Independent Insight
Focus on Oil, Inflation & Interest Rates Overly Dramatic & Simplistic.
John O’Connell weighs in on higher oil prices, inflation and interest rates and explains why much of the market and media conversation is overly dramatic and simplistic.
He believes the “higher for longer” narrative for rates is not useful when viewed from a one-to-two year time frame and that rates could be much lower by then.
There was some evidence of tamer inflation in Friday’s August U.S. core personal consumption expenditures (PCE) index report, which came in at 3.9% year-over-year, showing that prices are decelerating, albeit slowly.
Watch this six minute segment with John O’Connell for more detail on oil, inflation, rates, and why higher for longer may just be another catchphrase that quietly disappears.
Three “Great” Tech Companies Making Massive Investments for the Future.
By now, you likely know John O’Connell spends a lot of time reading and thinking about technological trends, what’s coming next and how clients can profit by owning shares of the largest, most dominant, innovative companies.
The Chair, CEO and CIO of Davis Rea Investment Counsel, the sponsor of Uncommon Sense Investor, appeared on BNN Bloomberg this week where he detailed the key strengths of three of these companies.
O’Connell details how these “consistent, great businesses” are investing massive amounts for the future to enhance the experiences of their hundreds of millions of customers and, naturally, increase their own market share, revenue and earnings.
O’Connell figures investors would be much better served considering companies like these to own for the long-term rather than focusing on the endless chatter about short-term issues.
Three Top Ideas for the Long-Term.
It’s time to check in with Chris Mayer, Co-Founder and Portfolio Manager at Woodlock House Family Capital, and the author of 100 Baggers: Stocks That Return 100-to-1 and How to Find Them.
Long-time subscribers of Uncommon Sense Investor will remember we interviewed Chris a couple of years ago about his investment philosophy. See that interview below.
Chris writes regular blogs and his latest one features his answers to the many questions questions he receives about his approach to investing.
His style is different from many fund managers in that he owns a concentrated portfolio of 10-12 names with the intention of holding them for the very long term, as in decades in some cases.
The goal is to find 100 bagger stocks.
Here, we feature a few excerpts from Chris’s blog in which he answers questions about:
portfolio construction,
reasons for selling or not selling a stock,
the stocks he would own if he could only have three,
and the most important trait an investor can possess.
Chris is well-traveled and well-read with deep insights into successful investing.
U.S.A. vs. Google. What’s at Stake? Three Potential Scenarios.
The U.S. Department of Justice (DoJ) vs. Google trial will begin on September 12 and the key focus for investors is whether we’ll see changes to Google’s Search contracts.
Morgan Stanley Research quantifies the risk to Google (GOOGL) and Apple (AAPL) in three potential scenarios, which suggests limited risk to Google’s profit and loss (P&L) and a wider range of potential outcomes for AAPL.
Latest Stories
Best Stock Ideas for 2023 From Our All-Star Roster
Time once again for a list of compelling stock ideas for the new year courtesy of our all-star roster of eight money managers, analysts and investment newsletter writers. From real estate expert Dennis Mitchell doubling down on a large cap stock to Davis Rea Investment Analyst Matthew Aspro’s favourite U.S. bank to market-beating contrarian Benj Gallander, who won last year’s stock picking challenge with a gain of 40 per cent. Large caps to small, dividend payers to growth companies and turnaround stories, we’ve assembled an eclectic array of top stock picks for you to consider to freshen up your portfolio.
RH Has Big 2024 in Store for Patient Investors.
This company is the “best idea in retail, hands down” over a six-month, one-year, three-year, and five-year time duration.
“No company has more torque in their model.”
And the founder and CEO, who is “very macro aware and pragmatic”, had a dramatic change in tone in the company’s earnings conference call during which he outlined a “major inflection” coming for the luxury home furnishings retailer in 2024 while acknowledging a still negative macro environment.
I visited this firm’s first overseas gallery outside of London this summer, the start of its international expansion.
I came away impressed and took a few pictures.
Find out more about this unique retailer, which is well-positioned for long-term growth.
GDP Boom a Mirage As Barbenheimer/Swift/Beyonce Effect Fades.
The Federal Reserve Bank of Atlanta is closely followed for its GDPNow forecasts.
The Atlanta Fed explains its work this way:
The GDPNow model forecasts GDP growth by aggregating 13 subcomponents that make up GDP with the chain-weighting methodology used by the US Bureau of Economic Analysis.
The Federal Reserve Bank of Atlanta’s GDPNow release complements the quarterly GDP release from the Bureau of Economic Analysis (BEA).
