Monthly INsync Chit Chat November 2023
A Warm Welcome To You…
Out with the old, and in with the new! We all need to keep dynamic in life and be open-minded to new ways of doing things! Being a creature of habit and routine, I admit, I can at times struggle to embark in a new direction but this is overdue. I’d like this monthly INsync chit chat to be useful, to be fun, to be insightful and perhaps more lively. Some of you have offered feedback over the years, for which I’ve always been grateful. I’ve written this publication for approximately 17-18 years and enjoy doing it, but I’d like to offer some new perspective and have you consume more broad-based content, and even provide an opportunity for others on our team to contribute.. This is no longer the “Monthly Market Chit Chat”, it’s now officially the “Monthly INsync Chit Chat” produced by our “Financially INsync” team here at Raymond James.
If you’re new, welcome! If you’ve been an avid reader for more than a decade, thank you! And if you don’t usually manage to get past the first two paragraphs, please try reading on today and give it a chance! If the author of the section isn’t shown, it’s yours truly! David.
News –Some That You’ve Heard, Most That You Haven’t
We’re living in the digital age, and at a time when governments are intent on having us accept that they know best what we want and need. Too many headlines don’t make the news anymore, as the mainstream is too broadly supporting the political agendas to expect us to reasonably receive unbiased journalism and reporting. I listen, review and watch a variety of non-mainstream, non-government supported media and want to share things in this column that you won’t see on the front page of the Toronto Star, Globe & Mail, New York Times or Washington Post.
The CRTC announces new regulations for podcasts and online streaming. The U.S. and allies seeking to assassinate the Prime Minister of Syria. $43 million moved into Bitcoin in new assets causes +10% move. New ARC Conference sells out quickly promising a renewed focus a world where every citizen can prosper, contribute and flourish (contrary to the World Economic Forum which focuses on the global elite and the increase of concentrated power). The UN reported that women and children have accounted for 70% of all those killed in Gaza and they have voted against a ceasefire. Time Magazine reports that the war in Ukraine is over and that Zelensky is on a lonely crusade. Ukraine asked its European allies to bomb targets in Iran and Syria. Trudeau backtracks on climate change and offers a three-year pause on heating oil (only) to benefit those in Eastern Canada. MNP (accounting firm) just reported in a study that 52% of
Canadians are less than two weeks of cash flow. Ontario court rules against Jordan Peterson, upholds social media training order. Health Canada confirms undisclosed presence of DNA sequence in Pfizer COVID shot. Top carbon offset projects may not cut planet-heating emissions.
Things We Recommend
Did you (I know there are still some die-hard fans that exist and use one now) have a Blackberry? I remember being so proud of my new device at the time, that underneath my signature, I had written “Sent from my Blackberry”. Having also gone to school at the University of Waterloo, Research In Motion was a well-known company rooted right beside the university that employed many fellow students for co-op jobs. There was a time when it seemed obvious that everyone would have (and always want!) a Blackberry until one day Apple arrived with the iPhone. Well, I just watched the movie “Blackberry” which is based on the story and I have to say I quite enjoyed it and would encourage you to take a watch! I did hear that those in the know didn’t think everything was perfectly accurate, but, seeing the personalities and the path RIM took from its start as a tiny office, which blossomed into a multi-billion dollar, global smartphone company was pretty fascinating! If you watch it, let me know what you think!
Lifestyles to Consider! [by Criselle]
"Pay Yourself First" is an essential financial concept that has been around for a century, yet it remains relatively underutilized. When individuals receive their income, a common instinct is to spend money and consume more goods and services, while some choose to pay off debts, as others, who consider themselves more financially savvy, budget their money.
But where do our savings fit into this long line of priorities? This is where the "Pay Yourself First" concept comes into play. As David Chilton made popular in his bestseller “The Wealthy Barber” (and was first considered as an idea almost 100 years ago by George Clason in “The Richest Man in Babylon”), the idea is to allocate a percentage of your income to your savings before anything else, with the remainder available for your spending. This practice ensures that you prioritize wealth-building for long-term goals over short-term spending impulses. It maintains your focus on achieving financial independence and stability while instilling the discipline of making savings a top priority and reducing impulsive spending.
The "Paying Yourself First" concept can significantly impact your financial well-being and long-term success. It ensures that your financial goals and future security are given the priority they deserve.
How’s the (Bigger Picture) Market?
A new chart template. The S&P 500 is a market-capitalization weighted index that contains 500 companies that trade on U.S. exchanges and continues to be our proxy for global equity sentiment. In the chart below, we see the weekly candlesticks and a 65-week (long-term) exponential moving average in green. The RSI(5) offers some insight into oversold and overbought periods and will be referenced, as appropriate, to provide context to the bigger picture. As we close out October, we have reached oversold for the first time in a year (since the equity market bottom in October, 2022). The horizontal line in the top panel shows a pullback to the May breakout spot, which may be an area of support, which if broken, would likely invite further selling.
