Home

  • Annual Portfolio Review – 2025

    In this edition, I’ll walk through how the portfolio performed in 2025, what worked (and what didn’t), and how I’m thinking about positioning the portfolio going forward.

    How Did the Portfolio Do?

    In real Canadian dollars, the portfolio gained 23.1%, which is a very strong result—especially since this figure includes currency losses.

    For investment measurement, I typically add back currency effects to isolate true investment performance. After adjusting for currency, the portfolio returned 26.2%. The goal here is to measure stock performance, not currency speculation.

    For comparison:

    • S&P 500: 16.39%
    • RSP (Equal-Weight S&P 500): 11.2%
    • TSX: 28.25%

    More importantly, the average small investor likely earned only mid-single-digit returns. If you’ve done better than that, you’re already ahead of the pack.  If you only had Market Index ETFs, then you also did really well again this year.

    Overall, I’m very happy with this year’s results. Beating the S&P 500—my primary benchmark by almost 10 points —is a really big win. Only the quirky TSX managed to do better, and that index remains heavily driven by gold and resource stocks, which brings higher risks.

    How Did I Do It?

    As many of you know, I deliberately reduced exposure to the most expensive and risky areas of the market starting last year. That decision led to some underperformance in 2024 – exactly as expected.

    Going into 2025, I assumed similar results, since the strategy didn’t change much. Hoping for a sector rotation away from the perennial winners.

    The core approach:

    • Avoid over-valued technology stocks
    • Overweight energy, healthcare, utilities, and consumer staples
    • Increase international and Canadian exposure
    • Reduce U.S. exposure

    This was one of the largest deviations from the S&P 500 I’ve ever made.

    So… Did the Strategy Work?

    Yes and no.

    Once again, communication services and information technology were the biggest winners in 2025 – something I did not expect, especially after 2024.

    That said, the market had much more breadth this year. More sectors participated, and international stocks significantly outperformed. Even though I got a few macro calls wrong, a lot of individual stock picks went very right, some related to the AI theme, some not.

    Some highlights:

    • Cameco: +81% YTD
    • Google: +65%
    • Alibaba: +74%
    • Shopify: +50%
    • ASML: +54%
    • BNPQY: +54%
    • GE Vernova: +101%
    • TSM: +52%
    • Barclays: +92%
    • GE: +87%
    • CVS: +77%

    Ironically, a portfolio with only half the technology exposure of the market ended up hugely outperforming—in my opinion, largely due to luck.

    Yes, moving into grocery stores, unloved healthcare, and utilities helped reduce risk. But that’s not where my gains came from. The biggest winners were the ones no one expected.

    These less obvious ones include: Cameco (Energy) miner of Uranium, BNPQY (Financials) a European bank and CVS (health) a boring pharmacy all big winners. I certainly didn’t predict those.

    You Make Your Own Luck (At Least Partly)

    Many of these big winners were purchased years ago, often when they were deeply out of favour. Their true returns are in some cases actually multiples of what you see up above for this year.

    This reflects one of my consistent themes:
    Buy what’s out of favour.

    • China was “uninvestable” → I bought Alibaba
    • Google was “dead because of AI” → I bought Google
    • European banks were “dead money” → I bought BNPQY

    Not every market narrative is wrong—but many are. And when the market convinces itself it knows the future with certainty, opportunity usually appears.

    Recently, I’ve sold large portions of several big winners and reinvested back into more under-appreciated names. While many investors like to “let winners run,” I often prefer to harvest those gains to reduce risk.

    What goes up can come down just as fast.

    The Two Kinds of Luck

    Not everything worked.

    • NVO: –40%
    • CSU: –25%
    • LMN.V: –33%

    Every portfolio has losers. In fact, it’s normal to have more losing positions than winning ones.  

    The difference?

    • Winners can grow infinitely
    • Losers can only go to zero
    • Losers are not necessarily bad choices, the market for whatever reason simply did not agree with you and next, year things could reverse.

    Bad luck happens every year. In 2025, good luck simply outweighed the bad.

    As I’ve said before, investing involves far more randomness than most people care to admit. Sometimes it’s better to be lucky than smart.

    This year, I was very lucky.

    Looking Ahead: What About Next Year?

    My expectation:

    • More volatility in 2026
    • Possibly a moderately lower return year after three strong ones.  But we should remember that the market goes up far more often than down.

    Market risk will remain elevated due to expensive indexes. At the same time, rising government spending—especially in the U.S.—makes a deep recession less likely.

    So that’s just a guess—and not worth much—but it’s a probabilistic risk worth acknowledging.

    2026 Strategy: Same as It Ever Was

    No major changes planned.

    • Minimal trading
    • Opportunistic stock selection
    • Continued focus on risk reduction

    I dislike frequent changes. Investing should be boring.

    I only make major moves when the market is doing something truly stupid. As prices rise quickly, so does risk—even when things feel great.

    The goal isn’t to make money quickly. It’s to keep compounding year after year.

    When the next drawdown comes—and it will—I want to avoid chasing the same crowded, expensive trades over the cliff. Almost all stocks are correlated in a downturn and although it feels bad, there is nothing worse than permanently destroying your capital with speculative or expensive positions – this is the true danger. Avoiding big mistakes matters more than chasing big gains.

    Marc’s Monthly Moves

    Sold

    • ADM (tax-loss harvesting)

    Bought

    • NOMAD – European food company
    • FISV – Added to existing position

    2025 Performance Summary

    • Portfolio Return: +23.1% (including currency impact)
    • Portfolio Return: +26.2% (excluding currency impact)
    • S&P 500: +16.39%
    • RSP Equal-Weight S&P 500: +11.2%
    • TSX: +28.25%

    The portfolio outperformed the S&P 500 by 9.81 percentage points.

    How did you do? If you got this far, feel free to post your returns by leaving a comment. I know at least one person who beat me this year.

    , , , , ,

  • Investing in AI: Navigating Risks and Rewards

    In this Newsletter, I will share my approach to investing in AI, its risks, its rewards and what history teaches us about innovation and more importantly how not to lose money at it.

    AI is pretty cool, it might change everything or at least some things for sure. Its already happening, every time I google something I get a value added Gemini response that is impressive, at least most of the time.  I am sure that in many industries the effect will be a game changer, either by cutting costs or by discovering new products.  

    For the small investor, these kind of changes are pretty exciting, a bit scary but also an investment opportunity. From an economics point of view, innovation is all part of the building and destruction of capital markets.  Old industries die, new ones replace them.  Its a normal process except that from time to time new technologies do come sweeping in and accelerate the process.  Historically we have seen this with the railroads, the automobile, and more recently with computers and the internet.  Following these changes, there is usually an expansion of GDP in the following years and everyone wins.  This is good for investors generally but you must also take into account the destruction.  The horse buggy companies can attest to that. 

    Back To The Future

    Its early yet for AI, yet everyone is making bets on the future.  The future for the most part will be different than what is being dreamed up now, always is. Some things will be disrupted for sure, but most of the future is still unknown.  So investing is tricky. Try to think back to the early days of the internet, which company made the money? Hard to answer because in reality, everyone did.  Change is constant given enough time. Of the top ten companies in 1999 at the apex of the internet age, only Microsoft remains today.  Every other company has fallen back, remember Nokia?  In 25 years from now the top ten will be mostly composed of different companies again.  That is the way of capital markets, destruction and creation.

    At the moment there are allot of bad assumptions being made in the market. Google is a perfect example, early in the year it was suggested that AI would kill Google’s search revenue and that it would be in big trouble, so they said.  I bought google at this point knowing that no one knew for sure how this would play out.  Google was an affordable and strong business with increasing revenues and profits.  In addition, it had other revenue streams and was building its own AI. Google is up over 90% since those summer lows as its now a leader in AI. Did i know for sure that this would happen? No.  But i have seen this before, irrational fear based on little information creating mis-pricing. 

    Software Companies Are Done

    Similarly the market has been really hard on software stocks in general, as again, these are going to be replaced by AI or are they?  AI can code, so why buy accounting software when you can make your own.  The problem with that idea is that companies are already busy doing what they do best.  Is it really reasonable to think that they will be creating their own programs to do their accounting? Making updates, integration, making sure its right, doing year end reports?  Likely not.  My guess is that accounting companies will still be needed but will likely need less programmers as one person will be able to do the work of 4. Geez maybe the accounting company will make more money now that they have less people on the payroll.  So you see, its tricky when it comes to predicting the future.

