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

Energy is in a bear market now. He's overweight it. At the end of next January he will make some difficult decisions. Crude oil is in a difficult state now and needs a fast recovery. Moving into exploration could be an inflection point. We're heading towards an OPEC+ meeting at month's end. He'd be surprised if oil fell below $70, but oil tends to surprise. We're seeing a nice bounce today 2% and he's pleased.

He's overweight oil, 15% of his portfolio. December is a major month for oil future. He expects crude to trade fairly well, then chop around. JPMorgan expects more production constraints from OPEC+ who meet soon. China expects China to ramp up oil in Q1.

Believes high quality companies acquired below intrinsic value is the recipe for investing success. Has been purchasing stocks given weakness in markets. Prefers companies that are able to reinvest earnings into compounding returns. 

“The stock market is a device for transferring money from the impatient to the patient.”

This is a famous Warren Buffett quote, and we could have filled this whole article with his wisdom. Investors have grown increasingly impatient over the past 50 years. This year it was estimated that the average holding time for a stock has shrunk to 10 months. It probably should be 10 years.

Investors trade around short-term results and inconsequential news. They sell if the stock doesn’t perform well right now. Buffett knows this, and famously takes advantage of this short-term focus. In times of market crisis, he is usually there, gleefully buying from panicked investors who forget that every market crisis, at least so far, has been temporary.
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After a pretty challenging 3 months, it's been a great November so far. Seasonality factors are helping, though they were delayed a bit because of what's happening geopolitically. 

Markets are now responding after the downturn. Seeing falling bond yields, which is helping. Subdued inflation data is helping too. Lifting market expectations that just maybe the Fed is done with its aggressive rate-hiking cycle.

We've had a 1-year bull market from October 2022 lows. Looking at 15 observations going back to 1950, the second year of a bull market has never been lower than the first, with an average return of 13.5%. So we want to be constructive on markets and equities going forward.

When assessing covered calls, be clear on your investment strategy. Are you looking for income, or are you looking for total return? Often you'll see better returns if you just invest in the underlying security. If you don't need the income, he prefers the underlying securities. 

Covered calls mean you lose out on some upside. They tend to do better in a sideways or down market. Plus, these ETFs tend to charge higher expense ratios.

With rates coming down, bonds are seemingly back in favour. He likes shorter- to medium- (7-10 years) duration bonds. The ZAG ETF follows that strategy. You'll see some performance if rates continue to move lower. 

If you want something without duration risk, you could look at shorter-term bonds with a floating rate. Shorter-term yields are higher than long at this point. But you won't get that lift if bond yields come down.

Seeing a moderation. He's in the camp that thinks the Fed is done, and yesterday's print reinforced that.

With the invasion of Israel by Hamas, we saw the risk premium come into oil. That's dissipated completely, as now oil's below $80.  Strength in fundamentals has gotten sidetracked by sentiment and general concern about where the demand will be in 2024 if the economy does slow down.

He's constructive. History over 40 years shows gold performs very well after significant rate hikes move into easing, averaging 34%. He's looking for that in 2024, where headwinds of USD strength and rapid rate hikes will have dissipated. They'll be taken over by geopolitical risks and strength on the demand side for gold.

It's up from 3-4 years ago, but relatively flat since mid-2021/beginning of 2022.

He's very encouraged that gold has remained resilient around $1800 and, more recently, around $1900. All this, despite headwinds of a strong USD and rapidly rising real rates. Setup's quite good for gold. Once those things start to disappear into the rearview mirror, it opens the door for gold to break through $2000 and find a floor there, a very important psychological level.

Nat gas has become a transition fuel. Sentiment toward security of fuel has changed, brought on by the Russian invasion of Ukraine, and we can't turn back the clock. 

US and Canada are uniquely positioned to satisfy that gap through LNG. Weather is a short-term wild card, so it comes down to the world needs more natural gas. His estimates show that Canadian nat gas production will have to increase 30-50% by 2030 to satisfy LNG demand.

There comes a downside point when you have to decide whether to sell it all or, if your conviction is still there, to double up. No sense sitting around if your viewpoint's changed or if you have a higher conviction. 

A company can control technical, operational issues, but it can't control social, political, or judicial outcomes. Why fight an uphill battle? Move on to something with more visibility that lets you sleep at night. 

“In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”

This quote is attributed to Ben Graham, a value investor best known as the author of The Intelligent Investor. We love this quote as it perfectly describes the market.

Short-term investors focus on what’s happening now. They vote on trends, momentum, speculation and quarterly earnings reports.

Long-term investors know that the fundamentals will matter much, much more, over time. Things such as cash flow, dividends and earnings are massively more important than momentum, bubbles, euphoria and sector swings. Short-term investors forget this simple basic fact, and tend to read headlines rather than annual financial statements.
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