Investment Q&A

Q: I have heard anecdotally that the quants, computers, algorithms, etc. are responsible for a large portion of stock trades in today's market. Sometimes "experts" say that these automated systems exacerbate stock price moves to both the upside as well as the downside. Shorts sellers seem to have the power to punish stocks that get to ridiculously high valuations. But what tool does the market have to reward stocks that have been overly punished, other than time and the management taking the time to talk up their stock. An NCIB seems to be kind of an incremental way to support share price and I believe (correct me if I am wrong) that a company has to apply for an NCIB which takes time. Should stock exchanges give some new tools for companies to counter act a sharp downward share price movement? If a company has a strong balance sheet, let's say net cash positive, perhaps they should have the option to buy back large amounts of stock on short notice when the quants, computers, automated trading etc. drive prices far lower than they should go. In this scenario companies that are prudent financially could take of advantage of a Dec 24,2019 incident. In these situations a company could say to the market," If that is how little you think of our shares we will gladly buy as much of it back and send them to treasury, thank you computer traders, thank you computer trading, thank you ." I am not in the financial industry so I may not understand the big picture. This is kind of a long and complicated question so I am not sure if you can answer it without writing an essay.!!

Q: I don't think the most important reasons to hold bonds in a portfolio have been touched on yet, so here's my take. Dave, of the March 5 question to 5i on bonds, is probably a guy of working age. I, as a retired person, have a different perspective on holding bonds other than enhancing a portfolio's returns, but this is occasionally possible in a low to negative market return year if fully invested in stocks.

I am quite content to receive a 50% bonus to the inflation rate on my fixed
income part as it means I am holding my own after tax when it comes to the
spending power with inflation on that part of the portfolio and it is indeed
about asset allocation as I try to cover all asset classes in my portfolio
strategy including stocks, prefs, gold, cash and fixed income. (No crypto yet). For me, stocks provide the main boost in the overall return, long term. The dividend tax credit's a big help.

What I like about buying individual bonds which I usually hold to maturity is
controlling the issuer's credit quality (for me always investment grade), the
maturity date, and the guaranteed capital gain if buying discount. I've tried
bond ETFs for trading and better liquidity but since I have no control on
maturity or quality, I always seem to end up claiming a loss on the sale, and
any return is fully taxed as interest. I'll buy GICs also for a better interest
rate. The 3 reasons 5i gave for not liking bonds are, for me, minor reasons for having bonds, at my stage of life, if properly balanced in the portfolio.

As far as investment gurus like Buffet being fully invested in equities, this isn't quite accurate.The core of his Berkshire portfolio is insurance stocks which in and of themselves can be considered pension or bond-like. When they receive premium income, what do they buy - bonds because they need to be certain of future obligations and be liquid at the same time. Let's not forget the bond market is 40 times the size of the stock market, which is why Buffet laments there's nothing of size for him to buy and he ends up with holdings like Kraft Heinz. I'll wager the bond holders at KHC are sitting pretty while the stockholders cry in their soup.

If you've read this far, you're probably wondering how deep I'm into bonds and bond equivalents:
It's 29% compared to 14% cash 11% prefs 42% stocks & 4% gold currently, but this does change.

Q: Hi 5i team,
You recently answered a question (from Angus, feb 6th) about a list of large Canadian (TRI, CSU, ATD.B, SHOP, ONEX and BYD.UN and usa) companies that could be long term holds based on their management (past and current accomplishments). My question is: what would be a generic maximum weighting for such companies (one weighting for every one of them) if portfolio is invested for a very long period (no need to withdraw money)? Or another way to ask the question: how many different companies would be needed?
Thank you for your collaboration,
Eric

Q: Hi there, it seems like more and more commentary is stating we are in late cycle. Assuming this means that we will soon see a recession in the next 12-18 months, would it make sense to hide out in a low volatility ETF for the time being? It seemed to have held up pretty well in the 2018 Q4 drop. What are your thoughts regarding this strategy and between ZLU and ZLB which would be preferred to be in, or would you split your portfolio 50/50 for diversity? Thanks!

Q: Hi Gang, good news is I sold most of the above with gains except for COV and KXS, looking closer if I did not the losses would put me in big trouble, over 40% for most of them from the high, I know that 2018 was not a stellar year but I'm 65 years old and can't wait 5 years for these stocks to come back, do you have any thoughts on how to get out before a stock takes a 40% haircut, is a 8% or 10% stop rule help or perhaps farther out. Thanks Anthony

Q: For the last eight years my portfolio has been almost exclusively US large capilization stocks. My rate of return has been great, significantly above the averages. I do not intend to change my portfolio away from the US markets for the foreseeable future. Am I making a mistake?
Clayton

Q: Does your crystal ball predict a market downturn in next six to twelve months.
Clayton

Q: Into which sector(s) or product types(s) besides cash, might you look to add weight if the economy moves negative? Bonds, utilities, staples, preferreds, etc? Don’t always feel like the old guidelines apply anymore.

