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

Markets. You have so many markets at record levels that there are dangers out there. His strategy is to take things off the table or lighten up when they hit targets. He is buying less than he might otherwise have done. He lightens up when markets are bad. This is when he goes looking for bargains. The field to play in is less now. Before Trump got elected they said markets would do poorly if he got elected, but then they went straight up after the election. There is a real question as to where oil is going to go. He sees $60-$80 by the end of 2018.

Canadian Energy Market. He has only two energy stocks making Up 2% of his portfolio. If you find good energy plays with reasonable debt loads, he would like to buy them. He likes when a sector is badly beaten up. It is a place to be looking.

Market. Because of our high debt levels, etc., global economic growth is going be stalling. GDP growth in the West is running at about 2%, and a number of years ago it was double that. We have to get used to a new speed limit. Economic growth will be lower, and as a result, capital markets will go up by a less robust amount going forward. When you deal with the situation where markets are lower and people are living longer, that means that instead of retiring at 63 we are hovering around 64 or 65, and he would not be at all surprised that 8-10 years from now, the average retirement age in Canada would be over 66.

Breakeven age for taking CPP at 60, or delaying until 70? If you are going to be living to age 70 or so, he would take the CPP at 60. If you are going to be living from 70 to 80, he would take it at 65. If you’re going to make it beyond age 80, he would wait until age 70 before taking it. Note, you get 100% of your benefit if you retire on the month your 65^th birthday. Every month before, you lose 0.6%, i.e. 7.2% per year.

In a portfolio between bonds, Index ETF’s and dividends, which should go into TFSA, RRSP and non-registered accounts? It would be better to put your bonds in your taxable account and avoid the 50% capital gain on something that actually goes up by putting your stocks into your RRSP and TFSA.

Market. Volatility has been ultra low, almost non-existent. Part of this is because investors are now becoming more accustomed or used to being bombarded with information. The last 5 years was more of the early stages of that. Access to information has never been as great as it is now. The early stages of that caused investors to over manage their accounts. The bigger risk is when you start to build immunity to bad news and you don’t see any volatility. That’s when you start seeing equities get ahead of themselves. Some volatility is a good thing, because it provides stocks with a reality check, and helps their valuations stay in line.

Gold. He has been quite bearish on commodities as a whole, particularly oil and energy over the last year. The last time he held gold was between June/07 until late 2012. In the last few months, he has started taking a weighting in this again. It is less of a call on gold going to $1500-$2000, but more from a portfolio construction perspective. We can’t get complacent because we have had no volatility and markets continue to head higher and higher. He started building some insulation into portfolios, without expecting any sort of a meltdown.

45 years of age. Are 50% dividends and 50% growth/higher risk a viable plan? At this age, you don’t need income, so there isn’t a necessity to invest in dividend paying stocks. His strategy is, whether you are 10 years from retirement or already retired, dividend only names. Even if you don’t need the income, dividend paying stocks is a great starting point. Generally, you are buying a business that has decades of earnings history behind it.

Just acquired $1 million. What do I invest in? The 1^st question you need to ask is, do you need income from that capital. If you don’t, that allows you to have a little more volatility in your portfolio, and a longer-term time horizon. He would still use dividend paying equities, but if you don’t need income, it gives you some flexibility in terms of how much of it is in stocks versus Bonds. Focus on quality names. He is never more than 5% in one name.

How many sectors do you need to invest in to be diversified? There is no magic number. He is a bottom-up investor, so he looks at the business to see how they make money, what the risks are, what the balance sheet looks like, debt, etc. There is no reason to stay away from any one specific sector. Generally, there are good businesses at reasonable valuations in all sectors.

REITs? He has no exposure to the sector. If you are there for yield, you can get a similar yield in a lot of other Canadian companies, if not better. If you are there for share price appreciation, that space has skyrocketed over the last 5 years, and looks very rich on a valuation basis.

Buying US stocks with Cdn$. When you do this, there is the exchange rate that works for you or against you. Over the last 3-4 years, it has worked for Canadians, because the Cdn$ has weakened. Even at these levels, he would continue to do this. Be mindful that the 30-year average is around $0.80. Moving forward, you want to be mindful of the fact that you could own the stock that goes up 10%, but if the exchange rate moves against you, you could lose.

Market. Markets have just continued to go up. Thinks a lot of investors have put a lot of stock into promises being carried through. There are some question marks beginning to surface. We saw it initially with healthcare a month or so ago. Going forward, we are likely to see a lot more of that. Whether it shakes some confidence in the market remains to be seen. Investors have to keep in mind that markets have generally been going up for almost 10 years, and we are probably due for a bit of a pause. Valuations are stretched and yet earnings seem to be doing all right. GDP growth numbers are strengthening, both in Canada and the US, so there are no immediate concerns. However, you never see it coming in advance. He thinks he would be more of a net seller than a net buyer because, as a value investor, he is finding it harder to find stocks that he thinks are selling at a good discount.

Market. He would like to see a bit more fear in the market. It is always good to have people worried about the market and what they are going to do. People are a little too complacent. The VIX Index is at multi-decades lows. Every day, every stock kind of goes up, especially the US tech names. If we have a bit of a setback where people can see that stocks can go down, that would throw a bit of water on the rally, and then we could rebuild into the 2^nd quarter earnings report. Earnings have been great, but people are sort of extrapolating that we are going to be great for ever.

Energy. The problem with the TSX is that the energy sector is still a big component, even after a big decline this year. A 5% position in energy is appropriate right now. We don’t know which way energy is going to go, but right now it is just slowly drifting down with oversupply, and OPEC can’t stop that scenario. No one should be sitting with 20%-25% energy, regardless of any discount to US stocks.