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

Portfolio Risk Management Strategies. Proper Position Sizing. There is no right or wrong number of stocks that an investor should hold in one’s portfolio, however, many studies have shown that a portfolio with 20 or more stocks helps to remove company-specific risk from a portfolio. To use an example, at the extreme end, a portfolio with only one stock will be severely exposed to the individual risks of that company, whereas an investor that increases the number of stocks in a portfolio will reduce the individual risks from the underlying companies. The investor is then theoretically only left with the risks of the broader market (interest rates, inflation, recession, etc.). There is also a risk of over-diversifying, where too many individual stocks will begin to erode one’s ability for higher returns. 
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After the initial 3-day reaction, the market reversed itself the following month 7 out of 8 times.

Two words: moral hazard. Not good. Banks operate in the private sector and earn profits for their shareholders. They operate under a social and regulatory license to provide safe and stable banking. They should be able to do that without the government backstopping depositors. Otherwise, it encourages undue risk-taking. Regulators do whatever it takes to shore up confidence in the banking system, but you wouldn't want to see a habit being made of it.

For banks, the #1 assets on their balance sheets are the goodwill and trust they have with their customers. If they lose that, they can't continue to operate even for a single day, as SVB and Signature found out the hard way. When a bank experiences a liquidity issue, there are measures that regulators can and should take to alleviate that short-term stress. But if there's a solvency issue, that's another matter altogether. 

Yes. Increasingly, little banks and credit unions can't compete with the technology required. But huge mega-cap, global, systemically important banks can. That's why the big banks are getting bigger and the small ones are losing market share. The tremendous profits that the banks earn are the price we pay for a more stable and secure banking system, which is an important pillar for the economy to grow and flourish. We're quite fortunate that Canadian banking has a model for the world to emulate. Our banks have better management, better competitive positions, and better government regulation than both the US and European banks.

They remain too rosy, shaking off economic headwinds. History shows that banking tremors can create credit contraction, which ripples through and has a slowing effect on the real economy.

Be mindful of the environment you're operating in. There are times in market conditions where a rising tide lifts all boats, but this is not one of them. Don't stick your neck out and buy a stock with a chart like a ski slope, and 15-16 Holds or Sells and one very lonely Buy. You can like a stock, but you have to be macro-savvy and pay attention to the environment.

Don't worry about getting back to your original share count. You may have fewer shares, but each is trading at a higher price. Sometimes companies do this because it's a reputational embarrassment to have a stock price below $1. Instead, pay attention to the overall dollar amount of your position. 

His firm has names on a watch list. When the market starts to turn around and macro economic indicators turn more constructive, probably later this year, they'll unemotionally jettison some of the more defensive names in favour of more pro-cyclical exposure. 

Everywhere you look, there are lemons. He likes to invest in companies that are taking those lemons and making lemonade. A good example is the omnipresent need for cybersecurity.

Capital markets don't like to see that too often, that transfer of moral hazards. You'll be OK if you do well, and you'll still be OK if you don't. He'd like to see maybe more banks at the margin be allowed to fail, which has not happened in recent times. These decisions take away the whole incentive. Money managers are measured on did you do what someone in your position should have the knowledge and experience to do? It's obvious that this wasn't always the case with management of some of the banks that went down last week. They're probably afraid of something similar to what happened with the S&L crisis in the 1980s. 

We'll see what happens this afternoon. They might have more insight than outsiders in terms of where the problem children are. If there are too many, it may cause them to pause. If it's not looking that detrimental, then maybe we will have that quarter point raise. It's really at the margin as to which way it's going to go.

He's never seen an instance of rates going up by a significant amount where you don't see some business failures along the way. We've just been through a surreal period of very inexpensive debt, which caused businesses and governments to binge. Looking forward to next year, interest on Canadian debt will hit $40B or so, that's quite frightening. 

Fed Reserve always says they're data driven, but there's a lag effect of 6-12 months for the real effects to set in. We're not out of the woods yet. Going to see some choppy markets, which will put much more emphasis on value stocks and those that are in a strong financial position.