Hello and welcome to The Download. I'm your host Dave Richardson, and it is Stu's days, a spring Stu's day in Toronto. I'm in Saskatoon. I even pulled my drapes closed, Stu. Nobody wants to see the weather out here. It's snowy and just not what you want at the end of March.

Yeah, that's funny. Well, it's 16 or 17 degrees here and pouring rain.

Oh, well, that's not a whole lot better. This is an exciting Stu's Days because we're in Stu's new digs there. You got the new office. Have you got some of your stuff up on the wall yet?

I don't have it up yet. I got it all over the place. I can be a little messy, unfortunately. So I could live out of a box for a long time.

Wow. So, unfortunately for listeners, no inspirational or wise quotes from Stu today. It's going to be straight. He's got nothing up on the wall to turn to.

Yeah, well, I took them all off the wall on the weekend out of the old office. And there's a lot of old classics, but there's a few up there that I'd forgotten about. The different trading mentalities and things like this. So, yeah, they'll be back on the wall.

Yeah. As you're moving around, that’s what happens, right? You're moving things around and you find something you forgot you had, and you go, wow, that’s something that I should have recalled. Anything that struck you from your move?

Well, there was one from Eugene Fama talking about the volatility in the markets and if you believe the volatility is rational or not, then it spits you off in different directions about your investment philosophy. I tend to think that volatility is somewhat rational as the market tries to reprice the possibility of different things taking place. Of course, sometimes we see monstrous moves, and we see stocks that have no news have moves and that can be a little bit different. But generally speaking, almost everything on my wall was the combination of fundamental scenario analysis aligned with how the market will treat the movement from one scenario to another. And I think that’s the nuts and bolts of where our investment process comes together because you have a fundamental view and opinion about what you think something is worth. And then it's like as if you put it on the map and it's a little ways away and you want to understand all the different roads that might lead to that discussion. Volatility in the market is, in my mind anyways, often the stock market just repricing the possibility of different outcomes, even though you might have a fair amount of confidence in the ending outcome. During the piece, small changes in opinion can lead to larger changes in price.

Stu, about the war in Iran. I've been throwing up a normal distribution curve, a bell curve, which probably is a bad thing to be talking about on a podcast without a proper visual, but the whole idea that the range of outcomes here is pretty wide. And pretty wide within a fairly narrow timeframe. So if the war drags on 4 or 5 months, that starts to push higher the energy prices. It filters out into the economy and has a longer-lasting effect, which can take you all the way to a recession and really potentially some bad markets, higher rates, bad bond market too. So a 2022 scenario. And then on the other side, the announcement could be, hey, it's over today, and the market could just pop up. And if you miss that, that's a bad thing. And there's a wide range in between, and it just seems every day that the market's trying to find its spot between those two extremes, and it's hard because they're so far apart in such a short period of time.

Yeah, I think that's fair. A couple of things along those lines. The US government's approach to the war in Iran seems to be influenced to some degree by some yields we've seen in the bond market. And we saw that around the same time as the tariffs when the bond market, I wouldn't say it got like out of hand, but when yields started to move upwards, that's when we start to have some discussion around how we might change tax. I think interest rates, if you have slightly higher inflation in the short run, you might have slightly higher interest rates to respond to that inflation, but that inflation is not caused by demand. It's caused by supply. So the likelihood of it being more permanent is not as high. So you can look at the move in interest rates and you could say, well, that could be self-defeating a little bit because higher interest rates will slow the economy and then eventually rates would then have to fall on the back of it. So, on the interest rate side, you could see why I understand why they're going a little bit higher, but I could also see down the road how they could fall to lower levels. In the stock market, you had the stock market falling because people were worried about the future earnings that might come from a collection of companies. But at the same time, there hadn't been any evidence, in the estimates anyways, that that would take place. But to your point, that could have been or could be a little bit more permanent because you're starting to change supply chains, you're starting to make things a little bit more expensive. Maybe you have some activity in the consumer land where they need to save some additional funds to take care of a debt. So in the stock market you had a bit of a different setup than you did in the bond market.