    All my software companies in the hobby portfolio have been under pressure. There could be opportunity here and as a result I have been buying more on new lows.

    Show Me The Money!

    Big companies are pretty convinced that investing all their resources into AI is worth the risk.  Those big heads running those companies (you know who they are) are betting big, so there is surely something to be said here.

    Will these first companies in AI all be winners? What about after AI is built, who makes the money then? More importantly will all that investment provide an outsize return for those shareholders?  Or will some other company just step in after its all developed and do it better? Will AI cure cancer allowing for biotechs to be the big winner? Or like the internet, will we all be winners? This is the problem when it comes to innovation, no one knows for sure what the future will look like.  Apple did not invent the smart phone, but yet it makes the majority of world’s smart phone profits, who knew?

    How Am I Playing AI?

    I normally do not like to chase the latest shinny thing as prices tend to be expensive and any fumble causes massive repricing to the negative. I have successfully followed the herd and made lots of money in the past, but I have also lost lots of money.  So you have to be careful especially if you are getting in later in the momentum cycle.  Some examples of things not playing out on momentum are dot.com stocks in year 2000, Cannabis in Canada, 3D printing, housing in 2008.  Nevertheless, momentum investing can work until of course it no longer works. That being said, although I have not explicitly invested in AI, I am still a player, and so likely are you.  In my portfolio, which is a heavily diversified, i just happened to own Google, ASML, TSM and Amazon, most of these I have owned for years.  

    Amazon for example is building and integrating AI and robotics directly into operations to become even more efficient/profitable.  On the picks and shovel level (supporting AIs need for power and other things) I also happen to own oversized positions in the Energy sector like Cameco, Fortis and Tourmalene. These were strong positions even before the discovery of AIs thirst for energy. AI spans many sectors one way or the other so, a well diversified portfolio should benefit.

    Should You Invest Directly In AI?

    As mentioned, you may already be invested indirectly. I have no issues with holding small  positions of NVDIA or other big players as long as you understand that their values are constantly being repriced as their futures keep being redefined.  So go ahead and chase the shiny thing with the rest of the lemmings.  But if you and everyone else are wrong and you pay too much, you might fall off the cliff (as lemmings tend to do).  But it could also be an extraordinary bet. So having some measured exposure in a well diversified portfolio is quite fine.  

    But What About The AI Bubble?

    My experience with bubbles is that if the market as a whole is scared of a bubble and everyone keeps talking about it, its risk are likely already priced into the stocks.  I would worry more about the things no one is talking about like a confidence run on the US dollar, US debt, runaway inflation or Aliens?   We can also at any point fall into a recession (unlikely but possible) or have a 50% market drawdown for little reason other than sentiment. But how are those risks different than any other day. I am not too worried about a specific AI bubble at this time.  I think the risk in tech as a whole is increasing and one day there could be trouble but not for the next little while.

    Marc’s Market Outlook

    As you recall last months Newsletter, I have been lowering my risk by shaving or selling big winners so as to buy more stable boring positions.  The strategy here is to slow the boat down, keep my huge over performance gains relative to the market. I have deviated quite considerably from the SP500 index.  I have 3x the Energy Sector weighting, almost 3x the utilities weighting, almost 2x the Consumer Staples weighting and about 40% more than the Health sector weighting.  Most importantly I have about half of the Information Technology weighting which is by far the biggest and most influential Sector of the index.

    My view is that US market especially Information Technology is really priced for perfection, read expensive.  On top of that, this sector is being influenced by the AI theme, so any changes in that narrative can lead to allot of volatility which can reach well beyond just the Tech sector.

    Everything else in the market is relatively cheap, especially foreign stocks, any quality boring company, small caps, everything but US tech. My strategy is to stick to quality boring companies but still participate in AI with just one direct and a few indirect positions.  If AI companies keep growing, I participate, if they create something incredible but never make money, well it does not hurt too much. 

    Marc’s Monthly Moves

    • Sold
    • Nada..nothing
    • Bought
    • Fiserv Inc (FISV)

    Marc’s Portfolio YTD Performance

    • Portfolio return: +23.3% (including currency loss)
    • Portfolio return: +25.2% (without currency loss)
    • S&P 500 return: +16.45 %
    • RSP ETF S&P equal weight +9.3% 
    • TSX: +26.91%

    The portfolio is over performing the sp500 by 8.75% points.

    , , , , , , ,

  • Compounding Stock Returns. Is it real?

    In this Newsletter, I will share my personal experience on how compounding allowed me to retire at 48 and proclaim that it is the most powerful force in the universe.  Actually Albert Einstein is credited for saying that, but there is no evidence that he ever did….go figure.

    What is compounding? It’s basically the same as compound interest as most of you may already be familiar with. I know to many it’s maybe a little obvious, but its surprising that some people actually do not know how it actually works or how important it is to investing.

    Simply speaking, it’s the way your investments make a profit one year and those same profits are reinvested for the next year, so profits also make more profits.  In math terms, this creates an exponential curve up instead of a standard straight line. This means faster and more money!

    A simple example borrowed from an old East Indian fable goes this way: You start with one grain of rice on a square of a chess board.  On the next square you double that grain to 2 grains, on the next square you double to 4 grains and so on.  How many people can you feed on the 64th square if you continue compounding at that rate? Well you can feed everyone on earth for a few centuries actually.  Not convinced, try it out.

    Hope you like rice.

    My Real Life Example of Compounding

    Here is a more recent example of the power of compounding.  This true story starts about 12 years ago, when i started my hobby portfolio by commandeering a small amount of my wealth account away from my financial advisor.  It was part of my retirement plan, a new hobby to say.  In those 12 years I have managed to increase that original amount by over 6 times.  I have been lucky in that the market has been strong during this time and I have also been fortunate to beat the market by a little (by average) every year.  I averaged 17% vs 14.5% real return for the sp500  but small amounts matter when compounding.

    How did compounding work before I retired?

    I got to the age of 48 with enough money to retire by mostly; investing in stocks, building a work pension and to a lesser degree investing in real estate. It was definitely a hodgepodge of sources, but primarily driven by work income. 

    In the early years on the investing side, I put two or three thousand dollars away each year and had little to show for the effort,  it was not an obvious compounding story at first glance. I could see why people did not take compounding seriously.  From a math perspective my 3000$ would make lets say 10% per year, if I was lucky, which gave me 3300$. Not really mind blowing is it? The compounding starts when the money you made the first year also contributes to the next year.  So my 3300$ turns into 3630$ after 2 years, if you assume a 10% return.  Still not mind blowing is it?  You have to remember the rice fable, everything takes time.  I continued to add about 3000$ every year from my salary, sometimes more, sometimes less. After a few years the snowball started growing more and more.  Eventually there came a time where I realized that my annual return on my investments surpassed my annual contribution. That is when things became much more interesting. 

    Rule of 72

    Time is the key to compound interest.  Rule of 72 helps me contextualize it to people.  If you return and average of 10% then your doubling period Is about 7 years.  In math terms, its 72 divided by 10 years gives me about 7 years.  So even if you just let your money sit for 7 years returning 10 percent per year, your money will double in year 7.  Let that sink in a bit.  Now 10 percent is the average stock market return, but in the last decade or so, its been even higher so doubling periods have been shorter.

    Back to my real life experience, so as much as I had a rather slow start to investing, it only began to look pretty good as we approached the end of the 90s.  I was averaging way over 20 percent returns as I really got into momentum investing.  That is a doubling period of 3.5 years. Money was being made hand over fist.  I was a stock market genius!  

    That all came to an end in early 2000 with the dot com bubble bursting. It felt like the end of the world. I was no longer a genius as I lost almost every gain I had made during those last couple of years.

    The lesson learned is that the compounding effect gets sometimes run over by external market forces.  The market is not guaranteed and can be quite volatile and you should expect it.  The effect of compounding should be a nice curve up, but in my experience its messy based on the ups and downs of the market.

    The Dotcom bear market lasted a couple of years before bottoming and then started rising again. Then came the great Recession of 2008 and later Covid in 2020. Most people do not realize but the average market return of 10% includes these big drawdowns.

    For the last 15 years or so, the market has been mostly a rocket, with only the already mentioned short Pandemic speed bump. That one was also financially the end of the world…again.

