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

Sell off. The summer has been a pretty benign period that may have lulled some investors into a false sense of security. We are heading into a tunnel and markets are readjusting. The sharp rebound we saw is stalling out. There is uncertainty of the length of fiscal stimulus. Investors are starting to take some money off the table. Canadian dividend stocks are outperforming month to date.

Infrastructure stocks. He's been focusing on the energy grid and renewable energy in terms of infrastructure. There is unprecedented fiscal stimulus coming into the economy and infrastructure stocks should profit from it.

PALANTIR TECHNOLOGIES will direct-list next week Not an IPO, but a direct listing coming next week. It's a secretive company, because that's the business they do. They offer a data analytics platform for the intelligence/defence community. They're expanding to commercial clients. They saw in 2019 25% growth, but first-half-2020 saw 49% growth. Negative: they forecast 46% growth in the current quarter, but forecast it to slow to 41% for the year. Also, they pay a lot of stock-based compensation (not good) to retain talent. Third, they're willing to take ethically dubious work from governments that even Google won't touch--that may be an issue for investors. And their corporate governance policies are borderline obnoxious and selfish; the three founders control 49% of the voting power no matter what happens, even if they sell down their position. Also, they leant $25 million to one of its founders in 2016 and he just repaid it last month. They burn a lot of cash and issue a lot of stock. When it lists next week, this could start trading at $10 (20x sales). He hates the feudal corporate share structure. Just don't pay much for it, just $10.

Markets under pressure in September creating opportunities? There's always volatility in an election cycle, which will bring opportunity. Covid and low interest rates are two other dynamics also affecting markets. The market will trade down in a relatively tight range.

Your view of the tech sector going forward? Those stocks that haven't rallied with high yields but are sustainable, such as telcos, that's the place to go. The rally is not tech, but US tech. Why would you buy Amazon at 143x PE? The smarter trade is to buy Alibaba at 24x. Chasing expensive US tech will eventually result in investors getting their heads handed to them on a plate. The opportunities are the ones that have lagged, so go there.

Main headwinds or tailwinds for stocks right now? Market's been struggling for quite some time to figure out a value for companies. Some companies are doing well, and others are not. If you think about where the economy might be in a year, how high is high when interest rates are zero, and is there value in the struggling stocks? Market is digesting Covid flare-ups, US election, politicians bickering about fiscal stimulus. Market's in flux. Don't read too much into any one given day.

North American banks. Low interest rates do pressure profitability. But the banks are such dominant players for so many different parts of the economy. They're much stronger now than they were going into the 2008 crisis. Strong demand for borrowing money, and banks are making it easier for clients to make those payments. US consumer is in good financial shape overall. Banks are increasingly finding other ways to make a living.

After a black swan, how do you know when to buy? Tough question. Think about what your comfort level is. Big believer in knowing what businesses you own. Large moats. Survivors. Products and services that are durable, and needed in the long term. Durable franchises that touch people daily and have strong brands. Doesn't get too fussed in a downturn, and they did no selling. They started picking away after March 23, mostly on the way back up after things calmed down.

Predictions for tax-loss selling this year? Tough question. Generally rotates around when stocks are more or less volatile. Only a few stocks have recovered to pre-Covid peaks. Enough companies have favourable long-term outlooks that you can buy those right now. Tax-loss selling now takes place a lot earlier than November and December, and may have already taken place this year.

Markets like today are discouraging, diving 2-3%. But this decline is healthy, needed a beat-down. Remember: buy low, sell high. Don't panic in a sell-off but really an investor should cheer for it. During this year's rally, he worried we were seeing something like the 1999 boom, then correction. The multiple expansion this year was driven by investors buying up stocks with the hope that others would buy these stocks higher, too. However, a key difference from 1999 are the recent IPOs which have genuine staying power (but they're overpriced now). In 1999, many tech companies didn't deserve to exist, lacking earnings and sales. Now, the market needs to cool off. If you have cash on the sidelines, now's the time to buy in. There are two buckets of stocks to buy on weakness: falling stars among big-cap tech names like Apple, down 25%, and consumer defensives like Pepsi which yield more than 3%. Expect more choppiness and for stocks to go down.

This market volatility was expected. Markets had risen too far, too fast, fuelled by government stimulus. Q2 reports were better than expected, but based on massive expense cuts. Also, many companies have cancelled future guidance, so Q3 and Q4 are uncertain. What to expect? He added to safer investments are in telcos and utilities, like Altagas, Loblaw and Brookfield Infrastructure (which pay safe dividends). He's avoiding banks. Also he's buying small caps like Savaria, which pays a safe dividend.

Today's sell-off it a convergence of a lot of stuff that's been building up. It now feels like February into March. He's got put options out there and built up hedges. There are 46 days till the US election. He sees vulnerability to the downside. The catalysts for the recent tech sell-off: valuations went through the roof and central banks issued stimulus and governments offered fiscal stimulus to pump markets. Now, that stimulus is off the table. And the US election is coming up.