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COMMENT
Markets for the rest of the year. Three things to think of. First, what is the economy doing? Second, what's the policy response both fiscally and by central banks? Third, what's being priced in? Very strong year so far, except for China. Cyclical parts of the market have done well. Now the economy is starting to slow down. Going forward, with less fiscal support and with tapering starting, there's a bit of risk into the fall. All-time highs the last month, so not much of the slowdown is being priced in. He's cut his cyclical and economically sensitive exposure. Recycling proceeds into more defensive names and sectors. 5-6% cash. Not super negative, but tilted more defensively. Weak seasonally, combined with the other factors, makes him more cautious than earlier this year.
COMMENT
Sugar high of massive stimulus? Sugar high and caffeine high at the same time. Three signs of a bubble: people are borrowing to invest, lots of new securities are being issued, massive participation by retail investors. All 3 boxes are checked. But can you go all cash and sit on the sidelines? The market could continue going up for years. He's trying to stay invested, but be as defensive or as aggressive as needed. Focus on risks, not just on the returns. If you do that, the returns will take care of themselves.
COMMENT
Canadian banks. Terrible idea to take a large amount of margin right now. People feel that they can take more risk and borrow against their portfolios. Not time to be that aggressive. Lot of risks for Canadian banks. Mortgage portfolios are expanding, housing prices are up 30-40%, and this is a lot of risk in an economy that's slowing. He's maximum underweight banks. Once or twice in a career, you get to a point where the banking sector is facing risks not priced in, and we're as close to that as we've been in a long time. Canadian love their banks and dividends, but the banking sector is facing a lot of risks and investors need to be paying attention.
DON'T BUY
Long legacy of unattractive segments. Focused on healthcare, aviation, renewables. Issue is relative to other US industrials, the balance sheet is not as clean. Investors fear something is lurking. He's not fond of reverse share splits. He owns ROP instead. It's better run, better ability to grow, higher ability to reinvest cashflow.
electrical
electronic
PAST TOP PICK
(A Top Pick Sep 08/20, Down 8%) Still likes it. Doubled up when it was down in the spring. Acquisition pace ebbs and flows, and the stock price follows. Great ROIC. Lots of free cash. Pandemic and high valuations have slowed pace of acquisitions. Happy to buy if it goes lower.
computer software
processing
PAST TOP PICK
(A Top Pick Sep 08/20, Down 33%) Still really likes the name. Top quality. He expects real interest rates to be negative, and this is a good environment for gold. Gold price has languished, in favour of crypto. Will have zero debt next year. You need to own gold, and he has a 5% weighting.
precious metals
HOLD
Balance sheet in good shape. Oil at these levels means incredible levels of free cashflow. Trading at historically low multiples. Economy is slowing, so he reduced his position in the summer to about 2%. He tries to ignore OPEC news, but would be fine with the name for the next few months. If it got into the mid-teens, he'd probably be out.
oil
gas