    Retiring early or retiring rich or both is easy at least from a math perspective if you simply keep investing no matter what happens. In reality for most people its not that easy because life can trip you up, there are allot of scary things out there that can convince you to make bad investing decisions or not invest at all. Making sure you achieve market returns is essential to compounding, no matter the investing environment. Even if you achieve lower returns, compounding will still help, it will just take longer.

    So that is the story of how investing and letting compounding do its thing got me to where I am.  Its not pretty and I cannot even tell you what compound rate I achieved in those early years, but it does work out.

    Marc’s lessons in compounding:

    Know it is real and powerful, like a snowball slowly going down a slope and turning into an avalanche.

    Time is the key, starting early makes it easy.  To be clear, start in your twenties or earlier still.

    Achieving market like returns is also very important, think of our doubling period discussion.

    Stay in the market. Timing the market to get in and out, works against you. Few ever get this right.

    Adding to the snowball every year helps especially in the beginning.

    Adding contributions when times are tough is also strategic.

    Take advantage of tax deferred government retirement plans.

    Final Word

    Today, a good year of investing provides more money than I know what to do with as the snowball just keeps rolling and getting bigger. The compounding machine just keeps turning.  Dont get me wrong, there have been a few bad years, but positive years more than make up for these.

    Compounding is definitely a force, may it be with you. (Credit Albert Einstein who also never said this).

    Market Action

    I have been making allot of adjustments to the portfolio in the last 2 months in light of the huge gains that I have made (see buy and sell below). I am always trying to manage risk versus return.  After big gains, you have to ask yourself, what if the market goes down?  Will these big gains hold?  Maybe, but likely not.  So I have been partially selling positions that have had huge gains as well as selling entire positions that I deem too risky then redirecting funds into more boring, more solid positions. 

    The portfolio as a whole has over performed even though it was designed to be much safer than the market.  My assumptions about sector weighting were really good, but mostly I was lucky on many individual stock picks.  Its a weird market and so I continue to trade risk for safety.

    Marc’s Monthly Moves

    • Sold 1/3 of Cameco (CCO), 66%YTD
    • Sold MEG energy, 21% YTD
    • Sold some Berkshire class B (BRK.b), 8.5%YTD
    • Sold some Alibaba (BABA), 105% YTD
    • Sold some shares of Google (GOOG), 35% YTD
    • Sold some Taiwan Semi Conductor (TSM), 52% YTD
    • Sold Intel corp (INTC), 25% YTD…when sold, overall a loser position as I bought too high and sold too soon.
    • Bought Tourmanline (TOU.to)
    • Bought JDcom (JD)
    • Bought more Lumen (LMN.V)
    • Bought more Village Super Market (VLGEA)
    • Bought more Verizon (VZ)
    • Bought more Ingles Markets (IMKTA)
    • Bought more Amazon (AMZN)
    • Bought Elevance Health (ELV)

    Marc’s Portfolio YTD Performance

    • Portfolio return: +22.3% (including currency loss)
    • Portfolio return: +24.1% (without currency loss)
    • S&P 500 return: +15.47 %
    • RSP ETF S&P equal weight +9.15% 
    • TSX: +22.75%

    The portfolio is over performing the sp500 by 8.63% points.

    , , , , , , ,

  • Why is the Market Up?

    In this Newsletter, I will share my thoughts about why the market is up, and what, if anything, we should do about it.  

    In my April Newsletter (apologies for the fact that there was no newsletter in May, June or July!), I set out a series of strategies to buffer against the possibility of a big drawdown in the market.  Well that post did not age well, but it’s still good to keep those strategies handy just in case. That’s the thing with investing; there are so many moving parts influencing the market in various (and sometimes surprising ways) that it’s really difficult predict the future in the short run. 

    The Market Might Stay Up…

    In the long run, statistics show that the market will be up 2 times out of 3 and I try to keep that in mind to temper my worries about the mismanagement of US economic policy. Understanding that the market is forward looking and currently up, perhaps all this tariff drama is not a thing when it comes to stock prices… is that possible?! Alternatively, perhaps this is just an example of an irrational market that is too positive. Nevertheless, investor sentiment seems to remain buy, buy, buy! Economic data, though mixed at this time, is not as bad as everyone predicted and seems to support this positivity to a certain extent. 

    … Or Maybe It Won’t…

    However, economic data tends to lag and it takes a few quarters to determine if an economic contraction is taking place and if company earnings are being affected. I do believe that negative data is on the way and that the risk of a big, prolonged drawdown is still very high, especially knowing that the current US President may be dreaming up new ways to shock the market.  Why would the drama end with the tariffs?

    … Or Maybe It Will…

    On the other hand, governments who like to spend a lot of money tend to be good for the stock market.  So it’s hard to believe that the US could fall into a recession while its spending is set to increase, generating more economic activity.  

    …Or Maybe It Won’t

    But this approach falls apart when prolonged deficit spending creates so much debt that paying the interest on that debt becomes difficult.  At that point, governments need to cut back (and become unpopular) or risk destroying their economy like a third-world country.  Unfortunately there is always incentive to spend government money in order to get re-elected. 

    So The Debt Is a Thing, Right?

    Are we headed toward debt destruction? Yes and No. Debt isn’t a bad thing if it’s managed correctly.  Think of your mortgage, or your car.  These debts create opportunities such as housing your family, getting to your job, etc. It’s all good as long as the dept is affordable. So how much debt is too much for the US economy? That is the big question. No one knows for sure. I’d guess that it’s likely more than people think. There is a limit though, and the higher the debt goes, the more likely it will reach it. It’s like a jack in the box – if you crank it forever, it will eventually pop. The US debt to GDP ratio is ~ 125%. This compares to Canada at ~ 110% and Japan over 200%.  No one seems to be too worried about Japan, so it could be a decade or more before the US debt to GDP ratio becomes a real problem.

    The Market Does Not Seem To Care

    As previously mentioned, the market seems to be unfazed by all the geopolitical risk. It’s getting used to the political madness and discounting the implications, assuming that actions such as tariffs will soon be reversed. This is narrow-minded in my opinion. The party will come to an end sooner or later and as a result, returns over the next few years may become muted. We simply can’t keep averaging 14 % annualized returns (which we have seen over the last 12 years).  An eventual reversion to the mean as it relates to returns is a near certainty.

    Will We See Bad Returns for Years to Come?

    Not necessarily. There is always money to be made somewhere and a good investor needs to keep their options open and consider other markets. It’s a big world out there and not long ago, international markets were competitive with US markets. US exceptionalism is a recent phenomena that is not necessarily here to stay. Innovation may still thrive in the US, but if we are looking for good returns, these may be more easily found in the UK or in the emerging markets. So there is hope for the small investor!

    How Is My Defensive Portfolio Doing?

    It’s been validating to see that the Hobby Portfolio has done super well, even when the market was down earlier in the year. The defensive strategy paid off.  Interestingly, as the market recovered, my lead in the market held, which suggests that the market has rotated a into broader and safer stocks.  This is somewhat surprising considering that big moves up or down tend to be linear – in other words, the stocks that fall are usually the ones that rise the most. Not so much this time.

    Also surprising is in the last 3 months, only Information Technology and Communications Services sectors beat the average 9.66% SP500 return.  Every other sector under performed. 

    Staying the Course

    Because my portfolio is beating the market significantly, I have to be careful not to muck it up by making too many changes. My emotions are making me want to sell all my US positions and reinvest in Canada or abroad, especially as the US dollar keeps slipping.  However, that’s likely not a prudent strategy as the US market will continue to be the dominant country as it relates to world economic activity.  Retreating from that market could severely impact my returns if I am wrong.  

    So diversification is key and that may mean some additional adjustments away from an expensive market to more reasonable priced markets, while maintaining a reasonable presence in the US market. My plan is to sell at least one more US position and repatriate those dollars back to my Canadian accounts. At the moment, US stocks represent ~ 37% of my portfolio, which is much less than the msci world index of 70 % or so.  I will soon hold only half the weight of the world index’s US component. 

    Looking Forward

    As outlined above, the US market could tank due to a prolonged contraction of the economy or it could surge as a result of the big spending bill stimulus.  Over the remainder of the year, maybe we could even see both. The only certainty is that no one knows for sure.  The Hobby Portfolio is ready no matter what happens.  Are you ready?

    The market is always waiting to surprise you.

