Hello and welcome to The Download. I'm your host, Dave Richardson, and it is Stu's Days Live with Global Chief Investment Officer of RBC Global Asset Management, Stu Kedwell. We are live in front of an audience of what I would say is probably the best group of financial planners in the entire country—investment and retirement planners, financial planners. We even have some private bankers here. They're the big wheels. Do you ever work with private bankers?

I have not worked personally with one, but I've worked with them for sure, yeah.

You should, because you're a really important guy. You should probably have that level of service. I think we've got an opportunity for some private bankers, Jennifer, to maybe call Stu Kedwell and add a pretty important new client.

It's interesting. When you say, «the best», it reminds me of my father-in-law. He had three daughters, and he used to say to my wife, you are the best daughter named Candice. So these are the best financial planners in British Columbia. We are blessed across the whole country.

We are blessed. And in all seriousness, this is a fantastic group of people. I think what we love, Stu, because we have the opportunity to work with advisors all the time, I'm always impressed—people say, it's a bank and it's impersonal and all we care about is making money—but when I spend time with these advisors, now for me, over 26 years in the role that I'm in, I'm always impressed with how much advisors care and the tools, the information, the work that they've done their whole lives to get into a position where they are true professionals. They are true professionals of their craft, which is financial planning, investment advice. Just like a doctor. You think of what a doctor has to do their entire career and to keep up with everything that's changing all the time in a rapidly evolving world. And these financial advisors do exactly that. These financial planners are on top of everything that's going on. And that's not easy when you're balancing a personal life and all the other things we have to balance in the world people today. And hey, it's not like there's nothing going on around the world at any given moment. So, it's always impressive. So, congratulations to all of you and congratulations to all the clients that work with you because you're just fantastic. So, thank you. Okay, I'll applaud for you, if you're not going to. George Tsamis is always slow to applaud, but I didn't expect the rest of the gang to do that. And I wasn't saying that just to be patronizing. I really do mean what I say. I was out with a group of clients last night in suburban Vancouver and I just had a great evening. There were some great planners in the room. We got a couple over here at the table and a really amazing time. I think we spent about 3 or 4 hours in the time that we were at the event just debriefing and putting all the information together, booking appointments, getting ready to make subtle changes or to just stay the course in the financial plan. Again, it's very, very impressive what this group do. And I know you, Stu, have a huge belief from the standpoint that for many years you've tracked Canadian banks, and you look at what's happened on the wealth management side of the Canadian banking industry. It's pretty impressive. The development of that space in terms of how it can bring world-class advice to clients on a daily basis?

Oh, no question. It's been phenomenal to watch over time. The relationships are just so important, both to the clients and to the bank. But the depth of discussion that goes on between the advisors and their clients and the confidence that the clients have in them, it becomes quite symbiotic with the asset manager. Many asset managers, when someone buys one of their funds, they may only invest for 2 to 3 years. And at GAM, inside of Select, we get the money for 12 years. As a result, the asset manager then can make decisions in a different way than some of the shorter-term investment managers need to. Which then raises the bar of success. So the longer the time that you have the money, the greater the chance for success. And when I think about the financial planning relationship, there's three components that you have discussions with your clients all the time about. One is the capacity to take risk. That one is pretty mathematical. You can sit down with someone, their age, their money. Capacity is the left end of the spectrum. You can get the capacity right in most circumstances. Then there's the willingness to take risk. And anyone who has been an advisor knows that the willingness is not constant. It goes up and down, and that's what makes the relationship so good. And then there's the attractiveness of risk. And that's what we're going to talk about today. There’s been a lot of things that have impacted the willingness. There's consumer confidence. There's a depressed housing environment in certain pockets of Canada. There's wars, there's been tariffs, there's been all sorts. There's always been a reason at the top of people's mind to affect that willingness, unfortunately, in a period of time. And the attractiveness is okay. There's certain pockets that are quite attractive. There's things that are always developing. I think the one thing that we need to always remember on the attractiveness and willingness part is that the worry that comes to the surface, there is a lot of people also focused on that same worry and how to make sure it dissipates, or how do you turn worry into opportunity as well. We see it at the government level. We see it at the central bank level. We see it at a company level. When there's a concern on the top of mind, they're in fact worried about the same things, and they're putting plans in place to try and address things.

