Summary
“It is difficult to make predictions, especially about the future.”– Niels Bohr
Investors began to see daylight in the clouds of inflation. In the reflection section we examined what you should do if you knew what a key economic indicator would be. Even if you knew in advance that a country would experience rioting in the streets you would likely have made the wrong decision. In Israel there is massive political uncertainty but the stock market surged 7% last month. The Economist magazine has pointed out for years that the Canadian housing market is grossly overvalued. At the same time, we were told it was supported by unreasonably low interest rates created by a central bank trying to avoid a Covid induced closure. Then higher rates did not bring the prices back to the pre-Covid so called over valuation.
We have missed the recent increase in the price of the US technology stocks. Some are trading at high double-digit multiples to sales, not to earnings. We avoided the collapse in many technology stocks last year. Just like we missed the Cannabis stocks in their early days, we will miss out when stocks trade above prices justified by their fundamentals. Sometimes this can go on for years. We believe in the earnings potential and income we get from stocks, such as the Canadian banks. They might lag near term but their valuation gives us comfort that our clients will benefit over the longer term. We focus on companies that have a history of paying and increasing their dividends. We are not myopic and create portfolios that also capture stock that do not pay dividends. It is a portfolio and not a collection of stocks with the same attributes.
