Happy holidays and welcome to the best of the Download podcast. I hope you enjoy some of our top episodes from the previous year. Hopefully you have a great holiday season and you'll be back to join us early in 2026, when we'll start up with a whole new year of great content to help you invest better.

Hello and welcome to The Download. I'm your host, Dave Richardson, and we've been away for a bit. So I thought it was a great time to bring back our old favorite, Stu Kedwell, the co-head of global equity with RBC Global Asset Management for what we fondly call Stu’s days. Because Tuesdays felt like there was something missing before we started doing this podcast with you, Stu. And now it's become Stu’s days. It's taking off everywhere. It's like when my mother created Thanksgiving after I was born.

Yeah. Well, that's very kind. This is the eve of Hump Day, right? Because Wednesday is the middle of the week. So this is the pregame to the middle of the week.

The pregame to the middle of the week. I don't know if we've got anybody in our business whose last name is Hump or rhymes with Hump. But we'll figure that out and get them on the podcast. You're smiling, but this is a sad day. Because I know someone you think quite highly of announced his retirement at age 95 or 94, I'm not exactly sure. And that'd be Warren Buffet. I think we can all learn from him. And for those people who listen to the podcast on a regular basis, know you've quoted Warren Buffett and use some examples of things that he does as an investment manager that have inspired or influenced many professional investment managers. But just getting your thoughts. I know you've got, based on what I know, 50 years left in your investment management career. But what are your thoughts on Mr. Buffett and his retirement?

Well, I'm sitting here and propping up my phone as a snowball in poor Charlie's Almanac. So, yeah, definitely a fan. Who's not? So much has been said. When I meet a younger person who wants to enter the business, the two things I suggest are reading every one of his annual letters. They are pure gold, to quote Jerry Seinfeld. Then the second is learning to read the Wall Street Journal and the Financial Times. But if you had to pick one, you would just pick all the Warren Buffet letters. Whether or not it's behavior, whether or not it's how share exchange works. From complicated financial elements to, as I say, pure behavioral psychology, here he is. He is the master. I would tip my hat like everyone else. A lot has been said, a lot will be said, but just a wonderful investor and educator for the masses, myself included.

Yeah. I mean, those are great points about the investor letters. It is something that I think almost anyone could read and get quite a bit out of it every year. If you're not into the technical elements of investing, just the wisdom, the patience, which is some of the things that we talk about on this podcast all the time. Taking emotion out of it, not following the herd, all of those things which come out in all of his writings and sayings are things that I know have helped me as an investor personally and professionally, and I know are an influence for people who actually do it day to day like you.

That's bang on. Everyone has their favorite. My story is during long-term capital management, because we were talking about the bond market a couple of weeks ago and some of the location in long-term capital management was right when I started in the business in 1998. There were some large hedge funds, long-term capital management, that was very levered buying off the run treasury bonds and financing them on the run treasury bonds. That's a little complicated in itself, but it's like trying to pick up the spread between two bonds, and they used a lot of leverage, almost 100 times. Anyways, this portfolio fell into trouble. They're trying to figure out what to do with it. Warren said, I'll take the whole thing, and then you go around the world and tell people it's in safe hands. Of course, if that had taken place, the spread would have immediately collapsed because the problem wasn't the security of the assets, the problem was the amount of leverage. And as soon as you knew that there was no point in pushing against that trade anymore, the spreads would collapse back to their long-term average. And he would have made tremendous amounts of money if that had taken place. I think that was the beauty of his teachings. How a business compounds over time, but also the intricacies of the market and handicapping odds and all sorts of things. But having safe hands, it's just a wonderful way to think about investing.

Yeah. My favorite was when the tide goes out, you find out who's not wearing a bathing suit. At the ocean. But yeah, lots of great wisdom. I did a video yesterday for some advisors, and you just look at the rate of return CNBC put up. The 60-year return was 5.5 million %. Which falls a little bit short of yours. Actually, I'm not allowed to say that. That was a joke. But the 5.5 million % over 60 years, you work it out. I think it works out to a little under 20% compounded annual rate of return. We'd say stocks, and we've talked about that a lot on the podcast, 8 to 9% over the long haul to double that rate of return over 60 years is just phenomenal.

Yeah, something else.