    Marc’s Monthly Moves

    • Buy Lululemon (LULU)
    • Buy BCE small position
    • Sell AX

    Marc’s Portfolio YTD Performance

    • Portfolio return: +14.7% (including currency loss)
    • Portfolio return: +17.3% (without currency loss)
    • S&P 500 return: +9.66 %
    • RSP ETF S&P equal weight +6.07% 
    • TSX: +12.85%

    The portfolio is over performing the sp500 by 7.64% points.

    , , ,

  • Stock Strategies for an Uncertain Market

    April 2025 Newsletter

    In this Newsletter, I will talk about taking advantage of a big market drawdown, as well as the risks and potential rewards of doing so.  In my last newsletter, I discussed the tariff madness in the market, and the fact that up until that point things were not so bad.  Less than a month later, we have seen some incredible moves down as well as some big moves up.  The S&P500 fell into correction territory at one point, mostly as a result of inconsistent and antiquated US Economic Policy.  

    The market is not happy at this moment. It does not believe what it’s being told by policy makers.  The market is forward looking, always trying to price in all available information.  Right now, it’s attempting to price an uncertain future where corporate earnings are likely to fall, which will inevitably affect stock prices.  It’s so unhappy that in addition to falling stock values, it’s showing other signs of stress such as money flowing out of both US stocks and treasuries.  This does not happen often and some experts are reported saying that policy makers almost broke the world credit system, and that’s why the proposed tariffs were placed on a 90-day pause.

    What will US economic policies look like going forwards? If only I could know the answer to that question! I could surmise that US policy makers tested the upper limits of their tariff strategy and therefore will not go any further. But there is no way to know if that’s true as decisions are not being made based on sound economic approaches.  I can only assume that at the very least, the chaos is likely to continue.

    Time to Set Up the Big Bear Strategy… Just in Case

    Although the market is only down 6%, there are enough uncertainties to warrant this anticipatory approach.

    I don’t get too excited when the market corrects in the 10% area.  Would I rush and buy that Lexus I was eyeing at the dealer on a 10% sale? Probably not. That type of discount is pretty standard. But things become much more interesting if that Lexus sale approaches 20% or more.  This is what my bear strategy is aiming for. I’m looking for market panic… people dumping everything, regardless of the fundamentals.  We clever small investors will seek to sort through and nab the best companies at all time lows. The strategy is a bit scary, but this is where the big money can be made. It’s like a car dealer selling brand new Lexuses at 50% off. 

    What If the Market Does Not Crash?

    There are no certainties; even though things look bad, the market may not crash. Instead, we could see continuous volatility, where the market trades up and down with no clear direction. The resulting malaise could go on for years.  In this case, we will have to pick and choose opportunities as they arise.  This situation is not as easy or as obvious as the big draw down scenario.

    My bear strategy has 3 basic components: a threshold strategy (1- when to buy), which works in tandem with a purchase strategy (2- what to buy), and is then followed up with a funding strategy (3- how to pay).

    The Threshold Strategy 

    Since no one knows how far the market will go down or rebound, the best we can do is to start buying at certain thresholds.  Although arbitrary, these could be -20%, -30% and -40%.  This way you can average into the drawdown no matter when it reverses.  It means you will not make the biggest return, but you will not entirely miss the wave either. If you were to invest 30k during the drawdown, you could buy 10k at the 20% threshold, 10k at the 30%, and so on.  

    The Purchase Strategy 

    There are so many ways to buy down-and-out positions for this strategy. Here are a few approaches, including doing nothing at all (which is also valid).

    1- Buy Oversold Companies

    It’s a pretty simple, approach, but which ones should you buy? The ones that got hit the hardest! Panic selling always goes too far in a particular sector.  If it’s technology for instance, buy technology.  If its communications, mag 7, or energy, that’s what we buy! The caveat here is that companies have to remain viable and unnecessarily cheap.  We are not looking for positions that are distressed in any way other than in price.  These companies have to have a high probability of surviving, and doing well in the future.

    2- Buy Sector ETFs

    Alternatively, we can use the same approach as above except to buy market or sector ETFs.  So if Technology got hammered into oblivion, we can buy a Technology Sector ETF, or even a Nasdaq index ETF.  The advantage here is that it’s easy, safer, and not subject to individual company results.  The downside is that returns may not be as good.

    3 – Buy Options

    I’ve used options in the past with great success.  This is a more advanced approach and not for the faint of heart.  I would buy a deep in the money call option on the market index, which provided me at least double leverage for every move of the index.  This can be done with the S&P500, the Nasdaq, or individual companies.  So if the market bounces back up 25%, our deep in the money call option will bounce 50%.  The risk is that it also works the other way.  If the market loses an additional 10%, then we lose 20%.  There is also a time duration aspect that has to be considered.  

    4 – Do Nothing

    I often promote doing nothing as it’s statistically better when it comes to investing.  There’s nothing wrong with doing nothing, even in a big drawdown.  What would likely happen in my case is that my portfolio would enjoy a much less severe drawdown due to the nature of my defensive positions.  When the market rebounds, my portfolio will rise, but not as much as the index because the market will be led by areas most affected by the drawdown… the same ones I do not own.  My huge lead over the market would narrow quite a bit.  So there is an incentive to become less defensive in order to better ride the market back up. 

    5 – Do Almost Nothing

    A slight variation on doing nothing, is to buy what you already have.  Why not if you thought they were good enough to hold? If any part of your portfolio gets drawn down more than the rest, then it can be rebalanced by selling areas that did well and buying the distressed positions.  They will inevitably go up more when the market rebounds.

    6 – Graze Like a Farm Animal

    Ok, that is an odd title.  The approach here is to be less tied to the overall market.  Like a goat, we can graze our way into new positions as they occur.  The reality is that the market is an average so some stocks will experience huge drawdowns before the main market does.  Thresholds for buying are stock-specific in this case.  This is a more unstructured case-by-case approach, but still very valid.

    The Funding Strategy

    As if buying shares in a massive drawdown isn’t already scary enough, there is another problem: how do you fund them? It’s always better for returns to be fully invested.  So how do you buy new shares of heavily discounted panic sold positions if you have no cash?  

    There are many ways to find new money, like defrauding seniors, which seems to be in right now.  Seriously though, you need to borrow new money (leverage), or rearrange the portfolio by selling positions that did well in order to buy positions that did not.  For example, selling grocery companies to buy beat-up riskier companies.

    Borrowing is easy; most trading accounts allow quite a bit of margin (loan against your portfolio).  This is quite dangerous though, so I usually allow only a 10% margin (i.e. borrow $10k on a $100k portfolio).  This self-imposed limit protects me against “what if I am wrong scenario”.

    I could also take out a mortgage on the house. It’s a viable approach, but also really aggressive.  The “what if I am wrong” scenario tells me not to bet the farm (or house).  That said I am sure this can be done successfully under strict parameters. For example, by investing in really solid positions like Costco, Berkshire, certain banks, etc. In other words, transferring one form of equity to another.  Still not my favourite choice.

    Conclusion

    I’m not saying that there will be a market crash, as these are hard to predict with any accuracy. What I am saying is that the probability of such an event is currently much higher than normal (in my opinion) and as such, it is prudent to think about how we could benefit from such an event. Surprisingly, I have performed much better in these situations than in a normally priced rising market. Given enough time, a big drawdown will certainly occur, but will it be this year or in 5 years? No one knows. But it’s good to be ready either way.

    Marc’s Monthly Moves

    Note: that this month’s buys and sells reflect my continued move away from US positions in favour of international and Canadian stocks.

    Sell

    • Quest Diagnostics Inc. (DGX)
    • Tractor Supply Company (TSCO)

    Buy

    • Franklin FTSE United Kingdom (FLGB – a UK market index ETF)
    • More Telus (T.TO)

    Marc’s Portfolio YTD Performance

    • Portfolio return: 0% (including currency loss)
    • Portfolio return: +3% (without currency loss)
    • S&P 500 return: -6.06 %
    • RSP ETF S&P equal weight -4.44% 
    • TSX: -.07%

    The portfolio is over performing the S&P500 by 9.06% points.

    , ,

  • Tariff Madness

    March 2025 Newsletter

    In this Newsletter, I discuss the tariff madness in the market and why my portfolio is now over-performing.

    The predictions of most Market Analysts regarding the tariff situation were wrong. They doubted that the US would implement tariffs against Canada, Mexico, and China… because why would the US apply tariffs that would ultimately hurt their own economy?! The logic behind the predictions was sound, but politics is not always about logic or making sense.

