Hello, and welcome to the Download. I'm your host, Dave Richardson, and it is a frightening episode of the Stu’s Days podcast because this is the first time that you're actually getting to see us and what we look like instead of just our clearly-not-radio voices either, but maybe our faces for radio, now that people are seeing us. Although I think you look fabulous today.

Well, if I had remembered, I probably wouldn't have put my tuke on this morning because my hair is probably off a little bit.

You look kind of professorial, which is what we want, because people who are investing money with you or listening to your thoughts around investing would expect you to be a pretty smart looking guy. And so, not all beautied-up and fabulous. You look the part, I think, today.

All right, well, I'll take that as a compliment, Dave.

But we're already getting a lot of heat. We don't talk about her a lot, but she's a massive influence on the podcast: our producer, who we affectionately call producer Nancy. And she's already been on us about some of our mannerisms and things that we do. When we're only on audio, it makes no difference, but now you're going to be able to see all the things we do. Fortunately, I'm apparently pretty good, but Stu is in a lot of trouble because he's a fidgeter.

Well, you're a veteran at this. You know exactly what to do. I do fidget. A couple of nervous twitches. My wife will tell you. I'll be spinning pens and tapping my leg and all sorts of things, and I'll be told to quiet down. I'm going to do my best here.

One of the things, and I'm glad we set it up this way for the first one because this introduces your famous wall. So anyone who knows Stu very well, and you can see here, if you're watching us on YouTube, you can see the famous wall that Stu has, with a collection of really amazing stuff through your career that you've put together. You've talked about it on the podcast as we've been doing it over the last three years audio-wise, but people can see. What is all that back there, Stu?

Well, I think when you do anything, you try and be a student of it to some degree. So I try and be a student of the market. And there's just so many great investors, different styles, value investors, technical investors, investment bankers, all participants in the market that have great quotes over time. Normally they come around some historical event that puts a lot of perspective on something. And when I see these great quotes, I tend to print them up and put them on the wall to remind myself about staying the course. Markets are inherently volatile. They move all over the place. They have all sorts of reactions and counter-reactions. And that gets to be a really big benefit in certain circumstances.

Yeah. And Stu, for those of you who are joining us as new listeners, or maybe for the first time watching us on video, since there's another way to access the podcast, Stu is the co-head of north American equities at RBC Global Asset Management. And that is a big role. And Stu, you've been investing for how many years as a professional investor?

Well, I started in capital markets 27 years ago, and I've been at Global Asset Management for a little over 20 years and have managed just about every style of equity fund that we offer.

Again, Stu, for those of you who listen, very popular segment every week, because what we really want to do on this podcast — and we're doing sort of a reintroduction today, certainly again, introducing us to you visually — but the idea of this podcast, when we look out across the different podcasts that are available to listeners and investors relating to investing, financial planning, we find that a lot of the podcasts sometimes are a little bit too basic, sometimes are a little bit too complex, sometimes they're overly serious, not particularly approachable. And what we wanted to do with this podcast was bring you professionals like Stu, who have lots of experience, but also have a knack for taking really complex ideas around investing and boiling them down into really relatable terms, things that you can use. So whether you're managing your own portfolio, buying individual stocks and bonds, whether you're working through a financial plan or an advisor, you want to get some ideas around, better questions to ask, so that you get to a better overall financial plan and get your portfolio in the right space. You're getting a little bit of all of that as we have our conversations. And again, we'd like to have a little bit of fun with it, but bottom line, it's chock full of information, but again, in a very relatable way. And Stu, I don't know if I've explained it in the way that you would even explain it. What do you think in terms of what you do each week when we have our conversations. What do you think is the big difference? Because obviously people love the conversations that we have. And again, mostly what you share with all the wisdom that's not just on the wall, it's up there in your big brain as well, and you just have a knack for explaining it well.

