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

Q1 volatility. Only 11 times since WW2 has there been a quarter where we've seen both a 10% decline in key equity index values and a 10% rally. It's rare. Markets are ahead in the next quarter 10/11 times, and a year later in all 11 times. Something to look at for macro perspective.

Debate whether yield curve inversion signals a recession. An inversion predates every recession; but every inversion doesn't result in a recession. We saw that in 2018. These are different times. Fingerprints of central banks and legislators are all over monetary and fiscal policy. Bond market is starting to raise its voice a bit, signalling its fear, but this doesn't mean we'll end up in a bad place. Of great note is there's a lot of commentary about inflation, and it being bad for the equity market. He disagrees. Inflation is positive for the equity market, gives companies pricing power. You want to invest in price makers, wide economic moats. Equity market's a good place to hide during inflation. Fear is central makers will make a policy mistake and drive the economy into a recession, which is bad for equity markets. Make sure you're focused on the right thing.

PE multiples, forward vs. backward. Forward-looking is absolutely more helpful than backward-looking.

Portfolio approach. Growth vs. value is in play. Some companies, like healthcare, give you earnings stability and predictability, safety. He also owns companies in the more cyclical, growthier side. This barbell approach with the two of them combined gives him a good runway to achieve performance but lessens the risk.

Capital gains. Solid portfolio management includes trimming winners. A higher portfolio percentage means higher risk. People try to avoid paying tax by holding onto unrealized capital gains, but the cards are really stacked against them. See the blog on his website, "Capital Gains: Love 'em or Hate 'em". It explains how you should view your capital gains to minimize your long-term, after-tax effects.

A hawkish Fed triggering a sell-off today, so sell? If you're fully invested and rely on income from your dividend stocks, you can't sell everything now. Consider your capital gains bill. If your time horizon is long, then keep holding and you'll be fine. Don't be cute by selling now just to avoid a 10% drop in the market if there's a recession.

The hawkishness from the Fed's Brainard (who made hawkish comments yesterday) was not priced into the market. We have an adversial Fed who clearly intend to use wealth destruction to cool demand and inflation. The Fed has declared war on stocks. This market is as challenged as any investor or trader will face. Caution prevails. Who isn't losing money (in the U.S.) unless you're a pure commodities trader?

End of zero rate interest is here, but not necessarily bad news. People have short-term memories in the investment business. From 2000-2010, US 10-year treasury was between 3.2-6%, whereas the long-term average is 4.5%. He expects treasuries to rise to reflect normalized inflation. Investors and everyone else have done very well during most of those periods. People are worried about consumers and housing. Consumer savings rate is extremely healthy, so they're well positioned to handle higher rates, though the housing market may suffer somewhat.

Tech sector not necessarily dead money? The key is "in some cases". Several large-cap tech companies have strong earnings, earnings growth, and great franchises. The selloff gives value investors the chance to step in and own businesses that should have double-digit returns over the next 5 years. These are companies where growth is happening on both topline revenue and on bottom line as well. He's not interested in the likes of RIVN, where revenues are barely ready to start.

Bank stocks continue impressive rally? Canadian bank stocks give great dividends and great dividend growth. If there's a tax on banks, they'll figure out a way to pass it on to the consumer. Global banks have been under pressure and some are trading at single-digit PE ratios. The world is not coming to an end. We will have growth over time, and now is when you want to own these businesses.

Defense sector. The sector has already moved. The two major players, GD and LMT, are at 10-year highs. He wouldn't buy defense stocks today. Need to wait for a pullback.

EV sector. Eventually, the sector will be filled with offerings from all major car companies. Auto sector is a difficult investment because of competition and high capex. Young people are buying fewer cars. They're car-sharing, which is smart.

Should high yield bonds be part of the strategy for a senior who likes to sleep at night? High yield bonds are the only fixed income asset class that does well in a rising rate environment. A diversified portfolio of these bonds currently offers around 6%. Every issuer has a fair bit of debt, so that's why they yield 6%. He wouldn't want an investor to buy them individually. You want to own a well diversified fund. There will always be a default or two, but the return is way better than government bonds. High yield bonds offer a really solid return with short duration, so it's far less sensitive to rising rates and you're not locking yourself into 15-year bonds.

Big US money-centred banks vs. regional banks. He prefers the larger banks. People often overlook TD bank. It's a top 10 US bank, purely retail, and this would be his play from a regional perspective.

REITs have had a rough time. REITs will always be sensitive to rising interest rates. The only one he owns is CAR-U, the largest in Canada, incredibly well run, a solid income play. If rates keep going up, the sector will see volatility, because people buy REITs for income.