Something else. So we've got that sadness out of the way. Now we'll turn to what we normally do. By the way, Stu has started recommending the Buffett investment letters, Wall Street Journal, Financial Times, and the Download podcast. We'd love you to subscribe. We're on YouTube, too. You can follow us on the YouTube version, if you like looking at us. As I always say, more people prefer to just listen to us than look at us. And give us a rating. We'd love to get a review from you. And so we're going to go into a bunch of stuff because we haven't been on for a couple of weeks. But, Stu, we're sitting here. If we look at stocks, in the US, we were down a little bit over 20%. For Canada, it was more like 17%. We've seen a pretty significant bounce back from those low levels. Still plenty of volatility. What do you make of what's happening right now? Is this still what you've been saying all along or are you seeing anything different as you spend the last two week tracking markets?

Yeah, so maybe on that front, we'll start off with our economist who does a tariff uncertainty chart, and at the high of that uncertainty, that peaked with the low in the market. So sometimes it's worth going through things and say, what can you say for sure or close to for sure? In this instance, we probably have gone through peak uncertainty over tariffs. The second thing we could say for sure is that sentiment and some of the technical indicators really stretched in favor for long-term investors at those low prices. That has somewhat normalized as we've come back up to top. You then get into the list of what do you have trouble saying with as much confidence. I think there's two aspects that leave stocks a little bit in a no man's land for the shorter-term investor. The first is earnings estimates. The first quarter's earnings were quite good, but they didn't really reflect any of the change in confidence or the potential for tariffs. And we have seen estimate revision come down. And the second thing is the valuation of the stock market after the big rebound is back to a level that it's not expensive, but it's not cheap. We're paying a fuller valuation for estimates that we don't have as much confidence in. And normally, to get through that, you want one or the other. You either want a ton of confidence in the estimates or you want a lower valuation. And that's why I think in the short term here, it's a little bit more a no man’s land. I think to the positive people are maybe hopeful. It’s certainly still possible, this belief that what's taking place has largely been the result of a certain set of actions by the Trump government, and the administration could undo some of those things. Then would we go back to where we were? The only thing that offsets that is that confidence is low on many of the surveys, and the longer it stays low, it starts to affect some behavior. Those are the types of things that we're working through. It leaves us at levels on the markets where the dollar cost averaging, that's not changing at all in this environment. But some of the technical aspects that presented themselves six or eight weeks ago, which were quite attractive, now we're at a point where we need to monitor things from here. We can look through and we can look for positives. The positives would be the financial stocks that have largely been pretty strong. That could be that, yes, there's going to be credit losses, but the yield curve is going to have more positive slope for a while. So even on the other side of credit losses, earnings can be stronger. Some of the big hyperscalers, the providers of the big data centers and all that capacity, they've been not bad. But some of the suppliers to the data centers haven't really reengaged quite the same way or some of the semiconductors and cyclical-oriented businesses haven't, at this juncture anyway, been willing to look past the valley. So that's why there's pros and cons.

When you're out talking to companies, how are you seeing them react or respond? A few weeks ago, we did a piece just around how a strong management team works through something like this versus maybe one that's not as experienced or that ends up not making decisions probably as quickly and as decisively as they should. What are you seeing across the gamut there in terms of what leaders at companies are doing in reaction to this back and forth on tariffs?

Companies are running a lot of scenarios just like investors do, and the best ones are using the biggest imagination they can. So there's two things that face them. The first is maximizing the assets they have. And that one's a little more straightforward. If one revenue source looks like it’s changing, then you alter the path of that revenue to a different source. That one is pretty par for the course. The thing that is paralyzing for almost all management teams is where to put new capital investment. If you were an importer, did you use your line of credit to advance your imports before the tariffs? Probably. That's just a good business decision to get that stuff into your warehouses at better pricing than you would pay later on. But in terms of, where am I going to expand my factory, or am I going to expand this or expand that, those decisions are still waiting for certain outcomes. That's the thing that really has ground to a halt. I was having a discussion with one CEO, and he said, well, it's one thing when the stock market goes down 10 or 12% in a few days, and then two weeks later is back to where it started. He's like, that just does not align at all with how capital is actually put to work in the real world. So that goes back to that confidence component. And the longer the confidence surveys sit at lower levels, that's where you worry about a bit more of a permanent effect.