Yeah, but such an important point that you brought up at the front end, the whole idea of the time frame, and that one of the things that investors have to focus on as opposed to getting too myopically focused at times with what's happening with trade, say last year, or the war in Iran, is thinking longer term. Because when we get out longer term, asset performance gets much more consistent and what you want to have is an element of growth in your portfolio. So again, the difference between a client or an investment manager with a 3-year time horizon versus 12 in terms of the percentage of 3-year periods versus 12-year periods where markets are up—and how much they're up—is significantly different. So when you're handed that opportunity with a longer time horizon, you take advantage of it as a professional investor. But what I'm seeing with Canadian investors right now is that many Canadian investors are not doing that because they're so focused on the near term. And I'm talking about someone who's 45 years old and has generally been a balanced investor throughout their life—60% stocks, 40% bonds—sitting with thousands of dollars or a significant percentage of their portfolio in cash as markets have continued to do exceedingly well. And even if you thought the market was going to crash tomorrow, it's where that's going to be 12 years—or for a 45-year-old, where the market's going to be 45 years from now or 50 years from now—that's more important. And it's one of the big differences between an advised client versus an unadvised client, because an advised client is much more likely to understand the relationship between time and returns. But the biggest difference is between the way a professional investment manager like you and your team manage that opportunity in terms of the longer time horizon versus just an average investor.

No question. And I've got to know some people, some elements of our firm better. The levers that are available inside of Select to get to those types of financial goals, I almost find them overwhelming, the different expertise that's available. And you're going to hear more about some of the changes that we're entertaining in the Select portfolios as it continues to evolve over time. Change is too strong a word. Even when we talk about me taking over from Dan, I worked with Dan for almost 25 years, so if I had this long list of things that I was waiting to do, it would have been some time in coming. This kind of constant evolution, always looking at what's necessary for the task at hand, is something that's very important to GAM as a whole. But when I visit our different offices—what we have in Hong Kong, what we have in the different jurisdictions, what we have in different debt markets—it's really interesting to see it all flow up underneath the surface of the portfolio. And I think we do a great job through podcasts like this of trying to turn the portfolio inside out. I remember in the financial crisis doing a presentation to some clients. And I said, well, the dividend fund is my RRSP. And someone said, you're nuts, or something like that. And I said, well, I get the benefit of meeting these management teams. You think about CP Rail or CN Rail or whatever the company was, and you see the tracks running outside and they're irreplaceable and so on. That was a real benefit to that client, turning the experience inside the fund outside. And we have so much going on inside of Select on a daily basis that we're going to keep turning that inside out.

Well, maybe we'll go to the change. And as we like to laugh, we had a smooth transition of power on January 31st, which is embedded in our mind at RBC Global Asset Management, a historical moment. And so the first thing you did was you upped your shoe game. Those are beautiful shoes, by the way, Stu. That’s like the finance minister when they do a new budget, they get a new pair of shoes. Is this a new pair you're breaking out?

These are a new pair. I used to have to shine my dad's shoes when I was a kid. So I do like shiny shoes.

By the way, if you want to hear some of the previous episodes, please subscribe to the podcast wherever you download podcasts. We're on YouTube, as you can probably see if you're watching this live. You can follow us on YouTube as well. And then you can catch up with all of Stu's major talents, which include window washing, fine lawn care, snow removal, and falconry. He's got a lot of expertise which you bring in to the chair. And you come in your first day as the Chief Investment Officer, what are the things you look at? Because you worked with Dan for so long, it wasn't that you're going to zig after zagging for a number of years. But what are some of the things that you looked at and you said, well, hey, here's a couple of things I want to take a look at or make sure that all of the investment managers all around the world have a clear understanding of this is the way we're going to move forward.

