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The revolving door of news on the political, economic, and healthcare fronts can spark fear for some. Yet, markets are already looking ahead. Stu Kedwell, Co-Head, North American Equities, discusses how remaining focused with a well-thought-out approach can help investors tune out the headline noise. [8 minutes, 16 seconds] (Recorded September 30, 2020)


Hello and welcome to the Download. I'm your host, Dave Richardson, and we are joined a day late for (S)Tuesdays. So it's (S)Wednesday again. We had some technical issues with the podcast recording software yesterday, but we've got those ironed out. So Stu, welcome. I think the problems were at my end, so I apologize for that.

No problem at all. Thanks for having me Dave.

But that is the last bit of civil discourse I'm going to have with you today. This is the debate edition. No Stu, don't talk! I'm going to talk over you! Let's attack the elephant in the room, and talk a little bit about the debate. And particularly for those who haven't listen to this podcast regularly. We do tape it when we can every Tuesday with Stu Kedwell, who is the Co-Head of North American Equities at RBC Global Asset Management. And if you listen to each of the podcasts, you see the consistency in the message that Stu delivers. And I wanted to come back to it today, because so many investors watch something like last night’s debate and react in a number of different ways. But it certainly drums up emotion as you watch a display like that. And then you look at the markets today, and the markets are doing fine. And so, as we come into what is sure to be, based on last night, at the very least — I think we would have expected it anyways — a very noisy last few days of an election campaign in the U.S., what do investors learn in terms of the way they need to watch media over the next month? And Stu, you've talked about it, how do you manage it as a professional investor? What do you think are the takeaways?

Well, it's a great point you make Dave. We've talked about the three sources of uncertainty for some time: the political uncertainty, health care uncertainty, and economic uncertainty. And in the last week, we've seen plenty of bouts of the first two. You know, the debate last night was quite something. I'm not even sure you'd call it a debate. But whatever it was, it was very indicative of the political uncertainty that in all likelihood will present itself through the home stretch here. Who will be elected? How smooth will the transition be, if there is one? Those are all things that the markets are going to have to deal with. Health care uncertainty; we've seen cases rise in Quebec and Ontario and other spots in Canada. We've seen some restaurant closures in Montreal, and undoubtedly it might bring a bit of economic uncertainty. But markets know that there's going to be uncertainty on those three paths, and they’re really looking forward to what a post-vaccine-type economy might look like. And what you also see is that the same things that you worry about, I worry about, our unit holders worry about. When there are signs that the stimulus is running down, and that kind of implication. The governments tend to respond and say, I can see there can likely be a vaccine in nine or twelve months from now so I'm going to do what's necessary to get the population through that event. And when markets are strong, maybe they sit there and say, well, I can back off a little bit. And then markets weaken off, and you can see that they come in and respond. It's not that they're always trying to tamp down that volatility, but it is a consequence of the environment we're in, where the economy is still sluggish and central banks are very focused on asset pricing, because they don't want to deal with the dual factors of a slower economy and maybe some choppiness in asset pricing. So that's kind of the environment that we're in. And we think that's why it's still a very good environment for dollar-cost averaging, because we know there's going to be periods of uncertainty and then there'll be a reaction to it.

And I think, Stu, in addition to that, it’s important for investors to remember that day to day headlines are not the way you make investment decisions.

One hundred percent. This is a very long game. Coming out of the debate last night, who won? It's hard to say. It certainly was a spectacle. But if it jumped the scales in the favour of the Democrats, we know that over time they may increase corporate taxes, and that could be a bit of a headwind to earnings. But that's all very well known by markets. So, to your point, it's a long game. We're looking at businesses that have management teams that are responding to the exact same factors that we're focused on. They rethink how they might approach the market. What new sources of revenue can they find? How can they adjust their cost structures? How can they drive earnings and cash flow for their shareholders benefit over time? And that's really what gets the job done over the long haul.

That’s some great background on what you're looking at. And again, how a professional investor looks at a particular thing like the debate last night or any news headline, in terms of staying very rational and analytical about what's happened, and the impact that it's going to have on your investments. Not today, but on the long term. And staying away from the emotion. I say to a lot of advisors that I work with that the most important thing that a professional brings to the table over someone who maybe has less experience or isn't involved in the business every day, is the rational, the mathematical, and the analytical. Whereas some investors tend to bring emotion and panic and reactiveness. I know I don't make the best decisions when I'm emotional and panicked. I usually make better decisions when I take a step back, take a deep breath, and think through for the long term the impact of the decision. So that's great background you've given.

There’s one thing I would add to that. It's great to hear rational and all those things, but I think the last point is that we know that there'll be emotional ups and downs, and that's the real key. It's not that we're always just trying to minimize our emotions. It's just that we know that there'll be ups and downs when we set off on the plan. All the statistics show that nine times out of 10, the day you buy a stock, it's going to see lower prices from the day that you paid for it. So you just have to know those things in advance. It's almost like saying, of course the ups and downs are emotional, but I've got a plan and that's what gets me through it.

Great words Stu. Again, sorry about yesterday. Thanks for today, and we'll look forward to catching up with you again next week to see what new headlines are hitting the front page.

I appreciate your time.

OK, thanks Stu.


Recorded September 30, 2020

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