Source: Optuma
* * as at October 30th, 2023
Market Summary & Trend of “All Assets”
This section features our “all asset” list which I regularly refer to on “X” (formerly Twitter) and is sorted by 1-month returns. The list contains every asset from stocks, bonds, commodities, tilts like value/growth and alternatives like Bitcoin. The short-term trend is defined by the condition of the 8-day and 20-day exponential moving averages and if the 8 > 20, it indicates “True”/green in the table. Similarly, the intermediate-term trend is the 20EMA/50SMA (simple moving average) and the long-term trend is based on the condition of the 13/34-week EMA. YTD price is shown in the final column for further context. Assets that currently appear as uptrends on all time frames include Bitcoin, Gold, Ethereum, Agricultural commodities and the U.S. dollar index.
Source: Optuma
* * as at October 30th, 2023
We All Need to Keep Learning! – “What is Relative Strength?” [by Conor]
At its core, relative strength compares the performance of one investment asset against another or against an index. It provides valuable insights into the strength and/or weakness of different assets, sectors, or even entire markets. The key to understanding relative strength lies in comparing the price movements of assets over a specific period, often using technical analysis.
The primary objective of employing relative strength is to identify assets that are outperforming an alternative investment. Investors seek these assets as they could be potential winners with higher growth prospects and potentially less downside risk. This relative outperformance indicates that the asset is gaining strength compared to others, hence the name "relative strength."
One popular way to use relative strength is by constructing a relative strength chart. By plotting the price of one asset against another, investors can visually assess which one is performing more strongly – i.e., is investment A better than investment B? This helps investors identify trends and make more informed decisions when selecting investments for their portfolios.
In this example, we can see the SPDR Utilities sector (XLU:US) in the top panel and the relative strength of the utilities sector against the S&P 500, in the bottom panel. It demonstrates that the utilities have been a long-term underperformer for the past 10+ years against the broader market.
Source: Optuma
* * as at October 31st, 2023
Failing to Plan is Planning to Fail [by Criselle]
There are two types of people. There are planners who meticulously lay out everything in front of them and there are "crammers" who prefer to wing it and hope for the best. I'm proudly a planner, but I understand that everyone has their own style. However, it's crucial to recognize the inherent risks of “going with the flow”, particularly in the realm of personal finance.
Think of planning as your trusted blueprint, turning visions into reality. It serves as our life’s roadmap, guiding us through its complexities and providing a safety net as well. Financial planning is more than goal setting, budgeting, and savings; it also includes managing investments, preparing for retirement cashflow, planning for estate matters, and much more. It equips us to face uncertainties and manage our limited resources efficiently. In times when the stock market doesn't perform as well as we'd like, it's our well-thought-out financial plan that comes to our rescue. It ensures we remain on a steady course, financially sound, and well-prepared to weather the storms that can occasionally rock our financial ship. I know everything sounds overwhelming, but trust me, it will be worth it! And we are always here to help!
All that being said, navigating life without a financial plan is like driving through a blizzard with a destination. It's a risky journey without a map. Whether you're a planner or a crammer, remember that a financial plan is your compass, guiding you through financial challenges and uncertainties.
This Month in Innovation [by Conor]
In a recent study, scientists introduced a smart tool called “Sturgeon” to help doctors during brain tumor surgery. They used a high-speed DNA sequencing method to quickly analyze the DNA of tumors, which helped the surgeons make better decisions during the operation. Sturgeon is like an artificial intelligence (AI) assistant for surgeons. It can quickly tell them what kind of tumor they are dealing with and makes surgeries safer and more successful. This is one of many use-cases for using AI as a “co-pilot”.
ChatGPT can now see, hear and speak. You can now interact with ChatGPT using voice and images, which not only expand its use-cases, but give the application a more intuitive interface and experience. The demonstrations on OpenAI’s website are very impressive.
Venture capitalist, Marc Andreessen, recently published “The Techno-Optimist Manifesto” which celebrates the positive potential of technology, economic growth, and open markets. It opposes what he sees as pessimism, bureaucracy, and stagnant ideologies. Marc calls for embracing intelligence, energy, and innovation to create abundance, improve quality of life, and explore new frontiers.
A Service You Don’t (Maybe?) Know About
We all likely have insurance for one thing or another. Car insurance, house/tenant’s insurance, life insurance, mortgage insurance and the list go on. But ensuring your investment strategy is adequately designed to protect your family and loved ones isn’t necessarily always the case, despite the insurance we think we have. Take group life insurance, which typically covers you for a multiple of your employment income, but in so many cases, it is very insufficient. I suppose some insurance is better than none, but replacing a sole-income earner with 1x, 2x or even 3x income is not every much money in the event that the remaining spouse suddenly needs to sustain a family, education savings and costs after an untimely death.
We are licensed to evaluate, review, discuss and implement insurance solutions as part of your financial strategy and tend to keep this fact too hidden. If you would like to ask some questions about insurance and/or have a review of your current insurance coverage, please ask us!