Yeah, that's a great question. You'll hear from Dagmara and Sarah as well today. And I would say there hasn't been a major decision in the last 4 or 5 years that all of us haven't been involved with one way or the other. So the evolution of Select, that piece has been undergoing. So that will continue. A couple of other things. Just like when you study a business. I need to not just be a portfolio manager. I need to sit down and study GAM's business. What I invest in GAM. What is necessary. So I'm a big fan of lists and building blocks and breaking problems down into manageable parts. So an asset manager needs to do 7 things. 4 of them are analysis. Eric Lascelles is doing top-down economic research supported by his group. There's also plenty available inside the Royal Bank. As a quick aside, when Gangnam Style was your walk-on, I was doing a thing with Frances Donald last week, and Enter Sandman was her walk-on. Metallica, which you wouldn't necessarily put right up at the top for a chief economist, but anyway. So you have economic research. You have fundamental research. So all across our locations from London to Hong Kong, Japan, Vancouver, Toronto, people studying companies, meeting with management, coming up with insights, conclusions, things that could influence how stock prices could change. Then you have quantitative research, which has been substantially renovated in the last couple of years under Jaco van der Walt. So renovating your quantitative research program. It's kind of like when you're doing your house. You have successful existing products, so they need to carry on. But you need to reorient all your data, reorient all your process so that you can do more than just what was on offer before. So that has all taken place. We can expand that offering. Traditionally, it was very dominated by low volatility investing. That can now expand into market-neutral strategies. So we have global and US market-neutral strategies. We have core strategies. And then most importantly, you can start to surface the results of the quantitative model for all your fundamental investors. And we'll talk to that in just a moment. The fourth form of analysis is technical analysis. Some firms have mixed views. I'm a believer in technical analysis. The analogy for technical analysis, if you go to the farmer's market and there's a big line at one stall and there's no line at another stall, and you're the type of person that says, hmm, I wonder what's going on. That's what technical analysis is. It's like watching the market and saying, well, why is there all this activity over here and no activity over here? And how might I compare those two things? So there's a great quote about technical analysis, which is from Barton Biggs, who was the strategist at Morgan Stanley. He said, I wanted to be a better stock picker, so I started going to the technical analysis meeting. And he said, technical analysis is like going hunting. You take your dog, but you don't give him the gun. So there's no decision that gets made as a result of technical analysis, but it does give you very good insights as to where are things maturing in the marketplace and maybe where are they starting to accelerate. So you have these 4 types of analysis. Then you have portfolio construction, which is how much of each security do you want in the portfolio. Then you have your portfolio scenario analysis and risk management. What are you exposed to now that you've put your portfolio together? What environments would be good for your portfolio? What might cause you to struggle? How should you think about those? And then the 7th one is execution, which is our trading function. In Toronto, Vancouver, Hong Kong, London, everywhere we do business, Stamford, Connecticut, you have a trading function. So it's great to have a good idea, but you have to get it into the portfolio in a reasonable manner. So those are the 7 components that need to take place inside of asset management. Then we sit and we think about each component, how can we improve it ever so slightly at the margin. And artificial intelligence is going to hit every one of those buckets. There's not one portion of our firm that won't be impacted. And we've been very busy on that front. The first thing is, I would frame the last 6 to 12 months in artificial intelligence have been like chickens running around with their head cut off. We need tools. We need this. We need to go faster, go faster. So every investor in the firm now has a variety of both internal and external tools that are available to them to improve the decision-making that was in place. The next step is, well, where are we going to really put our chips down, so to speak, on the future in terms of something that will be proprietary to GAM where we can work with Borealis, the bank's artificial intelligence arm, to come up with something that we think will really assist all the portfolios. And for us, that is the quantitative research group. So the convergence of fundamental and quantitative research, we think, is going to be quite significant. And we think it'll be a benefit to the performance of all of our funds, not just the quantitative funds. And by the convergence, I mean historically a quantitative model dealt just with market data—price action, financial statements, valuation. In the future, it's going to marry in clips from YouTube, podcasts, Expert Network transcripts, company presentations, social media, all sorts of things to come into the scoring methodology. And the reason that that is quite important is that already today, in our quantitative model, as it's been redone, the first quintile of stocks beats the second quintile, beats the third quintile, beats the fourth quintile, beats the fifth quintile. So if you can hand the fifth quintile of stocks to a portfolio manager and say, look, the odds of these ones being poor performers are quite high, already you've assisted their portfolios today. But if we can just improve the durability of those scores and the performance of those scores by marrying those two sets of data with artificial intelligence, we think that that's going to be really important in the future.

