Hello, and welcome to The Download. I'm your host, Dave Richardson, and it is Stu's Days. Stu, how are you doing today?

Great. How are you doing, Dave?

I'm doing well. I'm a little tired. A lot of snow shoveling this week.

It hits your forearms, right? You feel like you're Popeye the sailor man with the big forearms from lifting the snow.

That's right. And when I get all big and bulked up like that, I throw my Canada jersey on and start up a fight with somebody. So you're ready to go there, Stu? What do you think of that?

Yeah. We’re nine seconds into the podcast here.

Well, the marketing folks have asked us to stop talking. Too much of the preludes. So just like the hockey game, we'll spend nine seconds on the fight and then get right into what we need to talk about. And because we missed last week, we thought we'd make this an investment Stu. And for those of you new to the podcast, the investment Stu is just where we cover a whole bunch of topics. We just move all over the place. And that's the way my head's been on a bobble, on a swivel, just going back and forth over the last month, and particularly over the last couple of weeks, because there's just so much stuff going on. It's just hard to stay on top of it.

It certainly has been busy just between government, companies reporting, you name it. It's been a lot. The indices themselves haven't really done a whole lot, notwithstanding the amount of news, although there's certainly been some action underneath the surface. And bond yields have come back a little bit, notwithstanding some inflation data that was a little hotter than I think people would hope for. But after rising on the day, they quickly reversed back to where they were, which leaves us with that same notion that bond yields are in a not-so-bad spot, relatively speaking, for the inflation that we foresee. And real yields are not bad, all things considering. And then, yeah, the equity market has had a lot of different things going on.

So as a portfolio manager, with all this stuff going on—and we've talked a lot about this—you're looking at your portfolio and are you going almost stock by stock? And if you do that, what are you seeing? Is there any theme coming out? Because it just seems like we may be at the cusp of something. We'll get into that after you talk about the stock by stock.

Yeah, it's definitely a situation where you're going through your portfolio stock by stock. Sometimes things are quite thematic and there's a grouping of stocks. But one of the things that I like to do, particularly when we have a long weekend, at any given point in time, I might be looking at a couple of hundred US stocks and a couple of hundred Canadian businesses, and I'll put them into my stock chart machine and just look at them on a weekly and a monthly basis over a long period of time to see, are they above their moving averages? Is there any type of momentum change that appears to be on track? And it just gives you a sense, are they within a range? One of the games that we like to play is called mystery chart. So you take the symbol off and you look at the chart and say, is that interesting or not? And you have to give your answer. And then you find out what the symbol is. We play that with a great technician here in town. And then the other thing we also like to do is we look at them absolutely and then we look at them relative to the index to give a sense, are my stocks participating with the index? Are they doing better? Are they doing slightly worse? And so you always have your fundamental scenarios that you're working on. And you think you've built a portfolio filled with stocks that have a bunch of positive options, things that could happen to them, to those businesses that would be favorable. And then you go and look at the charts and say, are the charts generally supportive of what I think on a fundamental basis? And you finish that exercise and you're pretty happy with the things that we're exposed to. You're always looking for those changes in trend and stocks that are emerging from long periods of the same price as a sign that the stock market is hopefully sniffing out the same thing that you are. And so we've been doing that a lot. The daily squiggles are interesting, but when we do this, we look at it on a weekly and a monthly basis.

I think the first podcast we did this year, Stu, as we were looking into 2025, we got on to Canada and the idea that you put forward—and I've talked about it with several other guests on the podcast since, and with customers as I’m out doing different presentations—this whole idea that we were getting to a point of peak pessimism around Canada. And you might have thrown the same thing at Europe. You might have thrown the same thing at emerging markets, basically everything relative to the United States. And so you get to a point where you're looking at it and you go, well, even if there's more bad news, the bad news isn't as bad as the last bit of bad news. So actually, the bad news is getting better. So I'm negative, but my negative is getting less negative, so to speak. You get that feel. I take it that you're not operating on feel. You might have a feeling, from all of your experience, but you're always going to produce something that you can quantify or measure that validates any feeling you have before you would act on it?

