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

Markets. A 5-point checklist that investors should be thinking about right now. 1.) Don’t Sell stocks just because the price has gone down. 2.) It is important to be diversified. (He likes to own 25-30 of the best companies in industries that he wants to be in.) 3.) Focus on Buy, Hold and Monitor. 4.) Choose products that people use every day. (It gives comfort and a margin of safety when there is a market correction.) 5.) Have 5 or 6 stocks that are ready to go. (He is always researching new ideas and for valuations (not price) that is he is hoping for.)

Canadian banks. Which one? Banks are incredibly cheap in Canada and earning a great return on capital right now. A lot of them raised their dividend. Oil/gas exposure is not a problem. The housing market is not an issue and their mortgages are guaranteed by CMHC in any case. He likes Toronto Dominion (TD-T), National (NA-T), Bank of Nova Scotia (BNS-T) and Royal (RY-T). He would pick one or 2 of these names and hold them for the long-term.

Markets. The action in the last month or so is an inherently healthy process. Bull markets really do climb a wall of fear, and while the US market has been strong for a couple of years, it really hasn’t had any fear to counterbalance it. The playbook that central banks have is to flood the system with liquidity, and that just means the market continues on for another couple of years very, very strong. He has been very, very light on energy, and almost entirely absent on resources.

Currencies. The majority of the damage has been done to the loonie. It is going to be a while before the Cdn$ recovers. Thinks we will see a $.70 dollar, before we see a $.80 dollar. We are the only normal petrocurrency globally, the only country producing oil and has a currency worth talking about. Unless you think oil is going back to $70, our dollar is not going back to parity.

Markets. Recently visited Calgary and found the mood was very pessimistic. Lots of companies cutting back and laying off staff, and trying to rationalize costs. Feels we are close to bottoming which is a good sign. Lots of people laid off, mood was very grim,. Housing hasn't been very impacted very much. Restaurants aren't very busy. Not great in Calgary.

Supply/Demand in the US. Inventory numbers are higher than expected. IEA showing that Q2 was the highest, oversupplied period that we had, over 3 million barrels in supply, but now we are getting closer to the 1.5 million dollar supply level. The good thing is that the US is finally pulling back in producing. Feels we are past the worst part of the oversupply situation.

How to pick the right companies in the energy sector? Recommends modelling them and looking at the commodity price. Look at their net-backs, their operation margins. Look at their cash flow and see if they are able to meet all the obligations for that cash flow. Look at that stress test to help determine how they are able to meet that stress in different environments. Look at their debt level and credit level.

Market. The market is throwing the baby out with the bathwater now, and this is where you get the chance to pick up some great quality companies, that have been oversold.

Markets. We haven’t seen a correction since 2008, and we are finally in one. The market is just adjusting to new levels. Every day investors are being buffeted by news, whether it is Europe, the slowdown in China, Canadian energy pressure, and even fears about possible interest rate hikes in the US. This comes at a period when valuations were getting a little bit stretched. We are seeing adjustments, and adjustments are never smooth. Thinks we could be in this period for a little while. In this sort of environment, he is picking up companies that he already owns or would like to own, with a predetermined price he has in mind to either initiate or nibble away at a position. This is a real opportunistic market, and a time when you should be positioning portfolios for the next 3-5 years. He has small positions in both energy and mining.

Markets. She finds this correction no different than most corrections. This cycle is obviously different than previous ones in the sense that it is much shallower and the growth is much slower, but the stock market is going to reflect that. Historically in the cycle you buy defensive names, and you slowly rotate into more cyclical names. She is not 100% sure this is the kind of cycle we are going to have this time, but other than that the market is flowing around, not unlike others cycles. Because it is such a slow growth cycle, it will be reflected in what kind of stocks do well. China problems are a big part of why we are having this correction. She is pretty much ignoring and not investing in energy and mining.

Canadian Banks? Earnings were better than what she had expected. The reality is that US investors are basically Shorting our banks, which is why they can’t get any love. The Shorting has been great for them. They made a lot of money on the currency if not necessarily on the banks. Fears about exposure to the oil industry, the possible collapsing of the Toronto and Vancouver real estate market; all of those things are why the US investors are Shorting. As long as they continue to insist on Shorting them, she would stay away.

Gold. This has been under pressure because it trades off the US$, and the strong US$ has made gold less attractive. It is not a bad counter trade against the equities in the last little while. On very weak equity days, gold has been strong. (She has a little bit of Detour Gold (DGC-T).)

Markets. Last Monday we had a flash crash. Quality stocks that should not have had that kind of volatility in some cases had no bid. You will have these periods during high panic. We had an 18% world correction since the highs. He was looking for 10-15%. Effectively we are in a bit of a bear market. He thinks this will play out over a number of months. We have had effectively 0% interest rates for 7 years and barely eked out 2% growth. The economy is not healthy. He thinks they will raise interest rates and then find they have to cut again.

The S&P is about 60% of the Dow in Market Cap. The S&P is more diversified, however. The Dow has been underperforming because it has less tech and biotech.

Educational Segment. Fees Related to ETFs and their Impact on Returns. Regulations regarding performance require you publish the gross of fee returns to the public. This is because there are various fee classes. You have to back out fees to see what you are actually paying. iShares is about 54%, BMO 27%, and Vanguard is 7% of the ETF market. He mentions the ones that are 80% of the market more often. He has a bias towards BMO, however because he prefers the way they do covered calls, for example. He prefers equal weights to market weights. MERs are not the whole story. There are cost of trade, acquisition cost (spread), and tracking error as well, which all impact your actual returns.