Yeah, I think what we're trying to do is convert the evolution of capital markets as they unfold in front of you, and they go through ups and downs and marry that with a financial plan. So you have this idea about where you want to be some years down the road, and then you have the here-and-now, and you want to relate how the two things match up with each other. And like many of our listeners, I'm an investor. Just like they are, I have money in our funds. I just was talking to my advisor yesterday about my RRSP contribution and things like this. So we're thinking a lot about people who are in the funds. We're thinking about investors, but then also trying to match that up with what's going on in capital markets today. And I think it's that linkage between a plan and what's going on that is really important. You can watch different television, things like this, and that's really normally focused on what's going on today. And we try and link it to what does that mean for the plan?

Yeah, exactly. And again, there's that focus on what's happening today. But that could be something that I need to pay attention to. That's something that is relevant to my financial plan. Or it's something like, hey, this is just noise. And let's step back and say, hey, we've got to recognize something's happened. But does that create an action or something we need to think about in the portfolio? And again, I think you do a fantastic job of taking the here-and-now and explaining whether this is something we need to worry about or not, whether you're worrying about it as a professional investor versus someone who has a real job and is investing to save for their retirement or a particular goal and has other things to do. But here's something and do I need to do something with that or not?

Well, it's a great one, and it marries up with one of the quotes on the wall, which is by Jim Chanos: opinions about facts are what set prices on a daily basis, but it's those facts that really drive performance over the long haul. We always have to be mindful as investors that the things we have the most confidence in are the earnings growth over a long period of time or the dividends that will be delivered. And what we have to be wary could be volatile, the price around those facts on any given day. And it's normally an opinion about whether or not things are going to get better or worse, that really drives that price on any given day.

Yeah. And so sometimes we're talking about stocks and the stock market, or a particular area of the world, or the bond market. But we both got kids. So a couple of weeks ago, we did an episode where we were talking about investing early, starting early, the impact that that has, and then how young investors sometimes get on the wrong track. I was actually at an event in London, Ontario, last night and a group of students, medical students from University of western Ontario, were there, and talking about some of the crazy stocks that they buy. And we were pointing out that time is on your side. So buy quality and you can still get lots of excitement out of a quality company instead of taking a flyer on something. Anyway, talking about the big advantage they have. So sometimes we're talking about things like that. We've got parents, too. Sometimes we're talking about the differences. Stu's a little younger than me. I'm in my late 50s. I think you're in your early 50s. But parents in their 80s, and the unique concerns that they have. They're in retirement and thinking differently about investing. So we try to blend all of these things in. Sometimes, we get a quote from Stu that's general and philosophical, and that makes you think. And again, all in the spirit of helping you make better financial decisions and having more success over the long term.

100%. It reminds me when I first started in my very first year, the amount of volume that I traded through my own account was quite significant. And my advisor sat me down at the end of the year. He had a lot of experience, and he had some great lines, too: in a stiff wind, even the turkeys will fly. That was one of his beauties. But he sat me down and he said, look, there's smoke coming out of the machine based on how much you're moving your account around, and he started to lay out some of the long-term benefits of compounding and owning good companies and things like this and letting them do the heavy lifting. And sometimes we all need experience to go through different things and appreciate things. But that is a conversation that definitely comes back when you mentioned being very focused on where the volatility is in the market versus some of the longer-term trends.

Yeah, that's kind of a synopsis of what we're attempting to do. We've been at it for about three and a half years and the early results, if you read the reviews, are pretty good. There's a bunch from my mom; you can ignore those. They're all five-star and glowing. She likes Stu more than me, so that's a little hurtful, but I understand. But other than that, the reviews are pretty good and we're growing quite rapidly in terms of listeners. And now hopefully being able to look at us isn't going to hurt our numbers; there's always the risk of that. But hopefully that gives us another audience. Again, we're here to give you some thoughts and ways to hopefully get better results. Stu, why don't we give them a taste of some of the things we talk about and take a look at where we're sitting right now. So I know you're in with a lot of your colleagues right now in your big quarterly meetings where you really take a deep dive into a lot of data, what's going on around the world and have conversations about, hey, are we on the right path with our strategy? Do we need to be thinking a little bit different about the strategy? Is there anything that's come up in those conversations in the last couple of days that you think would be important for investors to hear?