    I’m not an expert in politics, so I will limit this discussion to what I do know well, such as the effects of market shocks and how to deal with them. I will leave the discussion about the stupid things that politicians do to others.  If you recall, unlike most Analysts, I predicted that the chances of tariffs being implemented was 50/50.  As I previously mentioned, the tariff situation was not game-able; in other words, there was not enough information to make a decent market bet one way or another.

    Now That Tariffs Are In Place, What Does That Mean?

    If left in place over time, these types of economic shocks tend to lower consumption, thereby lowering earnings, stock prices, and even standards of living. However, the effects of tariffs can be mitigated over time as companies find alternatives such as shipping goods to non-tariff countries, to be eventually resold to the USA.  In addition, new markets can be made abroad, consumer behaviours can be changed, and other workarounds happen over time. 

    What About Now?

    It is still early in the year and quite honestly, there has not been any significant stock return damage.  We are still close to all time highs, and only down Year to date by a few points.  There is lots of noise and drama, but market moves like we have seen used to be called “Thursday”.  When new data becomes available in 3-6 months, we might have much bigger market moves.  Alternatively, if tariffs become regarded as just a bad experiment and everything goes back to the way it was, or tariffs are just relaxed a bit, we could see big swings upward.  

    But There Is More

    Even without considering the effects of tariffs, cost cutting by the government (such as the US is doing now) typically isn’t good for the stock market.  This is because cost cutting means removing government stimulus from the economy.

    If you add the shock of tariffs, it’s arguable that North America could be pushed into a recession, or at the very least, a no/low growth scenario which will be doubly bad for stocks. 

    If it is going to be a big down year, then we will see a reversion to the mean on many popular stocks and market sectors.  All those US darlings that have ultra high PE ratios will get hit hard. A rotation into defensive stocks will prevail as well as a flight to fixed income like T-Bills and bonds.  For the first time in years, international stocks will likely (already started) outperform US stocks.

    Effects On My Portfolio

    As many of you know, I have been de-risking my portfolio through diversification, lowering average PE ratios, rotating into defensive sectors, buying unloved sectors, etc. As a result of these changes, my portfolio is over-performing against the S&P500 index by about 7 %. I consider the portfolio closer to an “all-weather portfolio”, as it’s an eclectic combination of equity positions.  It’s not a grouping that you would expect to over-perform by so much in normal times.  

    I was surprised by the volatility of the market and the fact that it gave up all its gains for the year so quickly.  Usually the honeymoon phase for a new president lasts for at least half of his (or her ;)) first year.  I thought that I was going to be at least a year too early with my defensive positions. It’s been very difficult to structure the portfolio in a way that acknowledges the extra market risk while still participating in what was a strong rising market. It’s always a compromise one way or another when investing.  No one can know the future.  Being too defensive (all cash) or too bullish (high tech USA) could devastate your average returns if you lose your bet.  The right answer lies somewhere in between, where the small investor can keep compounding returns safely. 

    How Is The Market Reacting?

    In the last month, the Consumer Staples sector was the best performer, followed by Healthcare, and Real Estate.  The worst sectors were Consumer Discretionary, Communications and Information Technology.  It just so happens that the winning sectors were all overweight within my portfolio.  Similarly, the worst sectors were underweight within my portfolio.  Will this trend continue?  I honestly don’t know, but its nice to see a strategy play out as expected because there were so many possible outcomes.

    What Are Canadian Investors Doing?

    Canadian investors are selling US stocks and either buying Canadian or International stock. Is that a good idea?  Yes and no.  The majority of the world’s value in public companies is dominated by the US at ~ 60+ percent.  To exclude that market from your portfolio is likely a good way to underperform in the long run, as it means the you have less opportunity to find good companies. A counter argument is that US markets have become too expensive and now have become uncertain. 

    What About the American/Canadian Exchange Rates? Should We Be Getting Out/In?

    There’s an argument that the Canadian dollar will fall drastically as a result of the recent tariffs.  But it’s a relative game against the US dollar.  Year-to-date, the Canadian dollar has gained slightly against the US dollar, which isn’t what was expected.  The US dollar is set to experience some volatility, so its difficult to predict where your money is best invested.  I wouldn’t necessarily move all your money back to Canadian denominated stocks.  Diversification is still your friend.  

    What Am I Going To Do Next?  

    1. Prior to the tariff silliness, I was already lowering my exposure to the US market, especially in the expensive sectors. I have dropped my US weighting down to 42% and will drop it below 40% shortly.  This is far below the world average of 60%+.
    2. If you read my last Newsletter, I developed a simple Energy Strategy as a way to lower my overall risk.  The strategy involved being overweight in Energy and underweight in more expensive positions.  Energy is out of favour and may provide some shielding in the event of a big down draft in the market.  I believe that in the long run, it will likely provide some big gains.  See my recent purchase (below) of MEG Energy, a Canadian oil and gas play.  Although not immune to the savagery of the market, MEG is likely to do well in the long run. Oil has fallen below 70$ US per barrel and I am prepared to buy more MEG should prices fall below $60 US per barrel.  I sold KRBN to fund MEG. I still like KRBN but I feel that there is more opportunity for MEG.

    Final Thoughts

    Its getting bumpy so stay diversified; less emphasis on expensive US positions, more emphasis on international stocks, Canadian stocks, and losing sectors like Energy.  

    Elbows up!

    Marc’s Monthly Moves

    Sell

    • KBRN carbon credit ETF (Sold to fund MEG purchase)
    • ISRG (sold because it was expensive and to fund cheaper RMD)

    Buy

    • MEG Energy
    • RMD (makers of CPAP machines)

    Marc’s Portfolio YTD Performance

    • Portfolio return: 3.2% (including currency loss)
    • Portfolio return: 3.5% (without currency loss)
    • S&P 500 return: -3.64%
    • RSP ETF S&P equal weight -.79% 
    • TSX: +.97%

    The portfolio is over performing the S&P500 by 7.14 % points.

    , ,

  • How to Make Money In Energy – Can It Be Done?

    February Newsletter 2025

    Geopolitics is going to make investing much more fun in 2025.  There are so many possible outcomes by year end and no limit in how things could affect your portfolio.  I have been adopting defensive measures for the portfolio for quite a while now.  These include having up to 40 positions, and having significant international and Canadian exposure.  That being said, there are always more tweaks to be made as the market potentially gets nuttier.  

    So, do I think that 2025 will be a down year?  If you read my last Newsletter, you know that it could go either way.  Most analysts are expecting a 10% return for 2025.  It’s my experience that the herd almost always gets it wrong. Coincidently, 10% is roughly the average return of the market over the long run… so analysts are playing safe again or in other words, they have no clue. 

    From a historic perspective, it’s very rare that the market returns a picture perfect 10%; most years are either up big or down big.  Hitting the 10% average is unusual.  In my opinion, it’s going to be either a very big positive or negative year – up or down by 20% or more.  From a portfolio management perspective, I don’t want to miss a big up year, but I also don’t want to destroy my long term capital by being too aggressive.  It’s best to be in stocks, but also be safe.

    Its About Lowering Risk

    With the idea that times will be tricky, I continue to lower the risk in my portfolio (see lots of tweaks in the buy and sell table below).  A good way to do this is to invest in unloved sectors.  They fall in value much less than average should things go bad.  If things turn around, which they eventually do, then you can see some really positive performance.  The problem in this market is that there have been several loser sectors in the last year. Which sectors should you pick? And then, which stocks?

    I am always looking for an angle. You know, the one that no one sees.  The one that can become a big winner out of the blue.  But is there a future winner among all the losers? In 2024 there were several low performing sectors, most notably Energy at 5.7%, Real Estate at 5.2%, Health at 2.6%, and Materials at 0%.  The overall market earned 23%, comparatively. Which loser would be a decent bet? Is there something we can overweight?  Let’s begin.

    • Materials are cyclical and to most analysts, these stocks are in the middle of the cycle.  In other words, they are not a deal yet.  Things can get way worse for this sector.
    • Health is worth an overweight but I have yet to find any bargains.  Give me time.
    • Real Estate is tricky. Although a loser, my current position (CBRE) strongly outperformed last year.  But that means that this stock also got more expensive/riskier.  As a result I traded the position in for a much more affordable one (VICI), a specialty owner of properties in things like gaming. 
    • Energy is much more interesting and is the subject of this Newsletter. It’s comprised of oil, gas, coal, renewables, nuclear, etc. If you have been following this newsletter, you know that I am already overweight in Energy on the nuclear side with Cameco (CCJ).  2024 was not good for the Energy sector, but my CCJ bet returned 20%.  That is a big win on the sector but this success has created a problem.  CCJ blew through the 5% self imposed maximum weighting of my portfolio, so it’s a good time to prune and diversify!

