” A time to plant, a time to reap” Pete Seger and Eccliastes
In the reflection section we covered factors that might cause people to sell. Factors including the loss of free cash flow from technology companies, elevated valuations for Canadian Banks and the Cyclically Adjusted Price Earnings Ratio. The CAPE has been screaming sell for years. If you had followed this, you would have missed the run up in the markets over the past few years. The thesis for purchasing technology shares used to be their free cash flow but now they are investing in AI. The Canadian banks have been expensive for more than 2 years but continue to put on strong performance. This makes it sound like it is safe to ignore these warning signs. As the quote indicates there is a time to put money in the market and a time to reap your gains. The question is when is the right time? There is a quote that the only real gain is a realized gain which means unless you sell you could watch your gains evaporate.
It is a bit boring, but we have not changed our approach to the markets. We factor in world events but focus on the long-term potential for the companies in which we invest. When looking at a stock we consider the total return. The total return captures the dividend and the capital return. Dividends provide a couple of advantages including when a client needs cash, they can just take the dividends and not trigger tax by selling a stock. In a similar vein, it helps when rebalancing a portfolio as the dividends can be invested in an area that is below the target level, again without having to trigger tax or commission expenses.