We were talking to Eric Lascelles about this on Friday, which was our last posted podcast. And this whole idea. We started in late January with this. So we go a month of uncertainty, and then it goes to two months and three months. Now we're at three and a half months, and still not really sure if we're going to get to an end. Maybe, as you suggest, the peak uncertainty is past, but that doesn't remove that still, if I'm running a business, I really don't know. I might be a touch more confident now than before, but I really don't know exactly how this is going to play out. To make big decisions is really hard. You go from three months to six months to nine months, and at some point, that filters through the economy and hits earnings. And that's the anticipation anyways. But the longer this drags out, the more of a possibility it leaves a mark, as they say.

Yeah, I think that's true. And then for Canadian business, it does look like the government is going to do some proactive things to stimulate the economy. So to the extent that they can get some clarity on a non-trading oriented investment, that would be a positive. You can always look through the second derivative. We've talked about that a lot. Just like the Canadian dollar at its worst was 1.48, today we're at 1.37. The tariffs are probably not going to be as bad for Canada as the 25% fear. The government, the election is likely going to be a positive for the economy at some point. So there are always positives out there, but I don't think there's quite the list yet where you're going to get business ready to significantly invest behind those two things. You still need a bit more clarity.

And then on top of that, and we talk about valuations, we're often talking about the S&P 500. But if we do come home to Canada or if you look in Europe or other parts of the world, the valuations aren't as high as certain parts of the US market. So we see it on the downside, and maybe this is just maybe not as precise as I'm putting it forward. But S&P 500 is down 21%, TSX is down 17%, peak to trough on the pull on tariffs. So some of that is a bit of valuation and then particularly concentration of high valuations in a particular part of the US market where you don't have as much of that represented in the Canadian market.

Yeah, 100%. I think at the lows, we ran the valuations of every sector in the TSX, not just the market as a whole. And every sector was below its 10-year average valuation. Going back to that point about earnings and valuation, like the two-legged stool, if every component of valuation is below average, then I'm getting compensated for some type of earnings concern. That definitely feels a little bit better. You can see that around the world, really outside of the S&P. Most of the global markets’ valuation is not too bad. To go back to the podcast we did in London, right after Liberation Day, we talked about some of the currency movement, and that being a bit of a shot across the bow. That has continued. Last week, we saw some Asian currencies be quite strong, really, out of nowhere. When you own an asset and the currency with which you hold it in is depreciating against yours, it does add to some tension in terms of holding it. We've seen a lot of capital flow, and we think we're in the early days of that, that movement towards maybe non-US markets.

Yeah, and it's hard. I was listening to a commentator this morning as I was driving to the office. And for the US, getting the toothpaste back in the tube, about a huge portion of global capital was flowing into the US because of the strength of US markets, strength of the US economy, strength of the US dollar. And now all of a sudden, you've unwound some of that. Now I'm less certain of US markets, US economy, US dollar. All of a sudden, you see that capital looking for another place to go. And then once that starts, wow, there's some great bargains here in Canada, great bargains here in Europe, great bargains here in Asia. It's hard. No, no, come on back. We're still the same old US you thought we were. But you're not. You've cracked that illusion, and that's something that we worried about out loud on the podcast over the last couple of years when the US just kept going up and everything else was going up as well, but just nowhere near as fast. Then at some point that has to shift because there are opportunities everywhere and one of the great things about being an investor in 2025 is you can take your money and you can invest anywhere you want. You're not stuck in Canada, you're not stuck in the US. You can go anywhere. You find the best opportunity. I mean, that's what you do for a living, and that's what every investor can do. And so there was going to be something that was going to tip the scale the other way a little bit. And sure enough, it might have been the tariffs. And now we're seeing all of this unwind. So it's interesting to watch.

Yeah, no question. And there is always a bit of a momentum aspect to this. I was driving my daughter home the other day, and there was a store that never has a line and all of a sudden had a line all the way down the street. You just naturally want to pull a car over. You're like, well, something must be going on. Why is everyone lined up? When we get these momentum moves, we have to really think through the fundamentals that are happening behind. But sometimes, one of the things that we like to say, opinions about prices often matter just as much about the price themselves. Sometimes in a murky environment, new things emerge. And to our discussion here today, the currency changes have definitely been the bigger story than the equity market or really the bond market, for that matter, in the last month.

