Hello and welcome to The Download. I'm your host, Dave Richardson, and it is Stu's day. Stu Kedwell, the Global Chief Investment Officer at RBC Global Asset Management, joining us from his fortress of solitude on the top of a tall building in the center of Toronto, which, by the way, for the rest of Canada, is the center of Canada, is it not, Stu?

I don't know about that, Dave. It depends on which street corner you're on and who you ask.

That's right. I am absolutely joking for all of our listeners all across Canada, especially those fine people that I was spending time with in Saskatchewan last week, where you see the diversity of Canada, the different places. It's amazing. I'm on vacation, but Stu, you know what? I'm not sure how many people would think of this. Actually, our regular listeners probably know it. There's nothing I'd rather do on vacation than be here taping Stu's days with you. The beach, the sun, I don't need that. I just need you, Stu.

Well, I guess to play on words, since I know what we're going to talk about, but I suppose a Stu's day trumps everything, right?

Well, there you go. And I'm thinking back as I'm thinking about today, of an old movie. We've got lots of listeners who will remember this. Some of the younger listeners will go and have to maybe Google this one or go on IMDB to find it. But the movie High Noon, which is one of the all-time favorite movies for presidents. You got Gary Cooper, who's a phenomenal actor, 70 years ago, and Grace Kelly, who of course went on to be a princess, and they are in a town and the sheriff, Gary Cooper, has locked up a really rough-and-tumble gang of outlaws, and they're getting released from prison, and they're going to arrive on the train at high noon to come and get Gary and seek their vengeance. And of course, Gary's got the decision to stand there when everybody bailed out on him. He's standing there alone and take his young family out of town. And that's the choice he's got. Presidents are like that because they feel that isolation. I guess CEOs probably think of that as well. They're sometimes alone, heavy is the head, they've got to make the big call. And it reminds me this situation at 8 PM tonight. By the time you're listening to this, you probably will know the outcome of what actually happens at 8 PM tonight. But we've got one of those lines in the sand, or «yay, nay» I think is the way you were saying it, which is, if there's a ceasefire or a deal made, well, you probably get a little bit of a relief rally in markets. If there is an escalation and bridges and power plants are being bombed as the threat is out there, then, the market could really go one way or another. And maybe it's not just for this situation, Stu. Let's take it more broadly than this particular situation. Sometimes investors are faced with that. They know that a decision's coming at a particular point in time. It's almost a 50/50. You don't know how it's going to work out. And how do I position my portfolio? Do I take action? Do I not take action? Do I adjust a few things? Are there any indicators that I can look at to help me make the decision? Because it's not like the way we'd normally invest where we'd look at different scenarios that'll play out over time, maybe a few days, few weeks, few months, few years. This is happening now. What do I do? And because of your experience investing, you've got some ideas, I imagine, that would help investors think through what they might want to take a look at in a situation like this because you faced them before.

Sure, and we can go back, when I first started was the Canadian referendum on whether or not Quebec would leave. Then we had the Asian crisis, we had the financial crisis, we had COVID. We've had not a chock-a-block full of episodes like this, but we've definitely had episodes that were highly dependent on one moment in time. A couple of things. First, it's human nature to worry about them. And some people will have adjusted their portfolios one way or the other going into them. And what they're trying to understand is the probability of it happening and the impact if it happens. So there's always a little bit of adjustment that might take place in that regard. But once the event transpires, to your point, like if the escalation comes and goes and whether or not we actually get any conclusion to whether or not the escalation will have come and gone this evening, I think is likely the highest probability. But nevertheless, if you're trying to handicap the different scenarios, you have an understanding in your head of what might happen in the short term. And then you also have to have an understanding in your head of the mechanisms that are available to markets in the portfolio in the more negative event. So we don't spend a whole lot of time in what I call the «shoulda, woulda» camp. No doubt to a large degree tomorrow, there's going to be someone in the «shoulda, woulda» camp. You'll have wished that if it settles down, that maybe you put money to work, and if it doesn't settle down, that you had taken some out. For us we've talked in the past about our overall risk positioning, which is just slightly above neutral, and we have the ability to add to it in the negative scenario. So you have 4 things inside the portfolio that are available to people. Then you've got central banks, which we know when we go back through COVID and the financial crisis and other things where they're more apt to push liquidity into the system during a period of time like that, which initially is a shock absorber, but can often result in being an accelerant should good news flow. There's the fiscal side. Today, we saw Prime Minister Carney suggest, we'll figure out a way to ease some of the pressure at the pump. There are all sorts of things that come into play. For every action, there's going to be a reaction of some type. We need to think through all the things that might take place around that event. And also remember how many people are in the sidelines trying to figure things out so that things will get better. Even watching this week ships start to pass through the Strait of Hormuz, one way or the other, whether or not they were unmarked ships, whether or not they were paying a toll, all sorts of things. So anytime you get an event like this there's a high mental incentive to say, I'm going to get this just right, right now. Unfortunately, that is not as high odds as we would like to believe it is. So it's really like sitting there saying, I've got all these things that are built into the portfolio process that I'm going to take advantage of however this unfolds in the next couple of days and weeks.