Yeah, so a couple of things. From a longer-term standpoint, we've talked in the past about this idea that inflation peaks and twelve months later, interest rates peak, then twelve months later, earnings would bottom. And that still generally is in place. When we look through the earnings pool, the market has started the year and it has narrowed again a little bit. And what I mean by narrowed is that the leadership of the market is not lots of companies, it's just a handful of companies. And that's a function of earnings bottoming. So for lots of stocks, it has been more of a challenging environment for earnings because economies have been a little bit slower, interest rates have been rising, and normally when the central bank actually cuts interest rates is when the earnings pool as a whole will bottom. What has been a pleasant surprise is that even while that process has been going on, there's been a handful of large companies really doing well on the earnings. The likes of Microsoft and Meta, the old Facebook. We've talked about gross margin in the past, but when you have a high gross margin, which means you don't have very much costs per dollar of revenue, for incremental dollar of revenue, when you get that extra little bit of revenue, you've really done well on earnings. If we looked so far this year, the broad market's earnings are still declining, but the total market has been good because of the impact of some of these handful of companies. And that's provided a nice air cover for broad markets, as we debate when will the central banks actually lower interest rates. I think it'll be this year. On the interest rate front, there's kind of two camps. The first is, things are quite good. Why would you cut interest rates preemptively? Why not make sure the inflation genie is fully back in the bottle and wait then? The other camp says: by then it'll be too late, because as inflation has come down, the real rate of interest has actually been rising even faster. To get the real rate of interest, we take the headline rate and we subtract inflation. So if headline interest rates are 5 to 5.5% in the United States, and inflation was 5 to 5.5%, that means the real rate is zero. But in the last six months, inflation has come down to the 2 to 3% level. So as it's come down, real interest rates have actually gone up in the last six months. So that camp says: interest rates are actually maybe slowing the economy even more than they were when they were rising. And that's the case for maybe acting preemptively. So these two camps are in a pretty constant debate. When we sit and think about it, the first thing is you're getting great coupon in the bond market. The timing of the interest rate decrease becomes an option that will work in your favor eventually, but in the meantime, you're collecting pretty good interest income. For the stock market as a whole, we have a very significant trend going on with artificial intelligence, which is likely a secular trend. We have to be a little bit wary of where valuation gets to in relation to how much does it pull forward potential revenue growth and things like this, through share price movement. But also know that the broader stock market is sitting there at valuations that are not too bad relative to its top level. And as we start to get some easing in interest rates and the year progresses, it should be a better environment for more stocks as well when that presents itself.

Yeah, just a couple of things to clarify there. Secular trend. We'll talk a lot about cyclical versus secular trends. A secular trend is a long-term trend. So, we're in the early days in some ways of artificial intelligence, at least artificial intelligence in a way that it goes out into the market, that it goes out into businesses, when businesses can use it to make a difference for their customers. We, as individuals, we can use artificial intelligence in a web search, for example; artificial intelligence goes behind and gives us better search results. So this is a trend that's going to be evolving. Artificial intelligence will be evolving over many years, if not decades. And we're at the early stages of it. Over time, there'll be winners and losers, and you want to identify who those winners are going to be over the long term as companies will pop up. Think of the dot.coms. The Internet, clearly a secular trend, had some real issues in the early days with the quality of some of the companies that were being launched. There were some big winners — obviously, the Googles and the Amazons of the world — but there's lots of companies that went by the wayside, and we know all about that here in Canada. And then we talk about coupon. And this is important because one of Stu's passions is dividend stocks. And we talk a lot about dividend paying stocks. And we talk a lot about when we buy an investment, and it actually pays us. So a company declares the dividend, they pay it every quarter. We really love it when they never miss a payment, and then we really love it when they grow that dividend every year. If I buy a $1,000 Canadian government bond. I'm actually lending them $1,000. And they agree to pay me 5% a year. So my coupon is 5%. Where we are right now, 5%, that's a fairly attractive coupon, if we think about that. Even in history, that's a pretty good coupon versus where we were just three years ago, when that coupon was 1%. If I'm holding something over the long haul and you're paying me 1% a year, that’s not as attractive as when you're paying me 5% a year. And so that's where the bond market becomes more interesting right now, because that coupon is so much more attractive.