    Marc’s Energy Strategy

    My strategy is to sell some Cameco (CCJ) and diversify into other areas within the Energy sector. I plan to remain overweight based on the assumption that all energy sources will continue to see an increase in demand given enough time.  Specifically, I will invest in Oil and Gas as it’s the most unloved at the moment.  The approach is 2-pronged: 1) invest into a midstream company (pipeline), where dividend returns are the focus; and 2) when the price of oil falls to the bottom of the cycle, invest into a Canadian oil play, which seem to be the most unloved of all.

    The strategy lowers portfolio risk overall by selling off some expensive (riskier) Nuclear stock and buying a boring but dependable pipeline ETF MDST that collects oil transfer fees like a toll booth (expect a 10-12% annual return).  In addition, it takes advantage of the cyclicality of the oil commodity (buy low and sell high).  The other advantage is that these stocks aren’t expensive relative to tech companies, which may crash hard at some point and destroy your future.

    The Problems with My Strategy

    • Diversification could lower returns, especially if you consider that Nuclear could be the best bet (no one really knows one way or another).
    • A pipeline ETF like MDST will likely never be a big winner, just a constant earner, and could pull my average returns down in a good year (but conversely could increase them in a bad year).
    • The ETF also has a MER of 0.8%, which will always be an annoyance and drag on returns.
    • I may have to wait a long time to see oil prices decline enough to take a position on the second prong of my strategy.  When to get in and out is tricky and has potential for fumbles.
    • The Energy sector is small (about 3% of the S&P500), so to get any meaningful effect I need to be overweight quite a bit. Currently, the portfolio is sitting around double (6% Energy weight), which seems right for now.

    What About Renewables?

    Yes, I know they are fashionable. I considered them, but they are generally expensive, and cause brain cancer in whales. That said, they do have good growth.  

    Overall Demand – The Long Run

    I always find the Energy Sector interesting.  Historically, I have not done so well trying to figure out which way oil demand will go.  However, Nuclear is much more game-able when you know that 100 nuclear plants are currently under construction.  I missed the early days of cheap renewables and have never held a position, but I am a big fan of the industry.  I do believe that demand for energy will continue to grow and that is why I am bullish on the entire industry.  Will AI require more power? What about crypto mining?  Maybe, I don’t know. But I do know that there’s a big developing world out there that aspires to increase their standard of living, just like us.  Not unlike all cyclical investing, Energy prices will gyrate up and down over time and for this reason it is necessary to pay attention to the cycle and not pay too much for a position.

    The Short Run

    President Trump has made it clear that he wants the price of oil to fall. He also wants to increase production domestically, which in turn will lower fuel costs and make people happy at the pump.  That’s nice.  The reality is that energy is a function of supply and demand, and willing the price to fall is rather difficult.  Maybe he can coerce OPEC to open the taps? Maybe not?  It’s hard to make a bet on that.  In any event, Energy trends are really hard to determine in the short run.  

    So that concludes Marc’s Energy Strategy. More diversification, being overweight, and trying to time the cycle.

    Bonus Question: What About the Market?

    Everyone is asking me what to do with all the tariff threats and geopolitical news.  As a general rule, I tell people not to do anything.  Fear usually creates bad decisions.  Predicting the future is difficult but I generally like to have a probabilistic edge in how things will play out. At this point, there is no edge. It’s a 50/50 chance of things working themselves out versus everything going wrong.  Even if things do go wrong, it’s not clear what an investor should do.

    The best defence is to have a diversified portfolio by sector, asset class, country, etc. That way, if something bad does happen, there will still be winners, or at least positions that do not get permanently destroyed within your portfolio.  With good diversification you will also have positions in Canadian Dollars, US Dollars, and indirectly, in international currency.  Having a bit of everything cushions any shock.  The Canadian and world economies could be pushed into a recession.  It’s not fun, but it’s usually not the end of the world.  Recessions were much more prevalent at one time, and in reality they are just part of the market cycle.  For the small investor, it’s best to keep an eye out for bargains as there will be many at the bottom of a recession cycle should one occur.

    Marc’s Monthly Moves

    BuySell
    GEV (added small amount)CCJ (sold 1/3 position)
    MDST (new position)SHOP (sold 1/2 position)
    GOOG (added small amount)CSU (sold 1/3 position)
    LMN.V (added small amount)BRK.B (sold small amount)
    VLGEA (new position)

    Marc’s Portfolio YTD Performance

    • Portfolio return: 3.6% (including currency losses)
    • Portfolio return: 4.6% (without currency losses)
    • S&P 500 return: 2.24%
    • RSP ETF S&P equal weight return: 2.6%
    • TSX return: 1.69%

    The portfolio is over performing the S&P 500 by 2.36% points.

    , ,

  • Marc’s 2024 Annual Performance Review

    In this Newsletter, I will share how the portfolio did in 2024 and continue the discussion about setting out my future portfolio strategy.  I have already started to make changes to the portfolio with some new positions as well as some exits.

    How Did The Portfolio Do?

    That is often a complicated question.  In real dollar terms the portfolio gained 21%. Any way you look at that, it’s hard to complain. Compared to other small investors who only achieved mid single digit returns, it did really well.

    Digging down however, much of that performance came from a huge currency win (about 5%).  If you factor that out, then the portfolio returned 16%. We do this because we are trying to measure stock performance and not currency speculation.  For reference, the S&P500 returned 23.3%.  

    So did my portfolio perform badly?  It depends on how you look at it.  As many of you know, I purposely lowered my exposure to risky or expensive areas of the market early in the year.  I knew there was going to be a cost to that strategy if the market kept going up.  My results reflect this and were expected.  In my opinion, the portfolio return is really good for the amount of risk it was exposed to.  This is often difficult to quantify. 

    Sadly the same 3 sectors (Communications, Information Technology, and Consumer Discretionary) kept charging forward all year. Financials came in a strong 4th, which was different from the year before. Every other sector in the index under performed.  This made it difficult for everyone except ETF index holders who were big winners once again this year.  

    From a international weighting perspective, the portfolio was again at a disadvantage.  My current international weighting is US 40%, CDN 36% and INTL 24%.  A normal US weight should be about 65%. Since US was the big winner again this year, the portfolio suffered for a lack of US exposure.

    My Strategy Going Forward

    My strategy for going forward is the same as earlier in the year, except I will continue to remove risk from the portfolio.  I will do this by selling or pairing down positions that have become expensive or too big.  These will be replaced with high quality, better value positions. Sectors will also be re-weighted slightly, with a bit more emphasis on losing sectors.  For example, the Consumer Staples sector will be overweight (boring but safe).

    I will adjust the portfolio to be more “all weather”.  No matter what happens, it should do relatively well.  There’s no way to tell what kind of year 2025 will be.  If you read my last Newsletter, you know that it is likely to be either another winning year, or a very bad losing year, and not likely anything in between.  As a result, it makes no sense to position the portfolio to be either too defensive or too aggressive. We can, however, position it for the known risks associated to an expensive market.

    More Defensive Because A Crash Is Near?

    Absolutely not.  People often believe that when the Market gets expensive or when we have had too many big positive years in a row that a crash is imminent. In reality these are not indicative of bad or good returns in the short run.  In 1995, there were 5 monster years in a row.  If you missed the last 3 years of that market, you did yourself more harm by being safe than by exposing yourself to the carnage of the 2000 bubble.  What I am saying is that market risk has increased with another big market return this year, that is all.  So I am basically building in a bit more safety.  Nothing drastic here.

    Speaking of Bubbles

    Bubbles are only identified after they pop.  They are difficult to call when you are in one as there are a lot of moving parts.  The dangerous parts of bubbles are people (you).  If you go all in on a bubble – i.e. put all your money in Tech or Bitcoin (assuming these are bubbles) – you can actually permanently destroy your capital.  I know because I did exactly that in 2000.  Lots of my positions were down 90% or more and never recovered.  This should be avoided and it is why it’s important to be diversified by sector, country, factor, asset class, etc. Owning a bit of everything, including unwanted industries, is a way to protect your wealth.  