Okay, just as a reminder, this is Stu’s Days, and when it's Stu’s Days, we're speaking to Stu Kedwell, who is the Global Chief Investment Officer at RBC Global Asset Management. Today he's joining us from his new global headquarters or global lair. You wouldn't be a James Bond villain. You'd be like a James Bond good guy, and you're steering this ship of almost $800 billion around—probably not taking it through the Strait of Hormuz—but still. We've got this volatility. You've got this big portfolio. Maybe I've got $8,000. Am I trying to take advantage of some of this volatility from a tactical perspective, or am I more sitting back and just letting things play out because the outcomes are disparate and wide in terms of possibilities?

Well, I think you have a couple of things to think about. When you're buying the stock market, the long-term return that you're likely to earn is going to be earnings growth. And earnings growth has been relatively consistent over long periods of time, although it can be susceptible to changes in the short term if economic conditions move one way or the other. Occasionally, when people worry about earnings in the short term, the stock market goes down and presents a significant opportunity because not only are you buying the long-term earnings growth, but you get to buy it at a big, discounted price. So far when we've seen price action—I think at the S&P, at its low was down 10% on the year or from its highs; we see almost one of those every year. Notwithstanding these events, you wouldn't call it normal course, but it has been normal course. It has historically taken place. So I would say when we were getting into those types of declines, you're certainly getting the possibility for higher long-term returns because at some point, markets will go back to a new high. So you might as well start 10% below that. But from an outright valuation standpoint, I don't think we got to prices where you'd say, stocks were a steal either. It was a little bit more technical by nature. Stocks were, I think, modestly oversold. They weren't like classic oversold conditions, but there was certainly an elevated level of concern. So you want to try and take advantage of that a little bit, but it wasn't like this all clear, oh my God, stocks are as cheap as you'll ever see them either.

And so the action today, as we're sitting here on Tuesday, March 31st, and we're about 1:30 in the afternoon Eastern time, you've had a nice rally. This doesn't really seem like this is all over and the market's finally figured out when the war's going to end. Are there other factors that are driving this little relief rally today?

Yeah, well, you always want to remain open-minded. It could be. On any given day, price is set by where liquidity clears in the marketplace. And when we see markets decline, some people will then bet on their further decline. And then if they start to rise, and the removal of those bets can create additional buying pressure in the short term, if that makes sense. So just as you see more elevated periods of decline and then you see quick snapbacks, sometimes it's a function of people trying to reframe the fundamentals. Sometimes it's just using a change in narrative to justify the price action that we've just witnessed. As we went into last week, there was more concerns about escalation. There was the discussion around maybe boots on the ground. So that created a bit more selling. We've had the removal of some of that selling pressure today. Is that because the United States has said they’re willing to finish the war? Iran has come out and said they're willing to maybe think about it. Everyone wants their demands. We'll see how it plays out. But when you see markets going up and down by 1 or 2% on a daily basis, as we've seen in the last week, both down and up, it's normally the result in the short term of changes in positioning rather than often changes in outright fundamentals. And in fact, we've seen the market come down and we haven't really seen estimates change at all. We'll see if that's due to a lag or not, and we're spending a lot of time having discussions with companies around that, but there's been lots of positives and negatives to think through in the last month or so, and that certainly would be one of the positives.

So at this point, as you're talking to different companies, is there a lot of concern? I was out with mostly smaller business owners here in Saskatoon this morning doing a presentation, and we had a nice conversation, and they seem pretty calm and comfortable about everything that's going on. It's not just oil prices out here, it's fertilizer, which means a lot to the folks out in this area, and they’re expecting things to pass through pretty quickly. Is that what other businesses are telling you?

Well, it's difficult. In North America, I think most people look at supply chains and say, okay, availability is not an issue. Maybe it costs a bit more for a period of time. Elsewhere in the world, I think we're dealing with both. Time will tell on some of those supply chains. There was an article this morning in the paper about helium. Not only is the Middle East a big supplier of helium, but helium only lasts so long before it gasifies again. There's going to be all sorts of things that come up. I think the point, how long the stock market thinks about it is a second question. Because if I'm dealing with a crunch and it's already passed, then people will look forward. It's a pretty dynamic set of discussion points at this juncture.

