Hello and welcome to The Download. I'm your host, Dave Richardson, and it is a special reconciliation Stu’s Days. A lot of rumors floating around the Internet. I know in the Canadian investment world, it was the main story last week. We did not do a podcast, and a lot of rumors that Stu and I had had a falling out similar to Elon Musk and Donald Trump. And we're here together to say that we've ironed out our differences.

Yeah, well, water under the bridge, Dave. Water under the bridge.

So, Stu, despite the excitement generated about the cracks in our relationship, the market is dull right now. It's chugging higher. But still, are we going to have a recession? Not a recession? Are rates going lower, not going lower? Housing markets is blah, a little bit better. It just seems like we're heading into summer, doesn't it?

It does certainly feel that way. And on any given day, there's one area that flares. And I would say, from a tone standpoint, there's been a little bit more movement towards some of the cyclical areas of the market. Everyone would know about NVIDIA, but non-NVIDIA semiconductor stocks picked up a little bit. Some of the more consumer cyclicals in the basic material area. So some of the things that maybe the broader stock market got in front of saying the economy is going to be okay, maybe not spectacular, but okay, there's been a bit of a catch up in some of those groups in the last little bit. And then on any given day, there'll be a piece of news that creates a flare in those types of stocks, but then it often just dissipates. So, yeah, it's just churning. Churning doesn't mean good or bad. There's still lots of work going on and lots of things to think about. But the market itself has been a bit quieter.

And so as I listen to the way that you're talking about that, it starts me thinking that this is the kind of market that you actually like, right? Because if you're getting these flares here and there, general trend is up, but you're able to pick and choose where you want to be because you're going to be a little bit active. I mean, you're not swinging wildly between one thing and another every day. But there's an opportunity for you to find things that are going to give your portfolio a little bit of juice in the short to medium term based on what's happening day to day.

Yeah, it's the old line, buyer of weakness, seller of strength type of thing. So on any given day, there's a lot of algorithmic trading around some relatively minor news, and maybe it's getting a bigger reaction in the stock market. So it provides a little bit of an opportunity. But in all honesty, in these types of environments, this is when you get to really study companies in a different way because it is a bit quieter. In the months of April and May, you're looking at price a lot more because there was volatility and there was lots of activity and there were things to be done. And you get into this type of environment, working on new artificial intelligence tools and all sorts of things that are going to be big in the investment management industry. There's some time for that as well. Just the querying we're seeing with certain tools is really something in terms of reading research, reading a company filings, comparing it to consensus, studying how business might evolve. That trend has been with us, but it gives you a few moments to reflect on that. And some of these tools are going to be really impressive.

And so in a lull period, what's great is this stuff can just mine through data and put in front of you what you really want at any given time, which allows you to still consume as much information as you were consuming before, but to actually consuming better information, which makes you more efficient and helps you make better investment decisions. That's really what AI is going to do for you in your world?

It's the ability to go find sources. Someone was showing me something the other day about a company that was embarking on a bunch of CapEx they were putting into new restaurants. We all drive down the street. This one looks a little tired. This one has brand new lighting so let's go eat there. So you're trying to figure out when they put that capital to work, what type of return do they get on it? And there's obviously lots of anecdotal evidence when we can watch traffic, we can watch all sorts of things. But setting AI loose on this and the research that it was finding in some of the trade journals and piecing it together, who was seeing what on different things, it was really quite impressive. It's the work of a fundamental analyst. It's not technically driven behavior, but very additive to the investment process. And I think that's likely to only continue. And so we're seeing it on a stock-by-stock basis. But we're also seeing it at a portfolio level where you can query, maybe not about your specific portfolio, but if you were looking at the implications of not just things that might be in the new tariffs and things like this, but if you really wanted to delve into a certain aspect of cost structure and say, how would this impact a whole swath of industries? The brainstorming process, it's pretty good. One of the hats that we have at my house, which is one of my favorite hats, it's a trucker hat, the mesh on the back, and on the front, it says «your thinking cap». So you put your thinking cap on. People are great brainstormers because they use their imagination, but the machine is additive to that for sure.

Yeah, and it's the whole art and science thing that we've always talked about. You're a quintessential example of that. You've always had lots of resources to go and do research and to understand the companies that you're looking at investing in. Then you're applying your art and experience, your knowledge that you've accumulated in years and years, successful investing, professional investing. And again, just all through time, year after year, and now the acceleration is even faster, the arcs even faster, these machines are able to give you things that you can look at that you may not have seen before. And it's going to make your job not easier because it's still a hard job to beat the market and to build a portfolio that consistently delivers above-average returns to investors. But it just gives you more to work with. And when you give really smart people great information, great data, they can usually do something with it.