Yeah, that's a great a way of putting it together. There's always a fundamental view of what would be the ingredients for a sustained uptrend in some asset price. The thing we know, though, is that it's not the beginning of the end, but it's the end of the beginning. We know that there's multiple acts always in any type of story. To start act two, you need the ingredients, you need to be able to define, well, this is happening. But normally in financial markets, the end of act one doesn't take place with the presence of those ingredients. So you're always looking for behavioral monikers for the top of something. And when we look at some of the big moves, like the strength of the US dollar and the US exceptionalism and the outperformance that we've seen in US stock markets and US assets, while you can't immediately make the case that all these other countries are about to pick up the ball and start running with it, it also does appear that maybe it's about to be more neutral. That's what I mean by it's like the end of the beginning without necessarily being the beginning of the end, which would be the transfer of strength from one to the other. So whether or not it's the euro, the UK pound, even the Canadian dollar to some degree, those markets relative to the US, they were in sustained downtrends, and they had the ingredients of being oversold. So the first thing is an oversold market, you take your foot off the neck, so to speak, and it begins to rally and you say, well, that's just coming off an oversold condition. And then the next thing that happens is it starts to go a little bit farther than just that might intimate. And you say, that's interesting. Is there a change in theme going on? And as I say, even though right now you can't totally see it. If you wanted to imagine it, you'd say, well, fiscal policy is about to be more expansive elsewhere in the world than it's been in Europe and Canada and what have you. And fiscal policy has been very expansive in the United States, and maybe it'll be modestly less so. A fiscal policy in and of itself doesn't create long term sustainable growth, but it can affect growth at the margin in the near term. Then people say, maybe some of this non-US markets can benefit a little bit if governments are doing things that are a more stimulative and vice versa. So where we sit today is you could draw the story out. It says this is how the transfer takes place. And if you're correct, you'd say, well, this was the beginning of it. Whether or not it happens immediately, I'm not sure. But there definitely are those ingredients of how the transfer of the relative strength, so to speak, might take place.

Yeah, and we talk about valuation. And so we've been talking a lot again about the US doing so well from a market perspective. Currency has been very strong for a number of years. It fell off but picked back up after the election. And then you've got all these other markets that are relatively inexpensive. It's fantastic to be able to identify it. But what's more important or what would be more valuable is understanding the timing. Now, part of what you would say is, if I'm just an average investor, that's not what I want to do. To identify something inexpensive, I use discipline, I buy it at a lower price, hold it until it's fairly valued. Ultimately, if I do that consistently over years, year after year, I'm going to be able to generate great returns. But that fiscal policy thing might be one of those things that creates that shift in momentum, or you can find something that shifts. I always say about describing fiscal policy versus monetary policy around the impact on the economy. Fiscal policy is like you've got a fire going at the camp up north, and you're having trouble getting it going. It's like a slow growing economy. You can see the embers are glowing. And so good old Duggy goes and grabs the gas tank and throws a splash of gasoline on it and the fire goes raging up. And of course, it comes right back down, but at least it gives it that spark to get going. Whereas monetary policy, we're under there blowing. We're trying to get the fire to go up a little bit. But sometimes that little shot of fiscal can help. And then again, on a relative basis, that shifts things around.

Yeah. I think that's certainly possible, but the other thing, when you look at global markets, the composition can be a little bit different. The technology is a huge component of the S&P 500. Financials tend to be a bigger component of non-US markets, and financials have been really quite strong. So all of a sudden, you have some leadership. The financial sector globally went through some time in the back half of 2024, but it's continued once it broke out, it finally went through the level it saw before the financial crisis. So that was a long time in the making.

You're talking about 2007, 2008.