Yeah, that's really an important point, whether we're talking about investment management and how you're integrating AI and the power of AI into the way that you do business and you're managing portfolios on a number of fronts. But the same thing could be said for financial planners and advisors. Same idea that those tools are going to be there, and they're not only in your hands, don't forget, they're in the hands of your customers as well, your clients. These tools are available to everyone, and they're going to proliferate, and they're going to be used more and more by more and more people. And what's going to differentiate you is not just the access to that information and the insights data—the output it's going to give you—but it's how you interpret that and how you put it into play in a human way. Because it's the interaction between human and machine that ultimately is going to be the difference. Again, one of the best examples of where AI is being used extensively now is in healthcare. A Claude or a ChatGPT can read every medical textbook that's ever been written and all the data on the internet about medicine and bring that forward. But then you have someone with a health issue and a nervousness and fear and anxiety about what that means for them and for their family. And it's a human that takes that information, shares it with the patient in a way that helps put together a plan. It's the psychology, the caring, the touch, the empathy. It's likely that a computer will never be able to do that. So the tool is great and it's helping you just do more things faster, but you're still relying on the expertise of the investment managers that you lead to make those final calls.

Yeah, 100%. And your analogy is a great one. In every case, embracing the technology is going to improve the ultimate result, make people more productive. The one thing that is definitely also changing through this is the speed and the window of decision-making. That's why I think those 7 buckets are so important. And we don't have a session on the trading desk when we do these roadshows, but we probably should because getting something done, or how we're going to get it done. Are we going to trade the stock on its own? Are we going to use a derivative? How can we reposition or figure out the same exposure? Those are tremendous skill sets as well. So the speed of information digestion is going up dramatically. What you do once it's digested is really where the value comes into play.

So, Stu, let's go into Select portfolios. And when we're doing this podcast, the objective that we had right out of the gate is, this is not a podcast that's designed to sell or specifically advise investors on buying a particular stock or a particular fund. It's about understanding how to think about investing and take advantage of what's going on in the market through a good financial plan, getting the right advice, and then how you manage around the fringes of that to add a little value here and there, but to generally stay on course with your overall plan. That's, I think, what we both believe, as well as the advantage you can take of hiring a professional investment manager to do that. And we say that in the context of Select portfolios because if you think of that program, which is now the largest program of its type in Canada, you have 5 different levels of risk that an investor, based on the interaction with their advisor, can determine. I'm a balanced investor. So then there's a balanced portfolio and it becomes a one transaction. So you see one thing on your statement when you're invested in a Select balanced portfolio and you go, this just seems pretty simple. I can get that. Actually, a young person just starting out investing or an older person just starting out investing can start with $25 into this portfolio. You go, that must be a portfolio for just everybody. It's not too exciting. How can it be interesting? Yet again, when you pool a couple hundred billion dollars together and you put it into the hands of a bunch of incredible investment managers, it actually becomes arguably the most sophisticated investment product available in the marketplace. It has all that success. And then you want to think about how you continue to evolve to make sure that it's at the cutting edge of what's available out there, whether it's for an investor with $25 or an investor with $25 million.

Yeah, for sure. And consistency of performance is something that is really paramount. When people set off on a financial plan, the number one mistake that we know we don't want to be the cause of is a humongous deviation from what they expect. The analogy is, if you were watching a baseball hitter and they struck out 9 times out of 10 and then the 10th time they hit a monstrous home run. So, people are saying, did you see the home run? Nah, I didn't. I stopped going to the games because the guy was striking out all the time. And then it's like, well, he hit this monstrous home run. And you're like, I didn't see it. I'll go tomorrow. And then back to striking out. And then you go for 3 or 4 games and it's like, oh, he didn’t get any home runs. He just strikes out. So, that is not the type of consistency that lets people stick to their financial plan. When you set up for a financial plan and you're talking about trying to double your money every 7 to 10 years, say, that last doubling is really important. That's where all the money comes in. And so inside of Select, we have all these levers that we can pull. In big, strong markets like we've seen, you're trying to add value. But it's more difficult because things are really vivacious right now. They're quite strong. But during the more challenging periods, that's where those levers really come into play. I used to have a joke with Dan: a basis point a day kept Dan away. That was kind of my thing when I was a fund manager. And people say, oh, a basis point a day, bahaha. And then you're like, well, yeah, but that'd be 250 basis points a year. That would come together in a manner that would be almost unnoticeable to anyone on a daily basis, but if you sat there and invested that way for a long period of time, it would really turn out. So when I look inside of Select, you have the ability to have some alternative funds where we now have infrastructure assets that provide a really nice inflation hedge. So if the bond market worries about inflation for a period of time, we know that we're capturing some of that back through our infrastructure. We have some total return, some long-short portfolios that we marry with T-bills to create a different type of fixed income return. Anyways, there's like a long list of tools that are available beyond just the asset mix itself. And I think that's what really excites me about the entirety of the platform.