Yeah, and I think this is one of the reasons why we talk to investors all the time. One of the most common things that anyone does for people like yourself or myself who really care about investors and want to help them get better at investing, we always talk about time frames and time horizons. And there's a reason why we talk about focusing on the long term. It's not just something that we say so that people don't pay attention to what's happened to their portfolio in the short term. We can still look at the portfolio in the short term, but we want people to think about their results and think about the way they position their portfolios for the long term. Because in the long term, we've got a couple of hundred years now where, over the long term, profits go up at 7, 8, 9% a year, and that's what leads the stock market higher over time. It's not up 7 or 8% every year. Sometimes it's down a lot, sometimes it's up a lot, but when you straighten it all out, that's the way it works out. And the reason for that is you're going to come to times things will happen that are way beyond your control as an investor, whether you're Stu Kedwell managing $800 billion, or me with a couple of bucks that I play around with on the side. We've just got no control over it. You're not going to be able to get it right every time. And that's why you focus on the long term because in the long term, things will be okay. It's what I tell my daughters. My daughters are coming to exam season. Actually, for both of us, our kids are heading into exam season. And I talked to my daughter on the phone last night. She's got an exam, and she thinks this is the end of the world. This is the most consequential thing that will ever happen to her in her entire life. And Stu, you and I know because we're the parents and we went through that. I don't remember, but I know I had sleepless nights in grade 5 over some speech I had to do in class. I can't even remember what it was. But at that point in time, it was the most critical thing that ever happened. And of course, time heals all those wounds, and generally, that's what happened in the stock market too.

Yeah, I think that's bang on from a longer-term standpoint, and I think the one last thing that you would remember as well is that you do have a portfolio, and there's things in the portfolio that have done quite well, unfortunately—or not unfortunately, but unbeknownst to those companies. If you're an energy company or a fertilizer company, this has been a better time for your share prices. So, inside of a portfolio, there's lots of things to discuss. The permanence of higher commodity prices. Do the share prices reflect that? Could that be higher tomorrow? Is there a movement that could take place on your behalf to try and better the longer-term outcome that sits in front of the portfolios? These are all decisions and discussions that take place in an ongoing way. It's a great line for today, but it's a great line in general, but as you know, our morning meeting is every minute of every day. So you're just constantly juggling scenarios and rehashing variables and trying to think through not what will happen, but if this happens, what would I do? If that happens, what would I do? Those types of decisions.

Well, literally for you it does. Your morning meeting lasts 24 hours a day because you've got people working with you managing portfolios and they are spread all around the world. Professionals with lots of experience. They've been through situations like this. And so, they're going to be able to respond as things are happening in real time to take care of portfolios.

100%.

And we should mention, most Canadian investors are in a somewhat balanced portfolio, maybe 60% stock, 40% fixed income. I think the average Canadian is about 45% stock, 55% fixed income. And you would think if there's a real wide dispersion in terms of the results coming from this event tonight, that the bonds are going to provide some insurance if you've got a big downside in the stock market.