And it's even better when you think about it in real terms. Because when you're getting 5% and inflation is declining, your real purchasing power, you're getting real interest back, which is the interesting part.

Yeah. Which is ultimately why we want to invest. We want to increase our purchasing power over time. And do it in a tax efficient way — we won't talk too much about that. And then, the concentration of the market. If we look, for example, an index that we talk about quite a bit, the S&P 500. The 500 largest companies in the US, for lack of a better description. You've got 500 stocks moving that index, in theory. But what we've seen more lately is a very narrow market where maybe a dozen stocks — labeled the Magnificent Seven stocks — seven stocks are really doing the bulk of the work, taking the index higher, while the other 493 actually just languish for a bit for that period. And of course, that's great. We'd like to see the index going higher. If it's seven stocks doing it, that's fine. But it's really more interesting when all 500 stocks are lifting the weight and that's when we really get that pickup, when we've got lots of winners.

Yeah, it's like an engine with lots of cylinders versus just a handful.

Wow. There you go. There's my long-winded explanation, and Stu comes in with a zinger. And I bet that one's not even on the wall.

It's not, but maybe I'll have to go put it up there.

So we can't leave this inaugural video episode — also on audio, though, still — but we can't leave it for our audio fans without talking about probably your favorite thing. Why don't I leave it to you, Stu? What's your favorite thing in investing? And why? And how does it work?

Dollar cost averaging. I feel like we've been in this environment for some time, but particularly when valuations are attractive across lots of stocks, but still a little bit elevated for the market as a whole. We’re trying to figure out when will the central bank cut interest rates and when will economic growth start to reaccelerate. We're trying to figure out all these things. We spend a lot of time on it, and we think we have some good indicators, but a great way for investors to position their portfolios through that period of time is dollar cost averaging. Just taking a set amount of savings, dividing it up and investing in a very regular basis. It's just a great way to get exposure to the long-term trends that we have more confidence in and put those to work in your portfolio.

Yeah. Say you had $12,000 to invest. Instead of dumping all $12,000 in today, break it up into twelve pieces, $1000 each, and invest it once a month, over the next twelve months, as the market goes up and down. You buy more when it's lower and less when it's higher, and you average out nicely. And it's a good way, as you say, to dip your toes in it.

Yeah, 100%.

And it's something that you not only do as a personal investor, but also as you're building a portfolio and a position in a company. You're generally not going all in at once. You're looking for an entry point, and then you have a strategy of how you're going to build that position up to a full weighting in your portfolio.

Yeah, that's right. We like to use scenario analysis, which I'm sure we can cover off on future videos and podcasts. But you come to a conclusion that a company is attractively priced relative to its intermediate term prospects. Normally that happens when there's a source of concern in the short term and you've had a discussion with management, or you've done the arithmetic and you know that this concern will pass. So that when the concern passes, you're going to get a lift in the share price. And if you've done your work right to begin with, this business is compounding on your behalf anyways. So during that period of time, you're never going to find just the exact time to put all your money into that stock. So what you tend to do is say, well, this is a pretty good level, and we'll just buy it every day for a month or something like that, and we'll find our way into this position.

Excellent. Well, Stu, thanks as always. I'm looking forward to continuing this for a little while longer, as long as there's people willing to listen. And again, hopefully we continue to grow. And thank you everyone for listening to the podcast and subscribing, following, putting in your reviews. Please do the same thing with the videos, tell your friends, because again, just based on the feedback, we think we're doing something that's useful to investors. That's what they're telling us, and we'd love to have more people listening other than our kids and parents. And Stu, thank you again, as always for your words of wisdom, and we'll continue over time, now that we're on video, to dig into that wall and some of the gems that you got back there.

Okay, great. Thanks, Dave.