OPTIMISM #10 - July 30th, 2020
Dear friends and clients,I have been searching for new signs of optimism and hope I don’t sound like a broken record.
If you’ve known me for a while you know that I am generally a realist. My wife says I’m a pessimist.
It’s only at times of great opportunity that I am an optimist. Few times in my career have I been this excited.
My father-in-law asked me about what I was doing with investments, “selling in fear” he asked?
I told him “I have been waiting for years to buy at these prices”.
Here is a wonderful article from this week’s Globe about how inexpensive top-quality stocks are:
https://www.theglobeandmail.com/investing/markets/inside-the-market/article-feel-left-behind-by-the-market-rally-banks-dominate-this-list-of/
If you’re thinking about:
-cutting off the power
-cancelling your phone & internet
-ceasing to use credit cards
-growing all of your own food
-making your clothing, medicine & furniture
-commuting by horse & buggy… then yes maybe you should be worried.
I’m not. Life will go on.
Sentiment and shopping habits seem to have changed but I believe that’s largely temporary.
Our computers didn’t melt in Y2K. Our houses did not become worthless in 2009.
Western governments seem willing to inject as much money as necessary to avoid a serious recession. This is a newer phenomenon.
Canada was massively in debt in the early 1990s. Our situation was in many ways similar to today.
Paul Martin took the helm, raised taxes (remember the 75% inclusion rate on capital gains?), our debt was reined in, and Canada’s credit rating improved.
Had you purchased boring dividend growth stocks then, your account would have about fifteen times as much now. Remarkable. Yes. Fifteen.
Public companies wait for bad times to slough off losses they’ve been carrying on the books. It makes the earnings look worse than they really are.
Copper futures are up, said to be strongly correlated with a strengthening Canadian dollar.
https://www.macrotrends.net/2590/copper-prices-today-live-chart
Paul Holden, an analyst at CIBC said he has very few concerns about Canadian banks.
https://www.theglobeandmail.com/investing/markets/inside-the-market/article-cibcs-top-picks-for-canadian-bank-stocks/
If market conditions are keeping you up at night, look at your statements or speak to your Portfolio Manager about what your ten largest holdings are.
My suspicion is that you own those necessary companies that can sustain anything life throws at us and simultaneously grow.
Take my beloved Fortis for instance. It’s actually the Newfoundland Power and Light company which is about 140 years old.
They have increased their dividend each year since 1972.
The dividend has increased at about 7% per year. Imagine your salary or pension going up at that rate. It would nearly double every ten years.
By 2022, 50 years, 1 dollar doubled five times becomes 32$. Einstein was correct about compound interest being the greatest human invention.
Insider buying continues:
Warren Buffett bought another 400 million of Bank of America this week, and 800 million last week.
https://www.theglobeandmail.com/investing/investment-ideas/article-warren-buffetts-berkshire-hathaway-buys-another-400-million-of-bank/
Interesting that he did not buy in late March but has just recently.
Michael Cooper, CEO of Dream, a large Real Estate Trust (REIT) invested $720,000 in his company shares.
Eric Sprott bought 1.2 million of Chesapeake Gold and 1.1 million of Tudor gold.
One thing I do know is when we do get back to normal, and we will, we will all say we should have bought more when prices were depressed.
My Scotiabank and CIBC dividends arrived! Time for fun.
Enjoy the weather.
Derek Moran R.F.P.