Generally speaking, the toolkit involves quantitative analysis, fundamental analysis, and technical analysis. So quantitative analysis, the major impact there has been speed—speed of connection, speed of digesting new numbers, things like this. So a good understanding of that toolkit is very important. Then fundamentally, it has been your analysis, your business understanding, evaluation of management, opportunity, that type of thing, that's going to get assistance from artificial intelligence. And no doubt, artificial intelligence will probably help quantitative investing. Technical analysis has been around price change. And ironically, the better the first two get, the more interesting technical analysis becomes because it is the sum of everything the market knows about something and how it might be either improving its momentum or showing decline. So in these cases, we have acceleration in some new research tools, but we have to think about it across the three dimensions of our toolkit at any given time.

Yeah, I had a friend over last night for dinner that I hadn't seen in a while, and he was showing me some of the tools that he uses. He generally has a professional like you to manage the bulk of his money, but he's got a little bit of money that he plays around with and has some fun with. Just the tools that are available to investors, not just professional investors like you, but everyday investors, it's just incredible. I was just peppering him with questions. Can you find this? What does this look like? Then around different indicators for technical analysis and just what it spits up. Even the visuals are incredible. It's really amazing this path that we're on right now, how quickly we're going to get there, because it seems like it's coming faster than anyone even anticipated and how it's going to change everything we do, not just investing.

For sure. A good reminder on the technical things, because you see some technical analysis as well as something trades here, then it'll trade there, which is the way technical analysis works. And you can believe in it, but one of the quotes on my wall is, when I go hunting, I take my dog, but I don't give him the gun. I think even when you're incorporating technical analysis, you're really saying to yourself, what is the market trying to tell me about this situation? And do I agree with that? Or if I disagree with it, is there something in my thesis that I should be reevaluating. Those become quite important because the machines are driven by some of the algorithmic trading situations. But then something fundamentally happens, and it doesn't end up working. So it's a mixture of all three components of the toolkit that we have to focus on.

That's right. You can't build a house with just a hammer. You need a whole bunch of tools. And in this case, you're using those three areas, but it goes deeper than that to identify the right investment. And then again, a market like this gives you that opportunity to sit back and take a look at and reevaluate some things. So maybe we'll just finish off with an extension of where we've come two weeks since our last conversation and what's been happening in markets. I think you said just before we started recording, there's a lot of noise because when we're talking about the US right now and politics in the US, there's going to be a lot of noise. The Elon Musk and Trump thing, and now the China trade talks, and we've got what's going on with immigration in the US. So there's lots of headlines, there's lots of noise, and you expect that. But what's translating into markets, things have just chugged along. But if we're looking now towards the back half of the year and concerns around earnings, those are still in place. Nothing's fundamentally changed with respect to where earnings forecasts were, where growth forecasts were, and what you're expecting around how the year plays out.

Yeah. So normally what happens with earnings expectations is they start the year quite high, and then they drift downwards on their own naturally through the year, because people start a little too optimistic, and maybe people don't totally believe them. Then really what you're looking at is the pace of decline relative to the normal decline, if that makes any sense. And so there was a period of time in April and May where that pace of decline was a little bit more aggressive relative to what you might normally see, which was a source of concern. That has leveled off. So estimates in the last little while have been in better shape. We were talking about seasonality before. When I first started, I worked with a guy who said, buy when it snows, sell when it goes. Another great one was, buy March break, sell May 2. Sell August long weekend, buy Thanksgiving. In the summertime, often you get a little bit of a quiet market that we've just discussed, a little bit of a rally. And then you get into August, and that's where the next round of thinking about estimates takes place. And the one thing that still lurks in the background is, there's pros and cons, but there doesn't seem to have been any price for some of the chaos at this juncture. And we see some data that says the impact on confidence, and we'll see how that entirely plays through. So that's what we're going to be evaluating as the summer progresses.

Okay, Stu, well, that was a great, Stu's day. I'm glad you're not angry at me anymore. I think you're going away next week, so we might miss next week as well.

That's right. So it's on friendly terms, Dave. On friendly terms.

On friendly terms. So don't get on the Internet and start thinking that Stu and Dave are upset at each other. Stu, have a great vacation and we'll catch up with you in a couple of weeks.

Great. Thanks, Dave.