One UPtrend, One DOWNtrend
We believe that trends are important to understand. Investing in assets, sectors or stocks that are going up makes sense and as I often say, if you want your portfolio to rise, it really is sensible to own stocks and securities that are rising. The more securities in your portfolio that are trending downwards, the harder it is to make upward progress. The “back of the room test” is putting a plot before you, like the one below, and figuring out if you can tell if it’s an uptrend or a downtrend when standing at the back of the room.
As an example, these two weekly charts provide an example, for learnings purposes and show the trend of the stock’s prices over two years. In the top, we have Alimentation Couche Tarde (ATD:TSX), a Canadian multi-national operator of convenience stores and in the bottom we have one of the big Canadian banks, the Canadian Imperial Bank of Commerce (CM:TSX). One is rising and one is falling. As trend followers, we believe (like Newton’s Law of Motion) that a trend in motion stays in motion, until acted upon by a greater force (selling pressure)… all trends are capable of change and time frame matters. I will use this column to offer some fun perspective on markets and stocks that you may know as we go forward.
Source: Optuma
* * as at October 31st, 2023
Sharing Our Tools of the Trade
There are so many tools that we regularly employ here at the office as we make investment decisions and manage our clients’ portfolios. A process is a must and can keep us from acting in an undisciplined manner, especially in times of market gyrations that cause emotions in many (even advisors!). Given the 3-month correction that has been taking place in the equity markets since July, I thought I’d share our “Is It a Bottom?” checklist today. This is updated to October 31st, and some of the ingredients for a bottom are in place after the price action to star this week. As I have often said, I never know whether it’s “a bottom” or “the bottom” and hindsight can clear that up, but as investment managers who nimbly manage risk and raise cash as markets struggle, it’s important to have a plan allowing for redeployment. I thought I’d share our checklist.
We Like Fundamentals Too!
You know we’re I’m always talking about charts, and perhaps you even wonder if we dig into the fundamentals of the various companies on our radar ever. Yes! In a perfect world, we find a company that boasts solid double digit % gains on both sales (top-line) and earnings (bottom-line), but is that possible? Even in today’s shaky economic world and macro climate? Yes!
Here’s an example and this month we’ll look at Palo Alto Networks (PANW:US), a $75 billion cyber-security company. Here are annual % change of both earnings per share (EPS – left) and revenue (right – sales). Is the company growing? Yes! PANW reported an +80% growth in EPS when comparing the July, 2023 ended quarter vs. the July, 2022 quarter (which is big!) and you can see that revenue growth has been consistently mid +20%+ for the past couple of years. That’s rather solid! Not too many businesses growth sales at double digits quarter after quarter…
Source: Marketsmith
* * as at October 31st, 2023
We also like institutional sponsorship, which is a tally of the number of large (i.e., mutual fund, pension and hedge fund investors) investors that own the stock. We like to see stocks that the institutions are interested in, because a growing number of institutions means more buyers of the shares, and more buyers typically means more demand and if that demand is greater than the selling pressure, the price rises. In the table below, you can see that PANW has 4-quarters of rising sponsorship!
Source: Marketsmith
* * as at October 31st, 2023
All this said, and trust me when I say this, there are, and can be stocks that boast incredibly pretty fundamentals, just like this, and yet can be disastrous investments that have falling share prices. If you need a reason for that, let’s just chalk it up to valuation this month. This stock, Palo Alto has a P/E (price to earnings ratio) of 54x which is about 2.8x more expensive than the market.
Chart of the Month
Here’s a view at the Canadian equal weighted utilities ETF ($ZUT:TSX) and you can see that ugly price behaviour as we now bear down on the COVID lows as the next low of importance. This basket of equal-weighted stocks (meaning the big stocks are not biasing the performance) is down -30.8% from the recent highs of last year.
Source: Optuma
* * as at October 31st, 2023
Social Media & Our Website
Have you ever visited our www.financiallyinsync.com website? We’ve been continuing to expand our content and seek to provide clients (and potential clients!) with information they might find useful. We do get asked by some of you what kinds of clients that we work with here at “Financially INsync”. We thought we’d share with you who we consider to be our ideal client. Right from our website! https://www.financiallyinsync.com/our-ideal-clients
Upcoming Dates, Seminars, and Announcements
I’ve been invited to speaking at an upcoming seminar co-hosted by the CMT Association and the University of Toronto:
Where: Rotman School of Management, University of Toronto
When: Wednesday, November 15th, 2023, 1-5pm
I hope you’ve enjoyed something from this new chit chat and we always welcome your feedback, questions and/or comments!
Sincerely,
David Cox, CFA, CMT, FMA, FCSI, BMath
Senior Portfolio Manager, Wealth Advisor
Raymond James Ltd.
Phone: 519.883.6031
Unit 1 – 595 Parkside Drive | Waterloo, ON | N2L 0C7
david.cox@raymondjames.ca
www.financiallyinsync.com
@DavidCoxRJ