Yeah, there's helium out here too just west of here. Lots of helium apparently. I know people have told me whenever I'm out here, and I didn't really realize the importance of helium until I was out here 3 or 4 years ago, and they said, wow, Saskatchewan is in great shape from a helium perspective. And this is one of the interesting things, just as an aside to everything that's going on in a global market, you look at everything that's happening and the supply that the world is looking for is often somewhere right here in Canada. We're in a really good position as a country if we can take advantage of it.

Yeah, there is a bull case that could certainly emerge for Canada. And you mentioned it on a variety of the different resources that are available here. It's interesting in talking to the companies. They still would like to see a little bit of movement on the regulatory front and getting business going again, but it's certainly not for lack of opportunity.

So let's finish up today's Stu’s days. What was the ice castle that Superman had? Something of tranquility.

I don't know. That's a good one.

We'll have to look that up. Oh, producer Nancy has jumped in here to tell us it's the Fortress of Solitude. So, Stu, you're there just as your normal self in the Fortress of Solitude. And there's a superhero that once again is particularly powerful in times like this. Is that superhero allowed in the new fortress of solitude that you occupy on your throne there in Toronto?

Yeah, well, the dollar-cost averaging is like the mild-mannered Clark Kent of the investment business. That's for sure. You always have a plan to get through this. I feel like in today's podcast, we've jumped over a number of places, so maybe I'll just try and summarize. We began the period before the war with markets elevated, and we'd had a good run, and valuations were, I wouldn't say at historical highs, but they were stretched relative to average. Then we've had the war, which has created some uncertainty. We often get some negative price change during the year of midterm elections. We've declined by 10%, which is something that we see in many years. A 10% decline is the friend of the long-term investor. But in this instance, it also doesn't scream, unfortunately, that stocks are really, really cheap. A 10% decline is normal course, and we started from an elevated spot. So from a long-term standpoint earnings growth gets the job done, and you have that at a modest discount to where it was. And that's why dollar-cost averaging is such a powerful tool. The short-term movements that we see in the market on any given day, we have a tactical toolkit that we use to negotiate our way through those periods of time. And really, what we're trying to do there is add to the long-term proposition by taking advantage of some of the shorter-term movements that we see. In simple terms, we say we want to go back up with more than we came back down. And so that’s the rule of thumb when you think about periods like this. And we’re actively using every tool in our kit to find our way in this market.

Yep. Find a balloon with some helium and ride until it dissipates. But I was out with some business owners this morning here. And one of the things we were talking about—and this is just a general tip for investing for people who are out there—many workplaces have employee savings plans. If you're working somewhere and they don't have an employee savings plan, you should go to your employer and find out if they're looking into it and you and your colleagues get together and say that an employee savings plan is fantastic. You contribute right off your paycheck. You invest long term. The company might be generous enough to chip in a little bit on top depending on the plan that you're in. And so, the net effect is you create a regular and disciplined dollar-cost averaging program. And if you don't have that, you can do it just by having a direct withdrawal out of your bank account on the day your paycheck is deposited. So it effectively is going to do the same thing. That's fantastic. And one of the great things if you're a company and you do this for your employees, you're not only getting them started investing, but they start to learn about investing and see the value of staying invested over the long term. And then I took it to saying, well, dollar cost averaging program's fantastic, but when you see, as you mentioned, it's almost every year we get a 10% pullback. This is a great time. This is when you want to start to think about accelerating that dollar cost averaging program or that regular investing program, not necessarily in terms of the timeline, but maybe the market's down 10%, maybe you double up on your monthly or biweekly contribution right now because you know you're buying at a bit of a discount. And again, if it keeps going down, do the same thing, keep doubling up, and that way you're adding more as the price goes down. And then as Stu said, when the balloon starts to head back up again, it gets refilled, then you're along for the ride. And that is really a great way to accumulate wealth long term, which is really how wealth is accumulated. But little tactic in the short term when you get an opportunity like this.

You got it, Dave.

Oh, good. Okay. Because I was worried when you jumped in before, I thought I was losing my job. This hosting gig is all I've got now, Stu. I don't have an empire like you to come in and run every day. So, Stu, thanks as always for that great wisdom on managing these markets. Nobody does it better than you, and we'll catch you next Stu’s day. Hopefully, we're starting a recovery, but we'll check it out. Maybe it's just going to create some more opportunities for us.

Great. Thanks, Dave.