Yeah, because of the size of the program, you have the resources to continue to invest in. Because you're going to be a successful investment manager, you need to have a solid approach, the 7 principles you laid out, and then you're going to stick with that over time. But you always want to make sure that you're just tweaking around the edges. Like you say, small regular wins add up to big wins over time. And you want to make sure you're continuing to evolve to make sure that that key offering is as good as it can possibly be at all times.

Yeah, for sure. Inflation protection is something that is quite important for Select investors, particularly the ones who live in Ontario. Like, we own a piece of the 407. So anytime someone complains about the 407 to me, I'm like, I don't actually complain about it because while I don't like paying the tolls, I'm getting it back inside the portfolio. So it all comes around. And I think actually it's not a bad analogy for a lot of things, when it comes to the Select portfolios. I would be out on the road and people would be sitting there saying, oh blueberries have gone from $3 to $6. And I'm like, yeah, I know, that's why we got Loblaw's. So we're in this environment where the bond market has had a tough 2 years. It hasn't had a bad 1 year, but it had a kind of tougher year when inflation expectations reset. And we went through this period of time where for 10 years central banks were trying to get inflation up to 2%, and now they're trying to get it down to 2%. And it's going to be more challenging for a variety of reasons. So the bond market has reset, and you'll hear more about that from Dagmara. But real interest—so you take the level of interest rate that you see in the market, you subtract inflation—the level of real interest rates is right back to its long-term average. And you can run some scenario analysis that says the bond market is probably okay. It's gone through a fairly significant adjustment. And then on the equity side you have valuation that at the headline level is elevated. It's not as elevated at every business level. But if inflation sticks in the 2% to 3% range—which is what we think the bond market is priced for—that is a tailwind to the earnings streams of a lot of businesses. I can't remember the statistic, but if you've just held cash, for however long, 10, 15 years, because of the safety of it, it has not moved in your account off the dollar that you have, but the purchasing power of that cash is not as high as it used to be. So what you're really trying to sit there and say is like, can I preserve and grow the purchasing power of my money over time? And that really gets back to those three discussions because we know most people have a capacity for a certain amount of risk, and they don't have the willingness for it because of what they read in the newspaper each day. And they kind of do the reverse. Like, when they finally make the decision, they give it to you for 12 years, but they day-to-day the decision until it's made. And the way to obviously get through that is dollar-cost averaging, which is another one of my favorite systems.

We usually leave that at the end. You let the cat out of the bag. But we will get into that. So as we've talked about how you come in as a new global chief investment officer, some of the things you look at, think about the team, think about some of the core portfolios. But I think we'd be remiss in this situation, and I know this group wants to hear our thoughts on what's going on in the world right now. As we sit here this morning, I think oil is back down to the low $90s a barrel, which is kind of incredible in terms of where it was just a week ago. I think it was close to $110 a barrel. Markets are at all-time highs again. Yields have been remarkably stable since this conflict started on February 28th. When you're looking at markets right now, how are you assessing stock market and bond market in terms of what investments should be thinking about and looking at and what your team's looking at right now?

