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

Markets. Reflationary environment since last October/November. There will be fits and starts, but we'll work our way through. Financials, industrials, and basic materials are still underowned, especially in the US. Ultimately, good opportunities there. The tech-driven spaces are very expensive and seen as a source of cash for people to redeploy as we go through the reopening.

Commodities hit today. Fairly bullish still. Saw good consolidation from May-July, and we're retesting areas of support right now. Pretty underowned. Copper is pulling back, as well as zinc. Agricultural commodities are strong, and the main agriculture ETF made a new high. Aluminum and nickel have been strong. Basic materials, including chemicals, is an area you want to watch through this pullback and maybe accumulate.

Dividends and share buybacks. Generational low in interest rates. We're going the other way, though it takes time to put in a bottom. One of the most important areas is dividend growth. During falling rates, you want a stable dividend, such as utilities. But if we end up in a reflationary period, dividend growth is more important than a high dividend. So financials, industrials, and basic materials have lots of scope to raise dividends and return capital to shareholders. This will be a very important theme, much like the 1960s and 70s with the Nifty 50 and dividend growth.

Semiconductors. TSM started to consolidate after a tremendous run. Leader is AMD. He owns NVDA and SITM. TSM is a dynamite company, but technically has been in a range for 4 months. Key support is around $107. Buy it today with that stop, as a great long-term hold. Semis are today's copper, and this a great way to play. TSM has geopolitical risk, as may see a challenge to its independence from China over the next few months.

Profits are what matters. Exactly. There's always something happening in the world: the Fed, Afghanistan, the Delta variant. Ultimately, if a business increases its earnings and cashflow, it's going to be worth more. If you distill it to that level, eliminates the noise that can throw you off track. Buy good companies that have a better advantage against their own history, their peer group, and the market in general, and you'll do well over time.

Is the rebound artificial? In March 2020, he wrote about the 3 types of recession: event-driven, cyclical, or structural. The pandemic was event-driven. It was deep and sharp, and we came out of it quickly. In the end, make sure you're paying a fair price for what you're getting. If you compare to the end of 2019, the market is up about 30%, and corporate profits are up about 22%. Modest multiple expansion, but not wild. Now in 2021, we have more of the telltale signs of an early cycle environment than in 2019. Companies are restocking, inventory expansion, consumer never in better shape, rate of saving is high, corporate profits are booming, corporate margins are the highest ever at just over 13%, low interest rates. A lot of good things happening. A correction can happen any time, but long-term investors are in a good spot here.

Dollar cost averaging. Dollar cost averaging is fine, but always be aware what percentage a stock is in your portfolio. Always set high and low constraints on a stock's percentage of your holdings. Keep a properly diversified portfolio.

Stocks with high valuations. Sometimes expensive things get more expensive, and you never find a good entry point. That's OK for him. He's made peace with the fact that he's not going to participate in every winner. There's lots of choice out there. The sleep at night aspect, and security of his clients, is important to him. He'd rather miss a good opportunity that has a risky profile than make some money by luck. He prefers companies with a lower risk profile, and his returns still compete extremely well with his peer group.

Evaluating portfolio performance. He always compares his returns to the market return. We live in a relative world. If the market's up 30%, and he's up 60%, that's great. At the same time, sometimes you hit a rough patch in the market. If the market's down 5-10%, but you're up 5%, that also is extremely good. On a risk-adjusted basis, risk assets will outperform things like treasuries. Have faith that capitalism works and you'll be paid to take some risk, letting you outperform the other opportunities out there.

Picking stocks. There are 10,000 publicly traded companies out there. His large cap portfolio only has room for 18 of them. So a lot of really good companies just don't make the cut. The problem with some, as with MA and Visa, is that the multiples can be priced for perfection. He can love the company, but not the stock.

US consumer sentiment dropping for August. Same with homebuilders. He sees this as a short-term indicator. With the Delta variant people are worried, and sentiment will fall. Interestingly, these indicators have historically been great contrary indicators to the market. When sentiment falls, that's the time to buy.

It's a manic-depressive market. Either everything is great or terrible--no middle ground. Extreme fear of the Delta variant means that the reopening is finished and we're headed to a strong sell-off. However, if Delta can be TAMED (with cases peaking), then stocks will sharply bounce back. Nothing in stocks is black-and-white, and the reality is likely somewhere in between.

There's shortage of worries: inflation, and the Delta variant which is already impacting China a little. He's not interested in travel and other reopening stocks, because they're priced to perfection. That's why they are showing weakness with the emergence of Delta. But energy infrastructure, health, utilities and financials are attractive, are defensive and can pass the test of time. So, no airlines or movie theatres. Covid may transition so that'll we'll handle it with annual vaccinations. Likely, the ripples will be felt for a long time, just like the 2008 crash was felt for years.