The Atlanta Fed recalculates and updates their GDPNow forecasts (called “nowcasts”) throughout the quarter as new data are released, up until the BEA releases its “advance estimate” of GDP for that quarter.
Historically, the Atlanta Fed says its Nowcasts are accurate within 0.83 basis points on either side of the actual GDP number.
The Atlanta Fed’s current GDP forecast for the third quarter, which ends September 30, is 5.8% annualized growth.
That’s right. A U.S economy supposedly heading into recession will grow by nearly 6% in Q3.
Have Programmed Trading & Investor Behaviour Irrevocably Changed the Investing Game?
There are billions and billions of dollars at work under the hood of the stock market every trading day that few people see or consider.
From so-called target date funds that systematically invest money for their clients’ 401k’s, the U.S. equivalent of RRSPs, to Commodity Trading Advisors (CTAs), who deploy derivatives to trade using momentum, to Volatility Control Funds, which attempt to smooth out market volatility using systematic, programmed strategies.
Then you’ve got the explosion in the use of zero days to expiration (0DTE) option contracts, which can whip the market around in sometimes unexpected and turbulent ways.
Add in the always present risky and occasionally maniacal behaviour of some investors and you’ve got a recipe for bursts of market volatility and unpredictability.
So, has the investing game changed forever due to these factors?
Or does a slow and steady approach of buying strong, market-dominating, well-managed companies still win out over time?
John and Don give their views in the seventh and final part of our video investment series.
These Stocks Could Rise Three-to-Five Times.
Unless you’ve taken a six month holiday off the grid, you know that artificial intelligence has become an intense area of interest.
Although, judging by the Google Search Trends chart above, the mania appears to have peaked for now.
However, many portfolio managers and investors in general are thinking long and hard about how to benefit from this massive shift in technology which is changing the way we live in ways we can barely comprehend at the moment.
But there are a group of companies that have such market share dominance, cash piles, expertise and head starts that it could be argued that owning their shares and sitting on them for several years could result in very handsome profits.
We can only imagine what the world will look like in five years but we can imagine what these companies’ bright minds are working on every day to optimize their businesses and their customers’ experiences.
John O’Connell and Don Ritchie have a thought a lot about the ramifications of AI and, in part six of our video investment series, describe their views of the landscape and how investors may want to be positioned for robust returns.
Three New Videos: Economic Cycle Bottomed? Why This Market is Like ’87 & ’98-’99; This Stock Could Have Meta-Like Resurgence.
John O’Connell, Chairman, CEO & CIO, Davis Rea Investment Counsel, and Don Ritchie, President, discuss why the economic cycle may have bottomed and a recession is far from a sure thing.
In fact, the economy may be entering a period of steady growth that is not too hot or too cold but just right.
Yes, the fabled Goldilocks economy that would provide the soft landing that many market players are forecasting and hoping for.
Or a “rolling expansion” as Ed Yardeni of Yardeni Research likes to call it.
From a stock market perspective, O’Connell likens today to periods in 1987 and 1998-99 when many deep pocketed investors were forced to capitulate their bearish positions resulting in a rush of cash into stocks accelerating already solid bull markets.
That scenario is how the S&P 500 could reach 5,000 by the end of the year, which would be more than a 10% gain from here.
O’Connell and Ritchie also discuss a stock that is lurking in their Davis Rea Equity Fund unloved and unwanted by many but possibly in the midst of a stealthy turnaround similar to how Meta proved the naysayers wrong with a monumental comeback and a stock gain of more than 240% off its bottom from last year.
Manager Who Called New Bull Market Still Bullish
Got questions?
Such as are the economy and the stock market entering into a goldilocks environment?
We’ve got answers from two seasoned pros who love the game and spend their working days absorbing information and thinking about ways to protect client capital and about which large cap businesses can thrive in any kind of market.
Their decision-making has been on full display as the Davis Rea Equity Fund is higher by nearly 22 per cent this year, outperforming the S&P 500.
In these first two parts of an extended conversation from our live show this week, John O’Connell, Chairman, CEO & CIO, Davis Rea Investment Counsel, and Don Ritchie, President, cover a lot of ground and answer questions on a variety of topics including…Click on the headline or image above to keep reading and/or watch these videos.
Five Reasons Economy Has Shifted to “Rolling Expansion.”
When we interviewed Dr. Ed Yardeni in late October of 2022, he told us he believed there were “tremendous opportunities” in the stock market despite what he called a “rolling recession” in the U.S.
Now, the President of Yardeni Research believes that rolling recession may be turning into a “rolling expansion” based on some of the economic data released this past week.