Yeah, the things that you want to think about over time. We're likely going to discuss inflation in a manner that we haven't discussed in the past. There's some big forces on both sides of the ledger. On the one hand, in the short term, you've got higher energy prices that have to work their way through the system. But you don't really have any wage pressure. Wage pressure is something you would worry much more about on the inflation front. You have the reindustrialization of lots of things in the world. That is going to be positive for a bunch of companies. It is going to create some tension on the inflation side because there's going to be more demand for materials, all sorts of things. Against that you have the productivity benefits that will come from artificial intelligence, so they will be a suppressant to inflation. Then you have government deficits rising, so that's additive. But then you have the size of the government stock that's out there and the size of debt that's out there, so that the moment interest rates are too high it's a suppressant on the way that people's cash flow works. So there's going to be lots of debate about it and we should get used to it, and then just say we're just going to keep debating it. And that's probably the case for that. Inside of the equity market, the consumer is probably not going to do the same level of heavy lifting that it historically has done in the earnings stream. There is a K-shape to the economy where the wealth has accrued to a smaller handful of individuals. So at the lower end, it is more of a struggle. And today, you had Whirlpool come out and say, this is a really tough environment for selling refrigerators and dishwashers. And McDonald's came out and said, this is a tough environment. So the consumer is a big chunk of the economy, but it's not as big a chunk of the stock market. It's like last year, we would have been talking about trade in the Canadian economy, and the answer was, well, trade is not as big a component of the Canadian stock market as it is to the Canadian economy. So the consumer is unlikely to be the rambunctious leader that it has been in the past. Although, the areas where the value is in the stock market, it does tend to relate around some of those factors. So we're not dismissing it outright. Housing and things like this are certainly depressed in the United States. Where there is a lot of strength is in the industrial stocks and some of the technology companies, because you have not just tremendous amount of capital investment coming from artificial intelligence, the build-out of artificial intelligence, but also the ongoing demands on energy, whether or not it's new energy for artificial intelligence, the decarbonization of the energy grid, the build-out of the energy grid. Countries are remilitarizing. The commitment that many have made to 2% of GDP. These are big trends. Even when we see it so far, the earning streams that have been benefiting have been obviously technology, the industrial companies, and then the one we often don't discuss—we discuss it a lot because many people have the Royal Bank in their own account and things like this—but the environment that we're talking about for inflation and interest rates has been better for banking stocks. Because when the yield curve has a bit of a positive slope, you get what they call more net interest margin. Half the bank's revenue is net interest margin and when it goes up, it doesn't have any expense. So it's been quite beneficial. So inside of the market, while from the outright evaluation level, you could have concerns. And when we sit and think about our risk appetite, 0 to 5 would be the scope of overweight that we might have in equities. Right now, we're at 1. And obviously, you'd be less if you were worried about them. So the reason you're only at 1 is because valuation, which has not been a great timing tool, is a little bit stretched. But the other side that has been a real positive has been the pace of earnings growth. And revenue has been strong. Going back to a little bit of inflation helps. We talk about GDP growth being maybe like 2%, but nominal GDP growth, you have to add on inflation. So the revenue backdrop for the whole market has been 5-6%. You get some operating leverage, that's quite good for earnings. And the areas that we're seeing additional revenue. When you sell another dollar of semiconductors, the margin often is 50%. When you have another dollar of net interest margin, very high margin. High margin, net interest margin. It's kind of a play on words. But in industrial area, when you sell more fasteners and these types of things, they tend to come at very high margins. So the S&P's earnings have been very strong. But it has been on widening margins, which is a discussion point amongst the team that we're always focused on. The other thing that has emerged is after a 10-year period of the US stock market roughly doubling versus its global peers. Any financial planner knows the rule of 72. If you've doubled in 10 years, that means you outperform by about 700 basis points. A third of that has been the strengthening of the US dollar. A third has been valuation rising relative to the other markets. And a third has been earnings growth. The first two, in our minds, are unlikely to repeat, meaning that you're not going to have that much more strength from the US dollar. It doesn't mean it could weaken. But even if it doesn't, it just won't be the same addition. And the same thing on the valuation front. And you're starting to see some improvements in markets like Japan and emerging markets and things like this. So there's lots of different things to think about underneath the surface. And then when you have your list of worries—like right now, central banks are on pause, but if the worries ramp up, then they have some room to ease, to restimulate the economy. And fiscal policy, it may not get easier in the United States. It might be at its zenith there. But around the world, it's starting to improve. And so those are some of the offsets that come into play.

Yeah, I think the earnings story is particularly powerful. And what was interesting, if we look at the early stages of this war in Iran, and if you looked almost day to day, you could tell what was going to happen with the stock market based on what happened with the price of oil. If the price of oil was up on a particular day, stock market was probably down. But then all of a sudden, we get into the key parts of earnings season, so towards the latter part of April and now into early May. And as earnings report after earnings report comes out strong. And the stock market just starts to move independent almost of where oil is moving on a day-to-day basis, because the story, and the fundamental story for stocks over the long term, is growth in earnings. And the growth in earnings, the power, and even forecasting forward, it looks like we're in a real beautiful, sweet spot for earnings growth.

