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

Lithium? The lithium equities market seemed to do pretty well for reasons that are completely foreign to him. The lithium battery contains about 3% lithium, and is actually a nickel battery. The world’s 4 big lithium producers have about 100 years in reserves in place. The world is substantially oversupplied with lithium.

Platinum and palladium? He is very attracted to these markets. They are precious metals, but precious metals that have industrial uses. The trade-off going forward in platinum and palladium is that we make it worldwide at below the cost of production, and they are essential to the air that we breathe. Thinks the price has to go up and that it will go up.

Market. His portfolios are 20% cash. His maximum is 25%, so 20% is a lot for him. He is not forecasting any meltdown type of scenario, but it is a combination of a few things. Valuations are stretched. Being a conservative money manager, he sees valuations stretched even more for the higher-quality names, as there has been such a move into dividend paying stocks, and earnings are dismal. Also, the market has demonstrated no volatility in the last 3-6 months. The US election is coming up as well as a potential rate hike in the US. His strategy is 20 Canadian names and 20 US names, but he has been two thirds in the US since January 2012.

Lifecos? If looking for safety, the large insurance names are going to give you that. However, there are easier ways to make money in the market. In some of these lifecos, investors have been waiting year after year for either rates to go up or for the stock price to improve. Prefers US insurance names. (See Top Picks.)

Markets. He will be watching the debate tonight. There is a 51.8% likelihood that Hillary wins. They are neck and neck. If Trump is seen as a clear victor tonight there could be more market volatility. The Saudis would like to pump as much as they can. There is no chance they cut. They are not going to give up market share. He thinks Oil is below $40 before it is above $50.

Educational Segment. Currency effects on your portfolio. Over the next decade, average returns are going to be lower. When you invest globally, currency is the most important consideration. When the CAD$ is getting weaker, you are making money. However, when it gets weaker, it reduces profits. With ETFs you can control the currency. Currency explains about 70% of the difference in returns when investing globally.

Markets. Equity markets in the States will see increased volatility due to the debates. It is a buying opportunity because we could be in a stronger position by year end. Clinton is a know entity. Trump is such an unknown. We have had various ideas floated by Trump in an inconsistent platform. There is no leadership in his background so we have no idea how the markets would respond if he won.

Market. It is really, really tough to find yield, and he is telling people that they have to look at things like emerging market bonds, because traditional bonds are just not paying anything. He wouldn’t be surprised if a person investing in traditional bonds, actually realized a negative yield of return over the next half decade or decade. The risk/reward ratio is clearly tilted in favour of reward. Virtually all of the governments globally are not likely to go bankrupt, so in terms of the solvency of the underlying debt issuer, there is no problem. He wouldn’t be surprised that if a generation from now that we could still be talking and waiting for an interest rate hike to normalize. Ultimately, if you are a dividend investor, you are investing in stocks. That is a slippery slope and suggests you deal with these with caution.

Explain ETFs. If you understand what a mutual fund is, an ETF is a hybrid between a mutual fund and a stock. You get the diversification of a mutual fund, as well as the ease of ownership and benefits. They trade like a stock and you can Buy them like a stock. ETFs are generally a fair bit cheaper than mutual funds.

Behavioural Finance? We are all guilty of heuristics, basically shortcuts. Making quick, snap decisions, as opposed to longer term stop, wait, being thoughtful. If you can become more self-aware of the biases that you might have, hopefully you can rein them in a bit and do better.

Low Cost Mutual Funds? If you can find a good, low cost mutual fund, go to town. He has no problems with mutual funds, his concern are the costs.

Optimum number of holdings for a seven-figure portfolio? He doesn’t know if there is an optimal number, but it is a big number, whatever it is. Why he recommends ETFS or mutual funds is that most of them will have literally hundreds of holdings in one name. Therefore, if you have 6 ETFS in your portfolio, even if it is a 7-digit portfolio, you literally have over 1000 names. You can’t reliably replicate that using individual securities.

Gold. He moved most of his clients to having a 4% stake in gold at the beginning of the year. Gold hit its bottom at around the beginning of the year, and has been moving up ever since. He likes it as a diversifier, and believes you should have a little bit, 3%-5%.

Market. Valuations are really high, and it is really hard to be buying. Trump closing in on Hillary is not good. However, stocks are far cheaper than bonds and many asset classes. Thinks we are in a situation where 2 things are happening. We can still have multiple expansion because we are in this low interest rate environment for a very long period of time. Also, we are hearing better news and seeing good barometers, such as FedEx as a bellwether, as well as better volumes on rails. That could be supporting some top line expansion, which we really haven’t seen for the last couple of years. You have to be very careful and selective in what you buy. Stocks are still a good deal if you buy them at the right time. Feels the market still has an upward bias if Hillary still leads in the polls. Of the 2, Trump would probably be in favour of stimulus spending, but both of them will do a lot of that. That is what is needed to get us out of this very low interest rate environment, which will take many, many years.

A vehicle for holding cash while waiting for an opportunity? He would recommend a high interest savings account or a Money market account.