Since Yardeni’s comments during our conversation about nine months ago, the S&P 500 is higher by nearly 20%.
Nice call, Dr. Ed.
Keep reading…
AI Winners & Losers
…and why the Internet is fracturing. John O’Connell calls artificial intelligence “The Big Unknown.” That’s because it’s likely too early to know who the big winners and losers will be but he’s got a decent idea and mentions a few names.
The Chairman, CEO & CIO of Davis Rea Investment Counsel also explains why he thinks European regulators are “pirates” when it comes to policing technology and reiterates why EU companies are un-investable.
Stock Idea to Capitalize on “Enormous Amounts” of Infrastructure Spending
In Part Three of our chat, John and Don discuss a way to profit from the “enormous amounts of money” being spent in the U.S. on infrastructure.
This is a UK-based company with a significant amount of business in the U.S., and will soon have its primary stock listing on the New York Stock Exchange.
“We Have 25% Cash and Have Hedged 25-30% of Our Portfolio.”
More from the leadership team at Davis Rea Investment Counsel, in Part Two of our latest conversation. This time, John O’Connell and Don Ritchie provide a glimpse into how they’re managing through the current market environment by holding more cash than usual and, to avoid triggering capital gains, putting on some hedging strategies. Other topics include hedge fund activity, the rising odds of a slowdown, and why Blackstone’s Momentum Fund may be late to the party by buying technology stocks.
“The Glass is Half-Full for the Companies We Own.”
Glass half-full, glass half-empty.
Those are generally the two most prominent types of investors.
But who has done the work, assessed the data and made informed decisions about the companies they’ve invested in?
And who is jumping from headline to headline and/or on the lookout for views that will confirm their bias, either positive or negative.
The leaders of Davis Rea Investment Counsel are in the former camp and see the glasses of the companies they own for their clients and themselves as half-full.
They’ve been more optimistic than many and have been mostly right with the Davis Rea Equity Fund higher year-to-date by more than 17%, as of this writing.
John O’Connell and Don Ritchie believe the S&P 500 is more likely to visit the 5,000 level before 4,000.
In Part One of our conversation, find out about:
– The factors that give them a positive yet cautious view for their stocks…
– A six-point checklist of the traits their companies must possess…
– Two stocks that have performed well…
– And one they’re looking at that is geared toward consumer spending.
Why Economic and Earnings Recessions May Already Be Over
Germany this week technically fell into recession with two consecutive quarters of GDP contraction. It’s been the consensus for a long while that the U.S. will eventually do the same. After all, most of the economic data, with the exception of resilient employment numbers, indicates that will be the case. Or does it? The major stock indices continue to rise and we haven’t seen a flight to the safety of government bonds. Is it possible that economic growth and corporate earnings have already troughed and that the stock market has it right in front running a pause on interest rate hikes by the U.S. Federal Reserve and eventual rate cuts? That forms part of the argument in a report from a macroeconomic strategy team. We present the highlights here, including some intriguing charts.
Meta’s Big Plan to Grow WhatsApp
Do you use Meta’s messaging service WhatsApp? If your answer is no, that’s not uncommon for people who live in Canada and the United States. The messaging app, which Facebook (now Meta) bought nine years ago for $19 billion, is much more popular in Europe, South America and Asia with more than two billion users worldwide. (See chart below). My daughter lives in the UK and WhatsApp has been our main form of communication for several years now. What’s interesting is that WhatsApp is set to become a much bigger driver of Meta’s revenue and earnings because the company is converting it to a “super app” capable of payments and transactions. Super apps such as WeChat are big in Asia and Meta wants in on the opportunity. Here’s the latest on Meta’s plans for WhatsApp.
Record Number of Canadians Restructuring Their Debts
How have higher interest rates affected Canadians? The Bank of Canada’s key rate has risen “quickly and forcefully”, as the central bank puts it, to 4.5% from 0.25% in about 15 months. A definitive answer came this week from the Office of the Superintendent of Bankruptcy Canada which showed a record number of Canadians trying to restructure their debts.
Spring Market Update
We got calm and sober insight this week into a myriad of factors affecting financial markets. That came courtesy of the management brain trust of Davis Rea Investment Counsel during the company’s live Quarterly Call. John O’Connell, Chairman, CEO & CIO, and Don Ritchie, President, fielded my questions and delved into an array of topics including whether stock investors are complacent at the moment, whether the regional banking issues are contained, interest rates, the glory of pricing power at PepsiCo and McDonald’s, Meta’s comeback, comparatively sluggish growth at Amazon, commercial real estate problems, and whether AI is being overhyped and investors are getting sucked in. Grab a beverage of your choice and enjoy this conversation.