Q: Follow up to your reply from my last question. we will max out our TFSA as you suggest. In the past we used our RRSPs in to invest in our business, so we have zero RRSPs. would you suggest placing any in them? We will continue to have income from our business after "retirement age" we intend to live in and operate the business as long has health allows. My though was that RRSP will at to the income tax load when it becomes mandatory to start withdrawals.

Q: I have 3% of JPM, am down 400 USD, given the dim view of further FED increases, sh i leave banking , park the money in VGSH or go to divi with PFE or VZ as you earlier recommended. Last 3 mo JPM/PFE/VZ have similar charts but the potential of banking?? compared to VZ+PFE???
Art

Q: 5iResearch is a great service and I really appreciate all the advice subscribers get on individual stocks. Having said that, can I get 5i's opinion on whether it is really possible to outperform the market in the longterm. Most of the literature I have read indicates that buying the S&P500 (ie. a market ETF) is the most time-tested way to be a successful in the markets.

Q: ..given growing expectations of a Canadian recession, i'm thinking of moving away from utilities into fixed income. how do you expect XBB, XSB and HFR to perform in comparison to ZWU if a recession occurs. thanks, great service.

Q: With a lot of talk of a possible recession in the coming year, which of the following category of stocks would be most negatively affected.: telecom, utility, technology, financial,materials,energy, consumer, metals including gold. Thanks.

Q: I have what I think is sort of a 'big' question. I am looking at various ways to help my performance through an eventual recession. I know that timing it is virtually impossible and even calling it (as we saw this fall) is extremely difficult also. So my research now turns to what are the characteristics of a company that will do well (in all likelihood) after a recession, or indeed right around the middle when equities seem to turn higher given that the big losses usually start just ahead of the actual recession and the buying often starts while the recession is still in full bloom. I look at GUD as one company that holds cash and is deal oriented (or is supposed to be) as a kind of exemplar for this type of idea. Any others? Or is this just a mug's game? Thank-you and please deduct whatever credits you deem necessary. Thankyou.

Q: I'm curious how you would adjust your strategy, if at all, in terms of opportunities, signals, cautions or things to watch for, as we head into a 6 month period leading up to the federal election.

Q: Hello! I have identified a Canadian small cap mining company that would be a good allocation fit for my TFSA. It trades on the TSX and NYSE. As it happens, I don't have enough capital in my CAD TFSA account to make a meaningful purchase. I do have enough in my USD TFSA account, however.

My options would be:
- transfer the cash from the USD to CAD account
- raise the capital by triggering a CAD account sale
- buy the US listed shares

Is there anything to be aware of when buying the US listed shares in this case?

And, more generally, where would one exercise caution? I'm thinking of a situation I've seen where US listed shares trade at significantly lower volumes.

Thanks for your consideration.

Q: Some (including Phil Town) are concerned that this is at or above 30. I believe the historic average is about 15. I am also told that an increased Shiller has preceded market crashes historically. I would appreciate your comments in particular as to whether a market crash is in the cards after such a prolonged bull market - a record at 10 years if I recall. Thanks! (Publish this question if you wish)

Q: Over the last decade, I have kept 50% of my portfolio in a US money market fund which now pays 2.27% (TDB166). It has paid as low as 0.05%.

The rest of the portfolio is in a US market index fund which tracks the S&P500 (SPY).

I am happy with the results that this effortless approach to investing produces but am concerned about the US money market fund since the US dollar is so high. Should I get into a Canadian dollar money market fund? Can you suggest any?

Q: Good afternoon
I seem to recall that one of your answers to portfolio balancing for ones entire portfolio outside of Canada could be up to 40% US and 10% or so Emerging and ? Europe. I'm approximately 30% US and thinking of going to 35 or 40% due to the strength of the US. May I have your comments on this strategy at this time for a 3 to 5 year time horizon.
much thanks

Q: Due to health I have been forced into early retirement (51) with no pension. I need a 5% return to live off of my savings. I am presently well diversified 75% CAD dividend companies and fixed income in my non registered account and 25% of my total savings are in registered accounts which follow your balanced portfolio along with GOOG, TEAM, SQ, BOX for US exposure (prob not enough eh?). My gut is telling me I should get rid of the growthy stocks and stick to safe dividend companies but my experience says I should leave it alone as over the long term the balanced portfolio has done quite well.
I would appreciate any and all input you can offer (don't be afraid to hurt my feelings;).

Brian