    Approximately 33% of the S&P500 index is dominated by Information Technology, followed by it’s closely related cousin Communications at 9.4%.  As you can see, the weighting is a bit of a problem if you are trying to avoid a tech bubble. These 2 expensive sectors represent over 40% of the market.  To shun these sectors completely is taking a rather drastic bet.  Should you be wrong, you will heavily under perform.  Without an ability to confidently call a bubble for 2025, you have to hold these sectors.  At the very least, be picky about each holding as well as it’s weight.  Managing these 2 sectors is unfortunately a big part of the returns game.  

    Notable Sell: Apple

    Yes, I sold Apple after holding it for about 13 years.  It has become expensive and too big.  I try not to be emotional about my positions. Apple returned 100 times it’s initial investment over the years; it was a great performer. Is it still a good company? Yes.  However, I decided to replace it with ASML, which has a monopoly in it’s industry.  It’s a better defensive position, it’s international, and it is still technology.  ASML was down 8% in the last year while Apple gained a whopping 30%.

    The other recent buys and sells were mostly one for one swaps, exchanging one stock for a better similar one.

    How Did Your Portfolio do?

    I always include this question because you should always challenge yourself.  If you are going to the effort of managing your own money, you should be as critical and honest of yourself as you would be of someone you hired.  Were you a good steward to your money? Do you deserve a bonus this year? Or should you be fired and have a new Wealth Manager take over?  It’s a question that I ask myself all the time. This year, I get a marginal pass.  I didn’t beat the market. I still believe that being more defensive is prudent considering how weird the market is.

    Marc’s Monthly Moves

    Sells

    StockReturn
    Apple (APPL)1000%
    Bank of Nova Scotia (BNS)18%
    ING Groep (ING)34%
    Taiwan Semi Conductor (TSM) …partial sale90%
    CBRE Group (CBRE)64%

    Buys

    ASML Holding (ASML)
    TD Bank (TD)
    BNP Paribas (BNPQY) – a French Bank
    VICI Property Inc. (VICI)
    Ingles Groceries (IMKTA)

    Recap: Marc’s 2024 Portfolio Performance

    • Portfolio return: 21% (including currency gains)
    • Portfolio return: 16% (without currency gains)
    • S&P 500 return: 23.3%
    • RSP ETF S&P equal weight 11.05 %
    • TSX: 17.99%

    The portfolio under performed the S&P500 by 7.3 % points.

    , ,

  • Do I Need a New Trump Strategy?

    December 2024 Newsletter

    In this Newsletter, I share my thoughts about whether you need (or don’t need) to change your portfolio strategy as we approach some potential political chaos in the US.

    There’s nothing scarier than changes brought about by a rotation of political parties.  The fear ranks up there with wars, recessions, and spiders. I know that many of you share this fear as I get allot of questions regarding this – more so than most other topics. People ask: “are you worried?”, and “what are you going to do?” on a regular basis.

    The quick answer is that I’m not worried and I’m only going to tweak my portfolio a little bit, and not for the obvious reason.

    Rationale

    Donald Trump is scary to some, loved by others, and creates allot of uncertainty and noise in the markets.  His changes will result in some stocks becoming winners and others becoming losers. Basically, wealth gets moved around when political parties change.  It’s not necessarily good or bad, it’s just something that happens in the markets and it’s common.  Think of it this way: the market is always pricing in new information, whether it be related to economics, politics or even the weather. This is not new.

    Some will say that this time is different.  That could be true; Donald might run the country into the ground like Venezuela.  It’s always possible, the thought of it does create market uncertainty.  The question however, is not whether it’s possible, but if it’s likely.  In investing, you need to play the odds, even though at some point an unlikely black swan event could tip over the apple cart. So is Donald Trump the black swan?  Maybe. Maybe not. I always like to note that generally, you never see the black swan coming.

    It’s not like he has never been president before.  We also know that allot of the things he promises, he never delivers. He also doesn’t not control many of the things he thinks or says that he does, such as interest rates.  Much of his policy rhetoric simply does not make sense.  We are going to have to wait and see what he does to better understand the implications on the market and which sectors/companies will benefit or lose out.  

    Can Any Of This Be Gamed To Our Advantage?

    With a president that is so unfocused and inconsistent, it’s nearly impossible for the small investor to reposition their portfolio effectively. Any direct investment angle has problems.  A simple example is that Trump wants to lower interest rates to boost the economy.  But that can trigger consumer buying and increase inflation.  Inflation will cause lots of problems that only higher rates can fix.  He wants to “Drill, Drill, Drill” for more oil, but that is counter Elon Musk’s electrification of cars and homes. It would also lower the price of oil and lower the incentive to drill.  His policies are full of these conflicts. So, will he actually lower or remove income tax? Will he really put tariffs on all goods coming into the country? Will he deport all the cheap labour?  I have no clue.  He will inevitably do some of it. 

    The Obvious Question: What Am I Going To Do?

    As a long time investor, I have seen all kinds of uncertainty and will likely see much more in the future. It’s part of the game. The world will not end.  What I can say is that with uncertainty comes opportunity.  I will continue to watch what happens and when a good company becomes out of favour, that is the time to add it to the portfolio for the long run.  Cheap but good companies eventually come back up and create above average returns.

    But Wait – There’s More

    What people are missing though, because they are focused on Trump, is that there are other forces in play that affect the market that have big repercussions on future stock market returns. Your returns!

    These forces are the ones that I worry about much more than the Trump bets.  Investors have become accustomed to double digit returns for the last 15 years or so.  This is not entirely normal.  It’s wonderful that many of us got rich over this period, but risk has increased in many areas of the market.  So the question becomes:  “Now that we are rich, how do we stay rich”? 

    The danger is that there can be a reversal to the mean in returns.  If you believe that long term market returns should be about 9% but have been returning 14% for a long time, that trend will need to reverse down sooner or later to stay in line with the 9% average. As a result, future returns would have to average 4-5% or worse for a long period of time to make the mean reversion work.

    The worst case scenario is if the market gets hit with a sudden 50% crash. Sounds harsh but there is no reason why it cannot fall 50 % to price the affordability of the market back to levels seen only a decade ago.  I bought Apple at a PE ratio of 9 back then, it trades at about 40 now.  That is 4 times more expensive for the earnings it creates.  Apple is not growing like it used to – it’s just too big. It is a great company, but will it outperform the market going forward?  It will be much harder. So why could it not be repriced 50% less? The same logic can be used to reprice the entire market, or at least the most expensive part. 

    Market Risk Is Not Equally Shared

    The biggest risk in the market is found in the US, as returns have been outperforming the rest of the world for a long time. More specifically, the issue lies with big technology companies like the Magnificent Seven, which have been the drivers of the market for the last couple of years. Everything else has underperformed and are cheap relative to these.

    This weirdness in the market was captured by JP Morgan in November. They worked out that the average investor was up only 3.7% this year.  If you did not have the darlings of the Market in your portfolio, you missed out on the big gains.

    Crystal Ball Time

    I like to use history as a way to figure out the future.  There are recurring patterns that create some probability advantage.  For instance, the market tends to be really good into the last year of the presidential cycle (like now). It’s also good for the first part of the first year of the new presidential cycle (starting in January 2025).

    History also says, there will be great volatility that first year of the presidential cycle – mostly because the president has the most power in his first year, so he can muck things up or shine bright. This means fabulous gains (20+ % returns), or really bad returns (-20% or more) – not much in the middle.

    So now that you see what I see, you realize that there are some Trump policies that will create winners and losers, there are some lofty areas of the market, and there will likely be a big swing up or big swing down.  That is all that we know if history is consistent.

    What Are My Plans Going Forward?

    I will continue the strategy I set out at the beginning of the year, which has done really well.  Many of the things I called for did play out, for example being bullish when everyone was not, and making bigger bets on utilities and financials.  I was hoping that Tech would have rotated it out, but it’s fighting to stay number one.  Essentially for a small underperformance against the S&P 500 index, I have had a much safer portfolio. A 25.5% absolute gain is fantastic versus the 3.7% return of the average small investor.

    Changes I plan to make relate more to keeping the gains that we have seen in the last two years (about 50% S&P500 return).  I will likely pare down some positions that have become lofty.  Apple is likely one of these but not the only one.  I plan to increase undervalued sectors like consumer staples such as groceries and agriculture – I am still working this out.  I will also lower or swap out some Tech positions. I will concentrate on higher quality and more defensive boring stocks.  