How Two “Remarkable” Companies Became 100-Bagger Stocks
One of the main investing principles at Davis Rea Investment Counsel is to hold great businesses for the long-term. No doubt John O’Connell, Chair, CEO & CIO, and Don Ritchie, President, will be driving that point home in various ways during our live show this Monday at 11am EST. That got us to thinking about Chris Mayer, Co-Founder & Portfolio Manager of Woodlock House Family Capital, and author of 100-Baggers: Stocks That Return 100-to-1 and How to Find Them. Long time subscribers will recall we interviewed Chris two years ago (see the link below.) Mayer also writes a blog and here we feature excerpts of some of his latest investment musings. The first part discusses Constellation Software, the Canadian growth by acquisition software company, which Mayer owns, and which has hugely rewarded shareholders over the years (see chart below). In the next part, Mayer focuses on a case study of Nvidia, another 100-bagger (see chart below), and marvels at a few things that make Nvidia’s accomplishments remarkable.
“A Heightened Sense of Risk.”
Howard Marks became a billionaire in large part by specializing in distressed debt. The Co-Founder and Co-Chairman of Oaktree Asset Management (since 2019 majority-owned by Brookfield Asset Management) has also been fond for years of dispensing investment advice through his memos. Warren Buffett has said he reads Marks’ memos straight away when they are released. We have featured excerpts from these memos from time to time and this is another one of those times because his new memo is entitled Lessons from Silicon Valley Bank. We have zeroed in on the conclusion of Marks’ latest musings because it deals with the worries surrounding commercial real estate. Is the sector a slow motion train wreck or are the problems manageable? Keep reading to get insights on the topic from one of the market’s most experienced and deepest thinkers and for a link to the full memo from Marks.
Why Brookfield & Big Banks “Look Very Interesting.”
Brookfield Asset Management and the big U.S. banks look very interesting. Amid bank earnings season and simmering issues in commercial real estate, John O”Connell and Don Ritchie are busy analyzing various companies and their respective stocks. That’s because a) that’s what they do for a living and b) the management leaders of Davis Rea Investment Counsel know from experience that the latest disruptions in the stock market have presented a lot of investment opportunities at potentially attractive prices. In our ongoing conversation, other topics we delve into include why there will be more cracks in commercial real estate as pension funds, private equity and other investors will eventually have to value their assets at more realistic market levels. We discuss how some retail investors have been sold real estate products that are not suitable for them, and revisit the so-called tech safety trade and whether it can withstand economic and earnings reality.
“We Have the Highest Cash Balance We’ve Ever Had.”
Things are moving more quickly than usual in financial markets these days. The mini-banking crisis in the U.S. combined with uncertainty about the economy, interest rates, inflation, corporate earnings and a myriad of other factors requires calm and reasoned thinking to determine what investors should do, if anything. One thing John O’Connell has been doing for investors in the Davis Rea Equity Fund, and for clients with segregated accounts, is raising cash. The Chairman, CEO & CIO of Davis Rea Investment Counsel wants to have firepower at the ready when it’s time to pull the trigger on stocks that are trading at what appear to be very reasonable valuations. Do banks fit that bill yet? Is Brookfield Asset Management a screaming long-term buy here as the stock gets punished for the company’s exposure to commercial real estate? These are among the questions O’Connell and colleague Don Ritchie, President of Davis Rea, are mulling daily. Their experience tells them there are opportunities in the market. The question is when to deploy the record amount of cash they’ve built up. They told themselves during previous market downturns to have more cash on hand the next time a bear market reared its head. Keep reading and watch the video for answers to these questions during a thoughtful and informative conversation with a couple of pros about how to navigate this challenging environment.
Exuberant Investor Behaviour & Managing Risk
Part three of our conversation with John O’Connell and Don Ritchie of Davis Rea Investment Counsel. As the Mother of All Bubbles continues to unwind, investor behaviour in certain parts of the market remains curiously exuberant. As if the bailouts of U.S. regional banks, forced rescue of Credit Suisse and nearly $1 trillion worth of emergency funding U.S. financials have accessed the last few weeks at the U.S. Federal Reserve’s discount window and new funding program are all in the rear view and we’re good to go back into a bull market. O’Connell and Ritchie give their views on this behaviour, how they’re managing risk as algorithms and high-frequency trading exacerbate volatility and stresses in the stock market, why it’s easier to make money now, and discuss a few signs that indicate portfolio returns will be high single digits after the Fed first cuts its key lending rate.