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A Comment -- General Comments From an Expert (A Commentary)
COMMENT
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Investing Green Flag: The Idea of Value Creation. Value creation can be roughly defined as the idea of adding significant value to the economy in a way that ignores short-term profit-oriented thinking and strives towards achieving success through a long-term vision and increasing the number of benefits to the greater population. In this sense, it is really the opposite of value extraction. We think that both investors and companies that look to achieve a value-creation philosophy can both refine their own beliefs and add value for themselves and others. This gets us to the ‘trickle-down' effect part of value creation, whereby if a company prioritizes adding value to the greater population rather than maximizing short-term profits, then the long-term benefits of this value creation can trickle-down to its investors and others. The impacts of this trickle-down effect can be much greater than the short-term benefits of a value extraction model. Unlock Premium - Try 5i Free
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Premium contentCOMMENT
COMMENT
2023 vs. 2022 Great for most investors to flip the page. 2022 was a perfect storm with the war in Europe, hawkish central banks, soaring inflation, and zero Covid policy in China. Many of these elements will recede in 2023. Inflation, the market's main concern, has really been cooling over the last several months. From here, hopefully central banks around the world will pause the rate hiking cycle into the later part of this year. The economic reopening of China is huge in terms of consumer spending. We've already seen that this year, with travel and leisure stocks moving higher. It should be a pretty constructive year for equities. Going back to 1950, whenever there was a down year in the S&P 500, the next year was positive 80% of the time with an average return of 15%. Plus, we're into the third year of a presidential cycle, another positive statistic with a nearly 90% win averaging a 16.8% return.
COMMENT
Markets ahead. Certainly, there can be more bumps down the road. But it's important for market participants to start to look forward 6-12 months out to understand where the economy will be at that point. With inflation cooling, interest rates pausing, China reopening, he thinks there can be some positive numbers coming out of the markets later this year.
COMMENT
Will the beginning of the next presidential election cycle later this year cast a shadow over markets? Not sure. Stats show that the third year of the presidential cycle is the best, and the fourth year isn't too bad either. There will be volatility and bumps along the road. If there's no recession or a soft one, maybe the markets oversold last year and there's an opportunity going forward. Instead of growth, he prefers the value side, which has been outperforming since late 2021. That's why the S&P 500 Equal Weight Index is performing well relative to the S&P 500 Index.
COMMENT
COMMENT
Dividends and tech names. When looking at tech, he's always said you don't want names with high dividends, as those companies should be reinvesting in their business because they have such a high growth rate. But the environment has shifted, interest rates are going higher. So you want to be a bit more cautious on long-duration assets like growth and technology. Overall in the tech market, you're still paying about 5-6x price to sales, not cheap. He'd be careful of the space at this point. Leadership names are great long-term names.
COMMENT
Interest rates. There is a prospect of a slower pace of rate increases. The Fed is talking tough, which is in their interest. They have to use moral suasion to best effect. The bond market is much more dovish, signalling perhaps a rate cut late this year. No doubt that we're at the tail end of rate increases. Inflation is falling, and we're seeing marked improvement in the inflationary background. In the first 6 months of 2023, we'll see that annual number drop dramatically because we'll roll over some of the big monthly increases we had in 2022. That's very good.
COMMENT
COMMENT
Back-to-back down years. Rare. Only 4 times in history have we had this. He has a value-add philosophy. You want to do better regardless of the environment presented to you. 2022 was decidedly poor around the world, and his goal was just to do better than that average. He had a tremendous value-add year. Canadian portfolio was up for the year. 2023 has promise.
COMMENT
Oil and the bear market. US market is still about 10% below what it needs to exit a bear market. He finds that once we go into a bear market, people are still talking about it a year later, even though we've exited it. 15 of the largest 23 world markets are in a bull market. Many countries are in bull markets, and that will sneak up on a lot of people. Oil market has great promise.
COMMENT
Target prices. He doesn't set target prices, as they lead you to ignore everything else in the environment. When things change, your view of a company should change. For example, macro issues, political issues, health of the world economy, China reopening. You should start every day looking at a company with fresh eyes and deciding whether you want to own it going into the future. Part of this is through peer group analysis.
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