    Some Advice

    As some of you know, I’m a big fan of Market ETFs and for those who have bought these based on my advice, you have done fabulously.  I am now, however, getting closer to thinking that it may be prudent to pare down Market ETFs in favour of more reasonably priced ETFs.  These can be found in the consumer staples ETFs, for example, or in other market indexes such as Europe or Asia.  Essentially, I am suggesting a bit of diversification away from US markets. If you choose to do nothing and keep your market ETF, in the very long run you will likely be fine, but if you want to lower risk, diversification is never a bad thing.

    It is difficult to call a reversal or slow down in the market.  Any big portfolio deviation away from the market tends to work against the investor.  I also realize that I will likely be early in getting more defensive, however I am willing to lower my returns a bit in order to strengthen the portfolio. Next year could go either way, so it’s not prudent to go cash, but it’s also not prudent to load up on expensive Tech. I also believe that we have some time to adjust the positions.  There does not seem to be anything at the moment to suggest that a reversal or recession is coming in the next few months.

    Marc’s Monthly Moves

    • No buys or sells

    Marc’s Portfolio YTD Performance

    • Portfolio return: 25.5 % (including currency gains)
    • Portfolio return: 21.5 % (without currency gains)
    • S&P 500 return: 26.5 %
    • RSP ETF S&P equal weight 18.9 %
    • TSX: 22.4%

    The portfolio is under performing the S&P 500 by 5 % points.

    ,
    , ,

  • Are You Running Out of Time? My Retirement Advice.

    In this Newsletter I’m sharing real world advice about retiring early.  So maybe you have not been able to save a million dollars by age 50. Maybe life got in the way. Maybe you were busy raising a family, building a house, buying new cars and going on vacation.  For the most part, you were just doing what everyone else was doing.  In our twenties, we tend not to worry about retirement as that future seems so far away.  However, time marches on and it waits for no one. The problem often only becomes apparent as we approach early retirement age and noticed that perhaps we are a little short on savings.

    I am often asked by people in their late 40s and 50s: “what can I do to retire within X years from now?”.  A big portion of the time I spend giving advice goes to people in this age group. It sounds like an older person topic but in fact, it’s a younger person topic and more importantly, something that people of all ages should be thinking about.  As I have said before in past Newsletters, the education system does not teach us how to save, how to invest, or how to plan our financial futures.  Instead, young people are bombarded with consumerist advertising telling them to consume and live beyond their means.  It works so well that these habits are really hard to break. In essence, people are enslaved to an economic system that ensures they will work as long as possible.

    Who Are “These People”?

    The people to whom I give advice and for whom my advice is applicable are everyday normal people – family, friends, and neighbours – maybe even you! They are generally in their late forties and in some cases early fifties and are often either enthused or panicked about making retirement happen ASAP. It’s good that they are thinking about their retirement but unfortunately, it’s too late for traditional early retirement options. The compounding effect of growing assets over time has basically been muted. These individuals tend to be house rich, but financial asset poor.  Some have pensions and some don’t. If they have a pension, then they are likely following a 30-35 year time line in order to receive 60-70 % of their work salaries at age 60. So the option of retiring early is not possible without having saved and invested while concurrently building their pension.  

    In the Ottawa/Gatineau area (Canada) where I live, there are lots of government jobs with really good pensions. If someone with one of these jobs is happy to work for 30 years, they can retire at 55, 10 years earlier than the Canadian average, without ever having to save much. But those that don’t have a government or well funded private pension are likely further behind with fewer options.

    What Are Their Common Traits?

    While each person and their life circumstances are unique, many of the people that come to me for advice share surprisingly common traits, lifestyles, and spending/saving habits. Here are some of the most common:

    • They are smart, many are professionals, and they are hard working. Their incomes are good and in some cases, very high.
    • They are tired of working and express the desire to retire as soon as possible.
    • They have some assets, often a house, and some limited savings.
    • Almost all have a low annual savings rate.
    • They tend to know little about investing so they let the banks take care of that, or alternatively they know how to invest but like most small investors, make bad decisions and get low returns.
    • They underfund their Canadian Registered Retirement Savings Plan (RRSP), and Tax Free Savings Account (TFSA) or their equivalent in the US retirement programs.
    • They have little understanding of their spending and no strategy for saving.  This goes hand in hand with a high standard of living, such as purchasing the latest technology, expensive phone and cable plans, many monthly subscription services, costly vacations, expensive gyms / yoga classes, frequent eating out, coaching services, etc.
    • Almost everyone has a house/apartment/condo that is bigger than they need and drives a new or almost new car. 

    So Is It Too Late For Them? Is There Hope?

    Are these individuals stuck in a system of their own making?  Maybe, but maybe not. It depends on whether they are willing to adjust their lifestyle, habits, and expectations to create a workable post retirement model. 

    This is the hard part.  Time and compounding are no longer the big engines of retirement at this stage of life.  You can still use it, but it’s often not enough.  Something has to give.  I generally advise these people that their lives have to change in order to retire early or earlier.  This is really difficult because by midlife, most people are accustomed to a certain standard of living and scaling back is hard.  I find that most people can stomach dropping one level in standard of living (i.e. become a little more frugal, downsizing a bit, etc.) but dropping several levels seems crazy and unacceptable.

    Big changes that can accelerate retirement include things like selling the big family home and moving to an apartment (gag), or maybe a small condo (gasp), downsizing to one older, smaller vehicle (or maybe no vehicle at all) instead of the 2 newish SUV battle tanks you currently drive, or traveling on a shoe string instead of in luxury. In other words, cutting living expenses drastically, simplifying etc. At the extreme, I have met people who have sold everything and now live full time in a van (crazy? …well, it’s subjective). 

    On the income side, getting a handle on your savings and learning the basics of investing (including reading Money with Marc ;)), makes a big difference. It’s important to get those returns up and maximize retirement programs like RRSPs/TSFAs (Canada) and the equivalent in USA or other countries.

    They Want To Cheat!

    A question I get often is: “How can I make allot of money by investing so that I can catch up?”.  There is a misunderstanding that if you increase the risk factor, you will be rewarded.  This is not entirely true, as I covered in a previous newsletter.  My advice is not to bet the farm on the latest AI stock as it has a habit of ruining lives.  A few lucky winners but mostly financial devastation. Rather, I would advise changing things up to invest in quality stock, which is better in the long run than cash or fixed income.  Getting away from expensive bank mutual funds alone will get you 2% ahead, and that’s just for starters. But the takeaway here is that there is no cheating or fast money that will ensure a good retirement outcome.

    Always Another Way

    I have also suggested that people work part time or start a small service business as ways to retire from their “real” job earlier. Partial retirement can work well for some people. It’s possible to supplement your retirement income with part-time consulting, dog walking/pet sitting, house sitting, gardening or something else that is already a hobby.  

    In addition, after working decades, most people have some assets that can be reworked into the retirement plan.  Whether it’s downsizing a home or maximizing their financial assets.  They also have a few more earning years that, if combined with lower expenses, can generate lots of annual cash that can be re-invested.  

    The final retirement outcome may look different than what many would have originally thought.  No more big house, no flashy cars, a much more simple life.  What you get in return for these sacrifices is time to do what you want while you are still young-ish.  You can travel, write that novel, volunteer etc. The alternative of working until the age of 70 or later at a job you do not like, then possibly getting sick and never doing the things you wanted to do is, well, sad.  

    So it’s never too late to change up and make things better for retirement. Of course there are those who, for any number of reasons – poor choices, bad luck, difficult circumstances – don’t have a lot to work with.  Even for those people, there is always room for improvement, especially on the spending side.  The reality is that some individuals may never be in a position to retire early, and may need to make drastic changes to retire at all.

    Big Caveat

    I make the assumption that everyone’s goal is to retire early and that working any amount of extra time is a bad thing.  In most cases (including mine) this is true.  But I have met some people who love their work.  It’s rare, but if this is you, then good for you.  You have already won and I envy your situation. Perhaps you get a lot of satisfaction from your job, or maybe you are just weird and love working – that’s ok too!

    Marc’s Monthly Moves

    • No buys or sells in the last 2 months

    Marc’s Portfolio YTD Performance

    • Portfolio return: 18 % (including currency gains)
    • Portfolio return: 16 % (without currency gains)
    • S&P 500 return: 20.5 %
    • RSP ETF S&P equal weight 13 %
    • TSX: 15.5 %

    The portfolio is under performing the S&P 500 by 4.5 % points.

    , ,
    , , , , , , ,