It is a good spot, for sure on the earnings front. I think within the portfolios—going back to how you listen to the market—the signal that has been sent in the semiconductor area. And semiconductors have very high margins when they sell a dollar of revenue, but the reason for that is because historically they've been cyclical. The market right now is not really treating them as cyclical. So that is an area that we have to be a little bit thoughtful on. But what that implies is if semiconductor revenue is going to remain strong, that means that the people using the semiconductors are making lots of money. And maybe that's something where there's more opportunity in the portfolios to go and think about. So you always want to think about the chain of who's making money today? How is that being factored in? If that's true, then there's a bunch of other things that likely have to be true as well. So the hyperscalers like Google and Amazon, Web services and things like this, in their last quarter, their margins on providing the data service actually widened. So that is the confirmation a little bit that says the semiconductor investment is maybe paying off. Now, we've had a 10% correction this year, which is kind of par for the course. No doubt, as we go forward, there'll be other corrections. We will probably debate about too much or too little compute once a year for the next couple of years, in my mind. No one knew what a token was 3 or 4 months ago. Now it's like if you're not using your daily usage of tokens, you're not living. So there was a great story about someone, an engineer at Meta, they were being marked on how many tokens they used. So he built a program to use tokens just so that he would then get a strong review in his personnel. So there'll be all sorts of things that come out in terms of is compute too high? Is it too low? What are going to be the purposes? The models are going to keep advancing. The models will become more efficient. This will be an ongoing discussion point that we'll have to work our way through.

Yeah. And again, when you have areas of the market or the market overall at expensive valuations, it does mean that you're going to experience a little bit more volatility. So that's not going to be unexpected. But I think a couple of important points within what you just said, the one is the idea that, okay, so we've got this one area of the market—and it's been really one area of the market that's been leading for a while now—and that gets very expensive, but it's expensive because it's that the technology is new, it's supposedly going to be valuable, and then you're starting to see the proof points in other parts of the economy that it's being used. It is valuable in driving efficiencies, productivity, and thus bottom line. So even if that, that area that's overvalued, you have some issues there, there's a whole broader area of the market where there's opportunities for you to position the portfolio to take advantage of it.

And the way that performance comes together over time is a bit like a symphony. Like you've got your oboes and then over to the trombone and then the tuba and things like this. And different sectors tend to carry the ball and then they go quiet for a period of time and then a new sector comes on. A lot of people in the room have owned, say, Canadian banks for a long period of time. And they can often have like 2 or 3 years of nothing. And then in the 4th year, they kind of get like 4 years of performance in the 1 year. So within the market, today, the banks are strong. Some of the property and casualty insurance companies have been quite weak. There's always areas that have their move, and then they go quiet for a while, and then they have another move down the road. And inside of a broad portfolio, you always have someone that is carrying the ball on behalf of the portfolio.

So we have Canadians right now sitting with all-time records in terms of cash on the sidelines, outside of markets. And this is a big finish, by the way, Stu. I'm going to tee it up for you. And these advisors are working with customers every day. They know the value of being invested for the long term for growth. But people are reluctant to make that commitment. They say, oh, the stock market's at an all-time high. Wow, I'm a little worried that we're going to see some kind of a correction. There's all these things going on around the world. But there is a way that investors can get into the market in a way that protects them if there's some downside in the short term or if they're nervous about it being at an all-time high, but still allows them to put new money in and it's just a great approach. I think you may have even mentioned it before earlier on the podcast.

Well, one of my favorite lines from Mike Higgins is «pretty good if you like perfect». It’s a great line, but the difference here is, there is no such thing as perfection in terms of how you put money to work in the stock market. Undoubtedly the stock market is there to affect your mentality if you're going to decide, I'm just going to put it all in on one day. So the way that I find highly efficient relative to your financial plan is just to put it in in a more regular increment. And if you put it in and it keeps going up, then you feel good you put something in and you did something, which then makes the next move easier. And if you put it in and it goes down, you've got the next move. So you don't have the mental anguish of trying to get everything all polished in one silver bullet.

And so we call that dollar cost averaging. There we go. And we all like that, don't we? There we go. And I know a lot of you have making sure that your clients are getting into the market and taking advantage of what has been probably the best 3 years of the stock market that I've seen in my lifetime. It's been just a phenomenal run, and it’s important that people are taking advantage, and it's good that most of your clients are. So thank you for that, and congratulations on that point. And Stu, congratulations on the new role. A really sharp looking pair of shoes. That might even be a new suit and tie too. So things are going well for Stu and going well for people who invest with Stu.

I want to get a ride in the Maserati. That's what I want.

I know. Why don't we get Maserati George to help us out with that? But we'll talk about that after. I can get you hooked up. Stu, thanks for coming on again. Always great to hear from you.

Great. Thanks so much, Dave.