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

Markets. We are on a teeter-totter in the sense that stocks are not cheap, but earnings are not that good either. We have seen earnings fail to outperform the previous year, 4 quarters in a row, and the next quarter is predicted to be another of those. We are in an earnings recession and are not seeing great earnings. The market has moved up modestly and is pretty much sideways, which is the way it should be. You want to reward good earnings. The correlation between earnings and stock price is the greatest predictor of where things are going. He is comfortable in a seesaw type of market, where good stock picking is rewarded. We are not totally rolling over as an economy. The economy is slow growth, but progressing. What really affects earnings are energy prices and foreign exchange, which tend to be transitory, not permanent. When that starts to turn around we’ll start to see a positive progression of corporate earnings. (You can look at a blog on his website at www.goodreid.com, where he discusses investing for the long-term.)

Canadian Banks. They will continue to struggle. In the last quarter, delinquency loans went from 10 basis points to 30 basis points, an increase of 3 times in a one quarter period. They’ve gorged on lending consumers’ money, which has been a very good business. He is concerned that with increased capital requirements the banks are being forced to adhere to, their funding costs are going up and margins are very low. He has no exposure to Canadian banks, and a very small allocation to Canadian financials, with none to international.

North American Rails? He doesn’t own any. There are 2 areas that are really hurting the rails right now. 1.) Coal shipments are down substantially and that will be in a long-term terminal decline. 2.) In oil by rail, you are seeing fewer oil cars shipped. That had become a very large component of a lot of the railways in the last 5 years. The only area firing on all cylinders right now, is cars being transported by rail, and at 18 million units per year, you have to wonder how long that will continue.

Markets. There are a lot of seasonal patterns in the market, but the question is how you use them in your portfolio. You can’t depend entirely on them, however. Historically, going back to 1928 for the S&P, there is very little growth in the summer months. You can’t dispute the seasonal patterns, even though they don’t work in every year. Year 4 of the presidential year is often strong in the summer.

Low volatility ETFs. After markets fall, portfolio managers move out of low volatility stocks and into higher risk. Low volatility stocks are trading at a larger premium today than in the past, making them more volatile.

TFSA suggestions for young people. If you are investing for the long term, he suggests going for growth, rather than dividends. When you finally take the money out, you still won’t pay any tax. He suggests a US ETF specializing in small to mid caps.

Educational Segment. Artificial Intelligence and ETFs. The Buzz Index. His guest looks at social media and identifies the top 25 stocks with the most bullish prospects. He uses the power of the computer to scan social media for comments he is looking for. Software uses natural language processing. He also tries to gauge how many people are listening to the person posting.

Markets. It looks like oil went down too far, too fast and is now recovering on short covering. The fundamentals have not changed that much since January, so he would not be surprised to see it roll over here. No one knows where the US dollar is going. He is not increasing energy exposure up here. All the currencies are going up against the US dollar. He spent some money in Canada and is hoping things come off so he can invest more. He only spent a little in Canada. The US is a little expensive. In the US you are getting bankruptcies in energy.

Software. He historically does not invest in technology. He has OTC-T, however. He likes how they are growing by acquisition. It is decent value here and he likes the management.

Oil price over 5 to 10 years. He does not like predicting anything. No one predicted oil would go into the $30s, let alone below. He thinks it will be between $30-$50 over the next few years. Historically, commodities don’t turn quickly. Make sure an oil stock has a good balance sheet.

Canadian Dollar. He believes the dollar got overdone on the downside. It could be vulnerable, but he does not see it going down to $0.59 like others.

Markets. He is not an advocate of “Sell in May and go away” or of using Stop Losses for his clients. To him, there is very little evidence that people can do it reliably and consistently. You have to time both getting out and getting back in. The things you can control are your costs, asset allocation and your turn over, and these of the types of things that he tries to focus on as a portfolio manager. He can’t control whether the market is going to go up or down this month, this quarter or this year. Doesn’t try to predict what is going to happen, but rather manages and reacts to what has already happened.

Percentage on fixed income? His asset allocation, all else being equal, is an old rule of thumb with a New World wrinkle. People usually say that your age is the percentage of your fixed income. He would say that your age times the decimal of your age is a good target for your fixed income, until about age 70 where it tops out at 50-50. For example, if you are 50 years of age, 50X.50 = 25%, so 25% of your income. 60 years of age is 60X.6 = 36% of your income. By the time you are 71 years of age, when you have to convert your RRSP to a RIF, that is when you get to 50-50. The reason for this is that we are all living much longer.

30% cash in RRSP and TFSA for a 43-year-old. Too high? Too high. This money should be working. Use a formula of 43X .43= 20% in total income. If you have no other income, then the most you should have would be 20% in cash. You can be more aggressive and he wouldn’t hesitate to do so.

Analysts’ price targets of a year or more? Doesn’t believe anybody can reliably project what is going to happen, and he would be very leery of anyone who purports to have that kind of insight into markets.