That's right. So that draws a parallel from some market people focus about when technology hit a peak in 2000 and then was 12 or 15 years before it made a new high again. And once it did make a new high, it went on for quite some time. What makes a financial stock go is maybe slightly higher interest rates, better net interest margins, the prospects of maybe some loan growth, maybe some consolidation, changes in regulation, all sorts of things. And there's big representation of that sector outside of the United States, relatively speaking, versus inside. And the financials in the S&P have been pretty good as well. But the combination of that with maybe some changes or discussions around relative growth going forward, and we've seen that move to the extent that, as you mentioned, it's not just a spurt. We'll see. But right now, the ingredients are starting to come into the scene.

Yeah. And we've talked about this idea that the US, particularly that technology part of the US market, and even narrower than that, even down to as few as seven stocks—it's probably a few more than that, but that Magnificent Seven has done a lot of the heavy lifting and has run an incredible amount. And then you look at the rest of the world, reasonably valued. And the big thing there is it's not that you're going to sell everything you hold in the United States. But even if I'm just holding where I would have been, say, five years ago, that my target weight in the US, Canada, Europe, Asia, emerging markets, and then I move five years forward. If I haven't done anything with that, well, my US weighting is significantly higher and the others have fallen back. Then again, the others are at a better valuation. So I even trim some of my US and add it back to these others because at some point that rotation will happen. It always has. And what I say to customers, I worry about too much positivity around the US. You get to that peak enthusiasm or almost over-enthusiasm around one market and one area of the market. And that's when you start to get nervous. Versus our peak pessimism where the new bad news is actually somewhat better than the old bad news. Well, all of a sudden the good news is still there, but the good news isn't as good as the good news before. And you've got the opposite at the top end happening. And again, that's just how things start to unwind. And before you know it, you've got a whole change in leadership. And these changes tend to last for quite some time.

You raise a great point. We talk a lot about valuation, and some things stay expensive for long periods of time, some things stay cheap for extended periods of time. But the role that valuation plays is the degree to which the certainty of your view has to persist. The higher the price you pay, the longer the good news needs to last. And in fact, the good news needs to be even slightly better than what you would hope for. Versus if you have a lower valuation, you go through periods where the news isn't that great and people say, oh, I wonder why the stock is not going down. And you say, well, it's already factored in to some degree. It's the valuation that has done the hard work for you because the valuation is low. So that is the Warren Buffet 101, the higher the valuation you pay, the more success you're effectively paying for and vice versa.

And in an environment where I know a lot of investors are concerned about volatility, lower valuations help you with volatility as well.

Yeah, I'm sure many of our listeners would have bought something on sale that they just know that it's worth that. And then they see it on sale for a bit more, they see the price jump around and they're like, I'm not really fussed by that because I know I have a bunch of inventory at a really good price. And it's just a matter of time before that value comes out. That's the same thing as finding a reasonable valuation in the stock market.

Yeah, and it feels like things are turning. We should mention as well, Europe has had a phenomenal start of the year. We had Dave Lambert on at the front end of the year, and he was quite optimistic of where Europe could go. Sarah and Irene, we had on as well, talking about Canada. And just that same idea that you just get to a point where the bad news is built in and then you don't need a whole lot to get things moving in the right direction. If I'm watching the news over the last month, there is nothing that I'm hearing about what's going on in Europe that I would take as a positive, or very, very little. I see issues politically, the US tariffs, which we're experiencing Canada, same issues there. Military conflict. So I'm not feeling fantastic about Europe, but yet the stocks move ahead of it.

Yeah, I think that's right. And we talk about a lot of the bifurcation in the US stock market. The average US stock does not look a whole lot different than what you just talked about as well. You can go, as I say, just to close the circle, I'm going through a bunch of charts. I was looking at a US insurance company, a property and casualty insurance business. It has been a great long-term performer, has consolidated for a period of time. It looks like starting to reaccelerate. The earnings expectations are quite good. The valuation is well within the range of normal relative to the last 5 to 7 years. And if we can have okay valuations, then the earnings growth comes to us as investors. And that's a really important feature.

