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

Believes energy the most under valued sector in the market. 
Important to value individual stocks, rather than worrying about macro issues. 
Company fundamentals more important than inflation/interest rates concerns. 
Opportunities in tech with recent market sell off.
Investors must be careful when buying, even at the bottom of the market.
Investors willing to put in the work to uncover cash generating stocks - will be rewarded. 
Utility sector presenting good buying opportunities with rising interest rates (recent selloff). 

Investing Behavioral Biases: Cognitive & Emotional. To simplify the classifications, a cognitive error can be defined as an information processing error (statistical and/or memory). It is often the result of faulty reasoning. Conversely, emotional biases are much harder to correct because they stem from impulse and/or intuition. Often an investor needs to first recognize these issues, then find a way to minimize the effects. One cognitive bias I see every day in the financial world is called anchoring bias or the anchoring effect. Anchoring bias can be defined as "relying too heavily on an initial piece of information offered when making decisions".
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It's a plus that the Fed has come out to say they are data-dependent, because the Fed is no longer behind inflation, but we're still at the mercy of the market saying, Maybe Powell has more rates to come.

Expecting 2023 to be a better year for investors. 
Believes US Fed will slow down interest rate hikes.
Looking forward, economy is getting better.
GM sales up 50% from Q4 last year.
Chip shortage ending. 
Inflation pressures will be offset by economic recovery. 
China re-opening, and economy picking up. 
Good companies will make money in any market. 

Exponential Growth for Stocks and Companies. To tie the concept of compounding returns, and exponential growth into a business and the performance of a stock - we can look to Amazon as a prime example. The way that companies and businesses operate can be very similar to that of an individual investor; they take earnings made during the year and reinvest them back into the company so as to generate compounding returns. A company reinvesting its earnings is essentially performing the same compounding wealth effect that individuals are when saving for retirement or just in general. The chart on the left might give an investor pause as the price momentum may seem ‘unsustainable’, however, the chart on the right shows a business that is growing at a good pace and likely earning a return on its reinvested capital. Both charts are Amazon’s price history since inception - the chart on the left is linear and the right is logarithmic.
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We just had such a bad year last year. Bonds going down and stocks going down was a once-in-a-century event. Statistically, it's highly unlikely that will happen again. We're having a bounce off of that. He's in the camp that's saying this is a relief rally. He wants to see earnings move through the economy. Last year, we had a really expensive market with low interest rates, and that stuffing has come out of valuations. Next move is all of this cost pressure and the economy slowing has to go through earnings, and that's going to take 12 months to see. Will take a couple of years to play through profit margins across North America. Almost like a slow motion correction. He's still invested, but very particular about what he owns. He's being cautious, patient. 

There have been no big credit events yet. Corporations don't have to pay the higher interest payments right away. They have to wait for a bond to mature and see what rate it's going to roll over to, and that takes time. Interest rates have gotten into the mid-zone of 4-5%, and we have to see how that affects profit margins in all these different industries. Each market has its own dynamics. What's different this time is the incredibly low unemployment rate. We're just coming off Covid, our largest economic and social experiment in human history, as the last time this happened we had 1B people, but now we have 8B.

Do I wait for a low probability of that? It doesn't mean it doesn't happen, and it would be nice not to own things on that day. He's trying to structure the portfolio right now to solve that problem. Maybe we do have a real recession and they can't lower interest rates for all sorts of reasons and the stock market suffers again. If we have this slow motion correction over 2-3 years, can you own the stocks in your portfolio? You need to focus on how much income is a company producing? With a stable, income-producing business, you can capture that income and compound it through this market. Whereas with a biotech company, if the stock goes down, you just have less money. This year, he's building defensiveness into his strategy.

Since everyone now has a cell phone, the options industry has exploded. He doesn't do it. He runs a long-only, pension-type strategy. His focus is bringing stability to investments.

Half his portfolio is comprised of growers. But the other half is made up of more static businesses. Just as you own the corner store and it's profitable, it doesn't mean you need to open more stores. If it makes money, you can go do something extra with that free cashflow. And it always depends on what you're paying. If you're paying for growth, and you don't get growth, like AAPL or MSFT whose earnings have come off but are still expensive, that's not good. Whereas with other companies that are not pursuing growth, he can double his money very simply over the years without taking on that risk.

The long-term investor wants to own equities. It's well-established that equities outperform fixed income over the long term for the simple reason that equities have the unique ability to increase their earnings. Invest in equities for at least, by default, 5-10 years. The value of equities can fluctuate wildly in the short term. Have the mindset that this is a 5-10 year proposition. High-quality leaders and management of companies are not thinking next week, month, or quarter. They should be thinking 5-10 years down the road. Think as if you own the entire company, or at least a portion of it, which you do. Short-term things that are beyond your control are secondary to the operating and functioning of the business.

He groups the 29 business that he owns into a weighted grouping. Then he does a report twice a year to show the average ROC, growth in earnings, or debt/equity. It's difficult at the granular level to appreciate one business, so an aggregate assessment can help. Focus first on ROIC. Growth in earnings should be strong. You want debt/equity to be low.

Tech stocks are, by definition, long-duration investments. That is, investors are looking to receive cashflows 5-10-15 years down the road. Versus, for example, resource companies where the visibility might be only 5-10 years down the road. For long-duration assets, the present value is more at the whim of interest rates. Rates are probably close to plateauing. With rapidly rising rates, tech stocks were punished by short-term thinking. Flipside has happened. Rates might start going down later this year, and this benefits companies that rely on debt to finance. These stocks probably went too far to the downside, and now the rebound is due to the perception of where rates are headed.

He favours founder-run, founder-owned. Management has skin in the game. High, consistent ROIC of over 20%. Ability to reinvest cashflows and earn a high rate of return. Looks for the "hockey stick" true compounding of value. The conviction levels for stock weightings in his portfolio are 1, 3, 5, or 10%.