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

Dividend Stocks. Dividend growing stocks tend to outperform dividend stocks that keep their growth pretty stagnant. This is particularly important if interest rates start moving up. The dividend yield is important, but even on a short 1 and 3 year basis, the growth of the dividend has a 2.2 to 3.4 times greater impact on total returns than just the static yield. Most investors, unfortunately, reach for the highest yield, but it is usually high for a reason; a lower underlying growth rate. He looks for dividends that are reasonable, but more importantly rising free cash flows which can end up increasing that dividend over time.

Market. He has never seen a more bizarre election than what we are seeing in the US now. The rhetoric has been over the top, but at the end of the day, come Tuesday or Wednesday morning, he wonders if those people who thinks there is going to be a calm after it is all over, are going to be sadly disappointed. We are still going to be facing the same problems. What if neither candidate gets enough electoral votes? Beyond that we have all these other worries. His main worry is that globally there has been an uprising in sentiment on anti-globalization, ant-free trade, etc., all the things that have produced the profitability and standard of living that we have had since the 2^nd world war. Politicians are taking advantage of the unrest and the dislocation that the population is feeling from changes in technology, changes in trade patterns, the opening up of other markets, etc. They are exploiting that and pointing fingers at free trade. Feels people don’t realize what the effects of isolationism could be and the costs that it could be to them.

Markets. If we get another taper tantrum we could get big losses in REITs. In the spring of 2013 you have talk of normalizing rates and there was a subsequent sell-off in interest sensitive equities. December is the next potential rate hike. You could be looking at 20-30% decline in REITS in a rapidly rising rate environment. People have overbought defensives as a place to hide so this rate increase could cause pain where we least expect it. The election is in the forefront of all the decision making. He is reducing risk and protecting capital. The US dollar is the global driver of macro trend. If you assume growth comes from the US first and leads the world in normalizing interest rates, then the US dollar should be relatively strong.

Market. There are stock prices and there are fundamentals, there are share prices and businesses. Are the businesses that you own going to change next week if Hillary or Trump is elected? Are the businesses that you own going to change if the world grows at 2% or 2.3%? At the end of the day, he doesn’t believe election results will make much difference. Most reasonable people expect the US economy will want to grow and improve, and any president elect will want to achieve those ends. Volatility in the market is a good thing if you want to buy low, but a bad thing if you Sell high. Volatility creates opportunity. He is invested in high-quality, dividend growing stocks, which is where people need to be.

Market. Feels the market is going to struggle for direction until after the US election. There have been a couple of bomb shells from each candidate, and he doesn’t rule out some other dramatic event. The market is really much better when there is certainty. Once there is a new president, the market will be able to calm down. Markets are ready for an interest rate increase, employment is doing well, the economy is OK, but not great. The financial crisis is over, it’s dead, and we got through it, and it is time to move on.

Market. Felt that people were moving out of the market last week as there was not much volume, and thinks now they are in a panic because a poll just showed that the election is going to be very close. She has been selling stocks for a while and is holding 30% cash and some gold. If Trump wins, it could have longer lasting effects than what BREXIT had. It would be very negative for the market, especially going into the December rate increase. In a Trump win the market could be quite volatile for a while.

Market. Going into Q3, estimates were that we would see a decline of 2.2%, and we had a pleasant surprise on the upside with growth of a little over 1%. That is the 1^st time we have seen that since Q1 of 2015. The S&P 500 chart is looking a little choppy, but over 5 years you have to count for some of those being catch-up years from what happened in 2008. The majority of risk appetite came back in 2012-2013. He owns all the Canadian banks except TD and BMO, which generates a large percentage of revenue in US, and he already has that. Has been quite bearish on energy for several years, but has slowly started to add, but far from “backing up the truck”. He is sitting at about 8% in commodities.

US energy stocks? He would be cautious. Not convinced we have set the stage for oil prices to step up from current levels. The more conservative way to play US energy is through a name like Exxon or Shell. Your cash will come in handy if you have patience, so perhaps take a half position, but he wouldn’t be in a rush to get into oil at all.

Market. Gold spiked, the VIX spiked and stocks sold off today, pretty much on a broad-based sector. A US news network had Trump coming out ahead of Clinton by 1, and all the other polls had narrowed. Clinton’s lead of 8 became 4, so there was about a 4-point swing across all polls. As much as the market doesn’t like a lot of things Hillary might do, they are very nervous on the unknown of Trump. Before the poll came out, there was chatter on what happens if Hillary gets the White House and the Senate and all of Congress, which would be negative for many sectors. Insulin stocks were under the gun last week when Novo in Europe was battered, based on Europe lowering sales and lowering pricing powers. Today, Bernie Sanders tweeted that Lily increased the price of their insulin over 20 years at 2000%. These nominal rates of price increases that you see and hear about in the media are not really what people pay. They are discounts, so the net price of drugs is really what is important, but the media doesn’t catch on to those. Healthcare is really in the radar of Short sellers right now, which he thinks is an opportunity, but we have to get through the election.

Markets. There is a non-decision from OPEC. He does not think anyone should be surprised. It helps with position squaring. TSX stocks are pricing in $65 oil by the end of the year. Don’t chase the strength in the energy sector. The US Election is the laughing stock of the world. It is tragic that the strongest economy in the world is going through this embarrassment. They are still bringing up the Email issue so there must be new information. Our mini budget tomorrow: Ripping up roads and fixing infrastructure is not the best spending we can do. It is not going to get the economic output they expect.

Adjusted Profit and Adjusted Losses. The earnings you report to internal revenue service then companies have some things backed out that are onetime items and are not regular operations. There are so many things included in this that earnings are always 10% higher than GAAP earnings. He prefers to look at valuating stocks with GAAP earnings.

Gold. ZGD-T is the equally weighted gold. XGD-T also. ZJG-T is juniors. There are many different ways to play it. He has 5% exposure to gold right now. He thinks gold will bounce back to $1300 on market uncertainty.

Educational Segment. Fundamental Indexing. Market Cap indexes are the traditional way to do indexes and fundamental indexing looks at cash flow, profitability, dividend sustainability and so on. It is a rules based approach that focuses on the strength of the underlying companies. Market weight is a popularity contest. E.g. Nortel. It went from 3% to 30% of the TSX index. It represents a key flaw of market weight investing. You would have ridden it all the way back down. VRX-T did something similar being 9% of the TSX 60 at its height. Returns are better in fundamental indexing rather than market cap indexing. It will not win over every part of the cycle but long term it wins. Larry’s guest runs his screen once per year. Running it more often incurs trading costs and so on. Research shows you only run it once a year. These funds have a few basis points more MER and are worth it.

Markets. We are in the early throws of a bull market in Canada. People are still scared by ’08. Commodities are instrumental in turning the ship. Canada is about Mining, Energy and Financials. If oil retests last winter’s lows the bull market is off. Housing cannot crash like the US 10 years ago because we do not have no-recourse lending. We would feel it in the economy, though. All systems are a go in the US.

Canadian Insurance Companies. He prefers Lifecos now due to valuation. The catalyst is that lifecos have been under a dark cloud for many years but if we see any kind of an uptick in interest rates, it would be a real boon for these companies.