Yeah. Like you say, that long value. I wanted to connect that to another thing I'm talking about a lot in presentations to investors, and that is the news cycle. The news cycle is really loud. It's really fast. Things are just coming at you. I think one of the most amazing things, Stu, I wish you were on the road with me because I think you'd really appreciate it. I'm doing the presentation and we have to walk up to music. I play the Canada Centennial song and I've got my little red flower on. I've got my jersey. I'm probably not going to stand in front of a few hundred people in a hockey jersey, although I might get pushed this week. But the way Canadians have reacted emotionally to this, it's really something that I don't recall. We get excited about the hockey team in the Olympics, and there's different points along the way. But I don't remember Canadian's feeling as, I almost think, hurt in a way by your good friend. I guess we all experience in this in life, your good friend hurts your feelings, says something, does something that you don't like. And you say, why are you doing that? You're my friend. And so that sense of patriotism is there. So you get up and say something about Canada and getting applause, which in an economic presentation you don't normally get, Stu. It's not that exciting. It's an interesting feeling. Where this goes in terms of seeing the behavior is I think we're seeing a lot of paralysis, a lot of people just not making that call and focused on what's in that 24-hour news cycle which just spins and spins and missing the big picture of what drives stocks higher in the first place. Or the reason that you invest, that you just don't sit—and save because save, you're just trying to break even and then inflation eats away and taxes eats away at it, so you end up losing ground in terms of building wealth—whereas stocks, maybe not in the next six months, maybe not in the next years, but if I hold those stocks over an extended period of time, historically, they grow way ahead of inflation. And that's why you invest. And whatever is being said today on the news, 30 years from now, you're going to go and look back at what you might have invested in today. And again, you might not even remember what you bought that day, but you look at your portfolio and go, wow, it's a lot higher than 30 years ago. What was in the news? Oh, yeah. Now I remember there was some tariff talk and this and that. And I know that's the way that you think about investing. Now, obviously, you, because of your profession, you've got to be in every day and you're looking at individual stocks and companies. But big picture, you're owning and you're owning over the long term and benefiting from the growth of those companies that you own over the long term. And that's what matters, not anything that's in the news any given day.

That's exactly right. And even in the midst of tough news, there's always a question of, well, what are we going to do about it? What's next? And good management teams, good businesses, they have a «what's next», and they'll get on with it. And I totally agree with you on the response of many Canadians. The other thing that's been just fantastic to watch is, well, let's get at the opportunities that we have. And that might be the real surprise in this. Who knows? So time will tell. But that, too, has been a great response for many of our business leaders.

And so, here's hoping that we got that little poke, that little tweak, that little surge of energy that carries us to a big win on Thursday night, Stu. You'll be watching the game?

Yes. I'm a nervous watcher, though. I'll probably only be able to watch the third period or something. Because I can't do a lot of scenario analysis on it. I just have to sit and watch, and that's not my cup of tea.

It's going to be a pretty exciting game, and this was a very exciting investment Stu. We covered a whole range of issues. And people are probably tired of me saying this on the podcast over and over again, but one of the things I like about doing this podcast with people like Stu and others who do this for a living, is how they take the emotion out of their decision making. They may have a reaction to something, a feel, as we said earlier, but that just leads them to dig deeper into the numbers, into the analysis, and then there's a deep breath before the decision is made. And if we can do that as investors, it will help our results so much over time. As we learn more, we get better at understanding what we should be analyzing, what we should be looking at. And this podcast, I hope, helps you with that as well. But that emotion management, that consistency is the hallmark of a professional investor. And that's what we all want to be.

Fantastic, Dave. Well, good luck with the presentations this week and your time in Vancouver and enjoy the game.

Same to you, Stu. Let's hope the professional hockey players are on top of their game. Talk to you soon.

Thank you.