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

The Five Banks. Caller is 50%+ with them. Is splitting positive? It can get more investors into the shares. Look at BRK-N that have not ever split. It is great that we focus on the general sector. He does not see inflation as a big issue and we have seen a good run in the banks.

Markets. We have priced a lot of things in. The S&P is up almost 10% since the election, with the TSX up 9%. The market is anticipating the pro-growth policies being implemented and ignoring the anti-trade comments. If there are delays in implementation we could easily get a pullback. The US economy has been improving all along even before Trump. Unemployment has been at 5% or lower for 16 months. She likes what she sees for the earnings season. Tax cuts will help to bring price to earnings ratios down. We need to see policies implemented now.

US Banks. They have all done quite well post- the election due to the potential of less regulation. She owns WFC-N. There is nothing wrong with the others, but WFC-N has lagged and was better managed during the financial crisis. JPM-N is the second best one. Wait for a pullback before buying or adding to a position.

Markets. Big stocks are not cheap right now. We had an 8-9 year bull market. They are made all the more expensive given that interest rates might go up. He is a bottom up guy and feels there is always something to buy. Stocks always take a breather when they have had a run for a long time. You have to expect there will be a breather at some point. Have lots of cash and be ready to pounce when you have an opportunity.

Markets. Trumps policies will be business friendly no matter what we think of his politics. Everyone thinks a tax cut is good in the short term. The infrastructure program could boost GDP by ½ half to ¾ of a point. But then there is the debt on the other side of it. Saying you are going to spend money and spending money effectively are two different things. Spending has to be ramped up. Markets may be getting a little ahead of themselves. A lot of market gains have been concentrated in a couple of sectors. If you take those out of the equation the rest of the market looks a little more sensible.

Lithium. It is everyone’s favourite metal because of batteries. There is no world shortage of lithium, but it does not mean it is hard to find. It is not a scarce resource. If you bought it 5 years ago you were a genius, but now everyone is on that trade. It is too late.

Retailers like WMT-N and TGT-N with Trump's import policies. Will Trump do something drastic about imports from the East? If he does then Walmart's and Target’s margins will shrink. Amazon has eaten the lunch of the retail industry and it is not stopping any time soon. He is reluctant to get anywhere near the big retailers until we see exactly what Trump will do.

Over concentrating in financials. If you are not diversified you are taking risk. The Canadian financials are a tremendous sector. It is an oligopoly. If they do go down, however, they will all do so in concert. He limits himself to no more than 20% of a portfolio in any one sector. He likes Utilities, Telephones, Pipelines and REITs as they are nice diversifiers away from the banks.

Market. As the US bond yields moved up, people have moved into more cyclical pro-growth sectors. He started looking at energy last year when prices were going down. Any time he sees an area out of favour or depressed, he starts to do his homework. Oil prices have moved up significantly, but some of the Canadian producers’ stock prices have not moved a lot. A lot of that is due to a possible border adjustment tax, and what does the Trump administration really mean for the Canadian energy industry. The market has taken a fairly draconian review, and people are selling first and thinking about the real implications later, which is not the right way to think about it. The comments in the last few days suggest that the outlook for the Canadian industry and the US need for energy and dependence on Canadian oil, particularly heavy oil, is quite high and they want a constructive relationship. He is also starting to look at some of the beat-up names in healthcare.

Market. Earnings have been batting 1000 in the energy sector, but he wants to see this reflected in the stock prices. Six of the energy companies have reported so far. Two are beating expectations for every one that is falling short, but they are all coming in better than expected, however the sector has fallen out of favour. That reflects investors increasing concerns about a warm winter, continental energy flows and a generally oversupplied natural gas market. To top it all off, there are concerns about possible border taxes.

TFSA or RRSP? Given the tax treatment, he would put more conservative holdings in the RRSP and the more aggressive names in the TFSA.

REITs? The long running rally in the bond market of 5+ years came to an end late last summer. With that, he expects to see the demise of all the bond proxy trades that are in the equity market, such as REITs, pipelines, utilities, telecoms and all the plays in the market where people were clamouring for yield because there was no alternative.

Base metals? Most of the industrial metals are very strong, which is not surprising given his thoughts on the global economy coming out of the slump in 2016. We are seeing better industrial demand in China and some of the Purchasing Manager Indices ticking up consistently over the last 3-6 months. Also, there is high hope for big infrastructure build in the US. In addition, there has been some supply outages in copper in some of the largest mines in the world.

Market. A new bull market was started in 2013 and we have lived through the 1^st major correction of a long-term bull market that ended in February 2016. Since February, economic data, price behaviour in the market and leadership has slowly been improving. We made new all-time highs in July in the S&P 500. Cyclicals that are leading the market, started to lead in June signalling a transition from a market driven by interest rates, to one driven by earnings. The groups that have been leading since then are the groups that led through the election period. Then we made new all-time highs again over the last few days. The market is showing steady improvement, and there is no deterioration. Earnings growth is coming in a little ahead of expectations. In a strengthening market, you always want to look for low correlations, i.e. stocks that are not behaving like one another. That is very healthy in a market. There is no bear market or major correction in history that happened while breadth was expanding. The simplest way to determine what type of market you are in is to look at the way the market reacts to news. If a market can handle bad news and rally, don’t fight it.

Diversified investing? Looking at a fully invested equity portfolio of 20 to 40 securities, he starts with a 2%-2.5% weighting. A full weighting is 5%. If he had 20 positions, it would be about 5% weight. He picks companies, not size. Prefers an equal weight portfolio, but you want representation from different types of companies, i.e. different industries, different market sizes.