some dark clouds on the horizon that should not be ignored. Investors should be prudent and should hold some cash.

Comment on Dividend-Paying Stocks. The caller asked how to compare the value of companies that pay dividends, versus those that do not. Consider two companies that have identical cash flow and other comparable characteristics. The one that does NOT pay a dividend MIGHT be worth more, if it does a good job of reinvesting the money that it is not paying out in dividends. However, if the company is not investing the money well, paying dividends provides more value to the investors than sinking that money into ventures that don’t cause the company to grow its value quickly enough. In general, he likes to get dividends from companies that pay them out of their free cash flow. He does not like it when a company borrows money to pay dividends or buy back shares. Borrowing for dividends or buybacks has been commonplace recently but it is not sustainable.