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

Reasons to Own Stocks For the Long Term: How about a one-day stock market return of 14.1%?

We are not talking about a single company here, but about an entire market moving up 14 per cent in a single trading day. Sounds like a fever dream of an investor on margin, but it can happen. Indeed, it happened on Jan. 3, 2001, after the United States Federal Reserve surprisingly cut interest rates to fend off a recession. Tech stocks soared like they never had before. I was a (younger) portfolio manager at the time. It was a very fun day.

Sure, the best market days come during troubled times, and the top 10 Nasdaq moves (all more than 7.8 per cent single-day moves) were all during the COVID-19 pandemic or in recessionary times. But you have to own stocks to get those moves.

We can hear you say, “But that’s the Nasdaq market where stocks are always extra volatile. What about the Dow Jones industrial average?” Well, in March 1933, it rose 15.3 per cent in a single day. That was in the middle of the Great Depression, but it is still the largest upward move on record.
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Yes, but unduly confident. We saw GDP numbers from the US yesterday, and they were more than 50% higher than expectations. Earnings are still robust, and stock markets are at record highs. The Fed may have tamed inflation, but the next logical step isn't that we're going back to 0% interest rates. In this environment, it just ain't gonna happen.

Either the market's going to be disappointed, or it will come to accept the rates as they are. This is something that's closer to normal where people have to pay to borrow money, rather than what's been going on the better part of 20 years.

Yes you have 5%, give or take, on CDs and GICs, so they're a viable alternative to the stock market. Why do I need the stock market if I can get 5% from a GIC? The same sort of issue happened 40 years ago when interest rates went up precipitously to 20%, so people put money into Canada Savings Bonds that reset every year. 

There are 2 options. If you really believe interest rates are coming back down again, buy longer bonds. But with an inverted yield curve, where longer-term rates still lower than shorter-term rates, others are choosing GICs. 

If interest rates are coming down, you can ignore both of them and just own the stock market. Whether interest rates go up or down, companies with good strong earnings are in a position to raise their earnings and dividends. So you're better off in the stock market than in either bonds or bank deposits.

The environmental, energy-conscious people tend to dismiss the nuclear power option, because it's nuclear. It has really the only possibility of providing sustainable, cheaper, renewable power for a long time. It's dependable. He likes the sector for 2024.

Mid-cap energy stocks have been strong, even with reduced fund flows from pension and ESG funds. WCP and ARX will continue to do well.

Never sell just for tax reasons. Whenever he's done this, it's been a mistake. Instead, ask yourself if your thesis still holds for owning the stock? If yes, hold on. If not, let it go.

Yes, very well. But there's a lot going on with so many new products and services coming out, especially out of the AI revolution. New products on the hardware side with chips and data going into the data centres. Now the applications are going to come into play, with processing and interpretation and so on. 

Vendors are making a heck of a lot of money, centering around generative AI. But you'll see, this year, the end users are going to make some hay out of this too. It's going to make corporations faster and more efficient. 

Training in the new ways of AI is taking some time. Productivity does take a while to emerge, but you can see from the vendor side, especially from the chips, that they're just making a lot of money. Not only are they selling a lot, but the margins are enormous.

Take, for example, NVDA. Gross margin on the superchips is 75%. 

The new thing is packaging the GPUs together with the CPUs. That allows the data processing to move faster, and the interpretation to be delivered very, very quickly.

Graphics processing unit. With NVDA 8 years ago, GPUs were huge in the gaming industry. With a lot of the crackdown, especially in China, they took a back seat. But then cryptocurrencies came along, and they had to use the GPUs. Now it's given new life to generative AI, because it requires GPUs.

The likes of NVDA, INTC, and AMD have come out with packaging combining CPUs with GPUs, making the processing and the interpretation a lot quicker.

Extreme volatility. So you have to be patient. You will get a chance to get into the high-flyers on your wishlist.

The NASDAQ's gone up about 7% in only the last couple of weeks. So it's tough.

Here we are in earnings season. Though only a handful have presented earnings so far, he thinks everyone's paused and not changing price targets, waiting for each company to independently report. Then we'll get to mid-February, and everyone will start changing their price targets. 

Even with a lot of these that have run up, he's holding on with rolling stops below. 

If viewers need help with options, get in touch with the guest at Black Swan Dexteritas. :)

Within 3% of price target, take off 1/3. At price target, take off another 1/3. 

For maximum percentage holding, he rarely goes over 7%. His contracts state that he can't hold anything at more than 10% of a portfolio.

Enbridge (ENB) vs. TC Energy Corporation (TRP):

Both ENB and TRP are top players amongst Canadian oil and gas companies and present solid opportunities for investors, particularly due to the high yield both offer. TRP presents an interesting alternative to ENB but at a smaller size it inherently takes on more risks. On a growth basis, both companies are quite in similar terms of outlook with marginal growth in revenues and drawdowns in EPS expected in 2024, but ENB does have a slight edge. ENB is also stronger in other financial areas while also giving investors a better yield.

The decision between ENB and TRP can be summarized by whether an investor places more importance on stability versus value. TRP is cheaper compared to ENB, but for justifiable reasons such as a weaker growth outlook, lower historical return and lower dividend yield. Growth for both companies will be tied to demand from the oil and gas industry, but ENB has the edge as things stands due to its size and shareholder returns.
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