Happy Easter! Hope everyone found a way to get out and enjoy Spring Break! Tough time of year for me in that I have become quite accustomed to taking a couple weeks off after RRSP season and getting away somewhere hot with the family. Especially hard to take when Canada has had to go backwards in restrictions when the rest of the developed world continues to open things up! Couldn’t go anywhere this year but thought I would try and take a break anyway; however, I found it pretty difficult to take time off when I walk right by my office every morning and had nowhere else to really go! I’m loving most things about the virtual office set up but there is definitely a downside to working from home too. This spring break also came with the disappointing realization that our kids are now at an age where they only hang out with us when we pay for things. With us not going to Hawaii or going out for dinners or paying for the normal “vacation” activities we would normally be engaged in at this time or year, our kids seem to mysteriously have found other things to occupy their time rather than spend their time with Mom and Dad over spring break! Kristy and I are entering into a new phase of life! Closest thing we did to getting away was to do a “virtual reality” gaming experience at the Sandbox VR studio. Not the same as actually going anywhere away but killing aliens somewhere out in the galaxy was a lot of fun and did work out some of my pent-up frustration. Seemed to work for my kids too – I died the most and my youngest son had a suspiciously high “friendly fire” score and a big smile on his face when we finished!
Got a pretty positive response to the first video commentary we put out (aside from Carissa’s daughter, Gracie who dialogued a running commentary during the entire video on all the things I did wrong and questioning why anyone would ever find the topic itself interesting!). She is going to become my trial crowd for future productions – part social media consultant and part test subject if I can hold her attention! Here’s the link to the video again in case you are now feeling bad for missing it – CLICK HERE (Bitcoin Video). My daughter-in-law actually sent me a picture of their dog watching the Bitcoin webcast. Really not sure if I should be insulted that the only one watching the video is the dog, or just grateful that they had it on at all! Despite what Gracie may think, I do find the Bitcoin narrative a fascinating story to watch develop, with lots more chapters yet to unfold. As predicted, other companies are following Tesla’s lead and Visa and Paypal are the latest to announce they are going to start taking crypto as payment as it moves further and further into the mainstream. I’m not even going to try and explain it (mostly because despite listening to three podcasts and reading tons, I still don’t understand them myself!), but if you really want to blow your mind take a look at the new digital art sales that are now popping up that have their roots based in crypto currency and blockchain technology. They are called NFTs (non-fungible tokens or “nifties”) and are taking the social media world by storm right now as they have become the latest must have collectibles, even though they only exist in the digital world. A “picture” of Jack Dorsey’s first tweet just sold for $2.9 million (although you can look at it for free online anytime you want, apparently owning the digital rights to it makes it worth a lot more!). The artist “Beeple” just sold his “Everydays” art through what Christie’s billed as “the first-ever purely digital blockchain artwork” auction for $69 million! That makes him the third most expensive of all living artists! Absolutely nuts! Going to tackle something a bit easier (sort of!) in the next video series this month and give my thoughts on trying to raise money wise kids. One of my favourite things about this pandemic is the number of new accounts I have had the chance to open for my clients’ kids as well as my own family. Pretty fun to now be able to take my nephews and nieces out for lunch and call it business (once restaurants reopen!). I thought I would give a quick commentary on my thought process for trying to get your kids engaged with investing.
Last month I talked about how growth stocks fell back off their highs as markets caught their breath. There is a bit of sorting out happening right now as investors sift through all the companies whose valuations took off during the pandemic, to try and separate the real deal from the pretenders. While there has been a pause going on with tech and momentum-based stocks, there has been a secular shift or trade into “value” stocks. Bloomberg notes that “Companies with weak balance sheets are beating those with sturdier accounts by over 20 percentage points so far this quarter, the biggest gap since at least 2006”. The list of firms with rickety credit includes Expedia Group Inc., Alaska Air Group Inc. and Carnival Corp. — a group that doubles as the hardest hit by the coronavirus pandemic. Part of this trend is understandable, and the optimism is somewhat warranted as case counts tick down and we get closer and closer to a fully reopened economy. However, there is a fundamental difference between “value” and “cheap” and just like not every company that operates in the “green technology” space is a good idea, not every company that got beat up in the pandemic is a bargain – some of them really are junk! AMC, the theatre company, is currently trading at double what it was prior to the pandemic – go ahead and try and explain that one based on any sort of economic justification! I feel like this rotation into value is going to follow the same trend as the momentum-based stocks. At some point investors are going to stop buying the “trend” and get around to taking a deeper look at what they own. They will become a lot more discerning in identifying what is true value and worth keeping, versus what is just trash. Eventually the market will always revert to the fundamentals – does the business make money?
The good news is that while we will opportunistically tweak portfolio composition, we are always looking to build a portfolio with solid fundamentals and don’t need to try and time short term secular trends to be successful. We look to partner with companies that have durability and real earnings, moats and long-term potential. This strategy means we only need to be right once, instead of twice. We only need to make a good buying decision on the day we buy as we know that a quality company with good fundamentals and a solid long-term plan will most likely be a proven winner. Trying to jump in and out of secular trends means needing to be right twice – when to get in and when to get out. To take an extreme example, how on earth do you correctly time jumping on a secular trend like NFTs, when no one really understands them to begin with and the valuation is completely subjective? And then you need to be right again in identifying when that completely subjective trend is over and you need to jump ship? It is sort of like playing musical chairs with your portfolio. No real way of knowing whether you are going to have a chair available or not when the music stops! I’d rather not play games with investing. Hard enough in this business just being right the one time!
The next piece of good news is that this sorting out phase is very healthy. It is a “culling of the herd” sort of thing which might bring a bit of short-term pain but is both necessary and good for markets as a whole. We are in a bit of a dark period right now, but I like how things look going forward. The quality is being sorted from the junk on an individual company basis and there are good reasons to be bullish on the economy in general right now. You don’t even need a finance degree or background in business to see them. Go ahead and try and buy an appliance or a mountain bike or hire a landscaper right now. You can’t find them, or if you can they are giving you an invoice in Bitcoin-like prices instead of dollars! I was just reading a newsletter from an Okanagan based realtor and he was saying there is only two months worth of inventory available in the region right now (normally there would be 18 months). I am reading about properties in Langley and Maple Ridge going for 25% above asking price. I just got a quote from my contractor to renovate my ensuite. When I saw the final number, I called him up to tell him there must be some mistake as I didn’t need a toilet made of pure gold! He assured me that they were all normal construction materials, but I was paying for a private 10-man swim team to manually swim all the materials over from China for the project! There is a massive amount of pent-up demand out there and no inventory. This is why a blockage in the Suez Canal for a week can cause toilet paper prices to jump! Recessions occur when there is too much inventory. When stores are sold out of products and there are waiting lists to buy things, profits and margins go up!
The advice I give to you is the same as what I follow in my own account. I am bullish, I am fully invested and looking to continuously add to my portfolio with every extra dollar I can spare. It is not hard to find worthy companies these days to invest in and I have more ideas than I do money! I fill my portfolio with quality stocks that are very different, one from another, as to the exact reasons why I own them; but, very similar in that they are all companies that philosophically meet the criteria of me wanting to partner with them over the long term as I believe them to be fundamentally sound, resilient businesses!
Hope you had a fantastic Easter! Stay positive, stay safe, stay disciplined!
Jeremy
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