Well, all of this has made us 10% wealthier if we ever go over the border again. So anyways, let's just shift to one thing that we have seen also weaken over the last several months, and that's the price of oil. I didn't look at it today, but we were well under $60 a barrel. I think we got down to around $55 overnight on Monday. We were in a pretty established range of $70 to $85 a barrel for a while, and certainly it’s been higher coming out of COVID. And this is a surprise, although it was talked about a lot as one of the things that the administration in the US wanted to do, to tap the price of oil down. Certainly a concern for US producers. We're already seeing that. But what about in Canada? Because we produce a lot of oil here, and it's a big part of our market. What would you say about the difference between a Canadian and US producer?

The big difference is when you produce from the oil sands, it's much more like a manufacturing operation than it is a conventional energy operation. For sake of financial purposes, you have an unlimited reserve life. So the price that you're getting for your crude, as long as it covers your cash costs, which it more than does enough, you've got money left over to pay your dividends and all sorts of things, you don't have to worry about taking that cash and reinvesting it because your reserve life is not declining. Versus if you're in the United States and you're drilling a well that might have a three- or four-year reserve life, the price that you get for crude during that four years is very important because it totally dictates your ability to keep drilling, to do it all again. That's a big difference right now, anyways, for Canadian crude producers versus elsewhere in the world. We're not totally at an extreme, but you want to talk about commodities when they're at extremes because the solution to high prices is high prices, and the solution to low prices is low prices. This began with OPEC being concerned that some producers were maybe putting a little bit more into the supply than they were supposed to. There's a disciplining angle to this that started to cause the downward price movement. But when you get downward price movement, a couple of things happen. The first is you will eventually get a supply response. Once oil goes below 60, you're not really making the marginal cost of a new well. And once you get anywhere 50 and below, you're not really covering the cash costs of some existing wells. So that will lead to a supply response. And then the other thing that happens is when oil goes down, demand goes up a little bit. And that has been a source of concern because the global economy might stall a little bit given everything going on. So if you bring the price of crude down, you'll accelerate that. People will drive more, they'll do more things, that type of thing. Some markets, when you get a negative price signal, you want to take that as something to go think about. But when it comes to commodities, negative prices often are the solution in and of themselves.

And it remains to be seen how low the price goes. It’s virtually impossible to forecast it. But it is an interesting dynamic when you see the price of oil come down this much. And then in the US, a lot of that production is at a higher cost, or at least the marginal, the additional production. And so that also could bode well for Canada as the price comes down and supply has to shut off. It's probably not going to shut off as much in Canada as it does in some other parts of the world.

No, I would expect very little in Canada.

Yeah, exactly. So, Stu, interesting stuff as always. As we look at it, and I'm not going to surprise any of our regular listeners with this next comment, you already tipped it. But this is still an environment where using the strategy that you like quite a bit, dollar cost averaging. If you're facing uncertainty and there's a risk of some disappointments around earnings or the economy, which creates a little bit of a pocket to the downside in the markets, dollar cost averaging continues to be a fabulous way of working this market. Particularly for people who are still accumulating assets and still working and earning a living, getting a paycheck every couple of weeks, just take a little bit of that money every two weeks, stock it into whatever investment strategy you've got in place. And this market just plays right into that.

One of the things my mom, even going through a variety of things, one of the lines that she has really grabbed onto is dress accordingly for the weather. She likes to talk about this. It reminds me of a comment, you trade the market you have, not the market you want. In this environment, dollar cost averaging really lends itself to the environment that we have in front of us.

Yeah. So like you said, cloudy for the short term. So a dollar cost averaging, generally clear sailing long term as always. So by the time you get the things clear up, you're in and away we go. And that's one of the things that dollar cost averaging does a great job for you. And regular investing beyond that. Go back to our old buddy, the wealthy barber, who we did some work with years ago, David Chilton. We should attribute it properly. But just the whole idea of paying yourself first. I did that from the first time I met him, which was right at the start of my career, and I done it ever since. And the wisdom in that is valid. I just don't think it ever goes away. My kids are doing that already. And this is something, if you're listening to the podcast, you should be doing it and your kids should be doing it and your grandchildren. And that's something along with dollar cost averaging as you get new lump sums that you're trying to put into place. Stu, great discussion. Great to be back. And we'll see you next week.

Okay. Thanks, Dave.