Yeah, in the average Canadian's portfolio, there's bonds that would respond to the potential for a slowing economy. They might take a bit of time because of some inflationary concerns, but that will kick in. You've got energy stocks, you've got gold stocks. You've got a variety of different things in the portfolio that already have buttressed you. It's almost remarkable to look at the performance of different asset classes and say, I actually thought it might have been worse based on everything we've seen. So every event is always very serious and there's ramifications and a considerable amount of commentary around each phase of it. You're just trying to navigate what has proven to be choppier waters.

Stu, one of the things that you've been talking about a lot. And by the way, everywhere you get your podcasts, you can subscribe and follow us, subscribe on YouTube. A lot of the podcasts are posted in video form on YouTube so you can get access to that because Stu has a lot of things to say every week on Tuesday, which we prefer to call Stu's day. And one of the things that you've talked a lot about before we even got to February 28th, but since as well, is that a number of things were in place coming into that first attack on February 28th that would have led you to be in a somewhat different positioning in your portfolio than you might have been a year ago at this time? Maybe refresh everyone on that.

Well, you've had some concerns around the growth of private credit. Some of those loans and some of the liquidity that that group of investments might provide is dampening a little bit. You have a lot of debate over the spending that's going on in artificial intelligence as it switches from out-of-current cash flow to requiring some lending type of return. There's no question with each release of model, the demand for these services appears to be very robust. But also at some point, how will it all get paid for? Probably those two factors alone make the K-shaped economy. There's a variety of things, evaluation of markets going into this that led to a little bit of caution. And so now, we're left having the discussions around those events, bringing in the impact of war, higher energy prices. There's always lots to discuss and think about.

Yeah, and then one of the other things that we almost always get to on every Stu’s day—and we're here virtually every Stu’s day—is the idea that when you're in a market that you're a little nervous about—and even sometimes when you're not, but you've got markets at all-time highs, you've got a lot of high valuations, you've got some risks out there—you don't always have to put every penny you have into the market today, you can use a different approach, and I'll let you talk about it because I know you're a bit of a fan.

Well, I do like dollar-cost averaging. It's a great tool. You mentioned, sometimes dollar-cost averaging is just as important when you feel good because when you feel good, markets are very elevated. Now, there's some uncertainty. So, normally when there's uncertainty, that is the friend of the long-term investor. But when there's a variety of paths that sit in front of you, dollar cost averaging is just a great way to make an investment, a couple of weeks later, make another investment, make an investment. And as the definition goes, you get this average price that takes into consideration the volatility that we might see and provides you with an opportunity to benefit from the longer-term outcome.

And so regardless of what happens, if the market's down tomorrow, you've got some money going in and you're buying at a lower price. And if the market goes up, well, that's good too. Your portfolio is up and you feel okay about it. You're more likely to stay on track by doing that. And if you extend it to what I really love, which is regular investing, like just every paycheck, just be dropping a little bit in, then you're dollar-cost averaging effectively your whole life. That's the real winner. But it's just a reminder that when markets get to a particular point, there's a particular setup, and you've been talking about it for the last couple of months, it's an event like this that's just happened and then something that's going to happen tonight that if you've set things up, you can withstand and get through those parts of the market a lot easier. And that I know is the way you have set up all the portfolios that you and your team are working with.

The thing that you always want to try and avoid in your portfolio is something drastic in response. You want to have thought in advance around some of the odds. And the other thing, of course, that we've talked about before is, it never looks perfect, and you might as well just acknowledge that before you start. And by acknowledging that, it allows you to make good risk-adjusted decisions at each stage and better the chances for that good long-term outcome.

Yeah, and again, that big speech that you had in grade 5 or that big exam you had in university, when you're sitting like me at 59 years old, it's a distant memory. But I do know my portfolio has grown a lot over that time, and you've got the same experience. And so, when you're a little older, you can look in the rearview mirror and you remember that those points in time, they're bigger at the time than they ultimately are long-term.

Yeah. Well, thanks very much, Dave, and we'll talk to you next week.

Excellent. We'll see you in London next week, Stu. Looking forward to that. Looking forward to always seeing you in person. And safe travels. And let's see how things turn out tonight.

You got it.