Hello and welcome to the Download. I'm your host, Dave Richardson. And it is Stu’s Days, or as one of our mutual friends recently called it, Snooze Days. He's generally pretty positive about stuff that we do over the years. But do you think he meant that or was he just being funny? He's a very funny guy.

Very funny guy. I think we'll chalk it up to humor, Dave.

Yeah, well, maybe we'll see how his business results are. We'll talk to him about that because that usually wakes him up when you ask him that question. But Stu, we're back in video. You're looking very sharp. That's a very nicely pressed suit. I think we talked about this. You've got the ironing expertise. So you're not taking that to the dry cleaner.

Well, actually I do the reverse. I cheat a little bit. I wash my own shirts and I get them pressed, which does save you about half the money. But I think it actually makes the shirts last a little longer too.

That is a factor. So just always think in value.

And I have done the YouTube a million times, how to iron a shirt in three minutes, and it does not work.

Yeah, I think we've firmly established that I have no skills in that regard. I've gone a little bit more colorful, reflecting the spring-like winter that we're having here in Toronto. They keep saying snow is coming, but I keep looking out and I've got fluffy white clouds on a blue-sky background outside my office every day. So we'll see if we ever get a winter.

That's right.

But we are getting some wintry blusters through the markets. And we've talked about this on a couple of the previous podcasts so far this year. Pretty much all the data that's coming out, particularly around inflation, which drives interest rates both long and short term, with what the bank of Canada Federal Reserve is going to do. Most of the data has come in hot, which cools down the market. I guess the latest example of that: we're taping here on Valentine's Day on February 14, but yesterday, February 13, the CPI numbers came out of the US and there were some things to be concerned about in that number. We saw yields on the ten-year treasury pop up. We saw all the odds in futures markets around when central banks are going to start lowering rates, get pushed back and reduce number for the year. And then of course, stocks had their worst day in about a year. So is this just another little hiccup on what's very clearly a road that's heading in the right direction? Or do we have to pay a little bit more attention to this data? Are we starting to see a new trend emerge here?

Well, we're always paying attention to what's coming in front of us. I think there's always nuance in any set of data. You don’t either want to overly discount something just because it might disagree with how you think in the here-and-now, but you also don't want to bring something brand new into the equation, even if it's just maybe a one-off. We tend to think about it in two ways. The first is the longer-term process — and we've talked about this before — but inflation finds its peak and twelve months later, interest rates find its peak, and then, twelve months later, the broad pool of earnings out there bottoms. And I wouldn't say there's anything that really dismisses that. The second component, when we see a stock price react quite violently sometimes up or down to a short-term bump or fall in their earnings, and it doesn't really impact the long-term performance of that business, markets try and do the same thing. They're always trying to price two things. The first is: if something will happen? And the second is: when will it happen? And you can see volatility in markets. And what it's repricing is the «when» component, not the «if» component. So when we think about it, inflation is coming down, there have been some markers before Christmas that said maybe the job is complete. Then there's been some markers that say we still have a little way to go. Chairman Powell was on 60 Minutes saying we'll likely err on the side of making sure that everything is closer back to square rather than acting early. I think what markets are reacting to is this notion that it might take a little bit longer before interest rates are cut or the degree to which they'll be cut. But I think the idea that they will be cut is still the outcome that we're most focused on. When it comes to the performance of things, you do see maybe yields jump around. Yesterday they jumped up, today they've come back down. When you look at the rate itself, it looks volatile. But the big difference this time around is that the coupon is higher. So you're not seeing quite the same price volatility. If the ten-year bond was 1.5% and you get a ten-basis-point move, you're going to get a bigger change in price than you are here. So on the whole, when we look at this, we say this is just the market's sorting mechanism on the pathway that in our minds looks quite familiar. When it comes to the stock side of the equation. Let's not forget, stocks hit an all-time high just the day before, or Friday anyways, before this announcement. So there is the same type of mastication going on inside of the equity market, which is the «when will this all happen» and the «if it'll happen». And that's something that we're always trying to work our way through in the portfolio. And markets were a little bit weak yesterday. But on the whole, we've seen some stocks that have good valuations and they've surprised to the upside because their earnings have been a little bit better. And we've seen stocks that have had maybe more elevated valuations and they've had good numbers, but not quite enough to justify the valuation. And we've had some other numbers where some other companies where maybe earnings have to be redigested a little bit, all part and parcel inside of a portfolio. But all this is to say that I think the roadmap is still the same that we're working with.

Yeah, I'm driving along on the road. I've got an SUV. It's got pretty good suspension, big tires. And so I'm driving along and there's some speed bumps. And I'm going the speed limit. I'm not speeding or anything. I'm paying attention. But I hit the speed bumps. I'm not too worried about them. Just go along. But I’m paying attention. I hit the speed bumps. I know I have to be cautious in an area like that, but then sometimes you'll go along, and you'll hit a speed bump and it'll just be: boom! And it really shakes you up and you're, oh, wow, okay, now I got to rethink what I'm doing here. And it seems more like what we're going through here. And yesterday was an example where we hit a speed bump. Boom. Okay, let's think about it. Everything's okay. So these are minor speed bumps. We're still going in the right direction, so we're going to keep driving the same way versus when you hit that real banger. That's when you got to step back and change the way you're thinking. Which leads me to my next question. Let's talk not specifically yesterday — we want to be very careful with that — but in general, a day like yesterday when one piece of news moves a market that much, is that a day you're in looking around for bargains? Is that where your antenna goes up? It's like, wow, there could be some really good opportunities here when something like that happens. Or is that too simple a way of thinking about it?

Well, it's a good question. It's a bit of both, really. The volume was not overly heavy yesterday. So sometimes you see a price change, and you go into the market to buy something, and then we saw this towards the end of the day where the market rallied almost three quarters of a percent in a very short period of time because you get to levels that look interesting. And you go to the trading desk and say, I'd like to buy some. And they said, well, there's really none for sale. It's the way markets work. I used the analogy of driving by a used car lot, and you'd see the prices soaked on the window and you'd watch the price come down and you'd be like, oh, one more day I'm going to go buy that car. And then the next day the car is not there. And you're like, well, I'd like one at that price. And they're like, well, they're just not available. So we get out there yesterday, and there are some stocks that traded to attractive levels. I would say, in general, we're fishing in the pond of bigger dividend yields, dividend growth, quality businesses, businesses that will do better when the economy reaccelerates. And some of those hit good prices yesterday. And you've even been watching in some of the tech areas, too, stocks that have elevated valuations, and then they get a very significant correction in one day. They offer you this chance to buy the long term at a better price. So there's no set formula for this. But for myself and the team, every day the scenarios are open. And where stocks trade relative to their base case, their bear case, their bull case, there's always the chance for activity.

Yeah, there are no Snooze Days.

There are no Snooze Days.

So, Stu, again, something you said has led me to another question, which is if volume was low yesterday, but prices were going down and people were selling, is that a day where you're typically seeing more retail investors who are jumping out because they're worried about risk or can you read anything out of the volume yesterday?

It's hard to read. Often, it's quite algorithmic. On days like yesterday, there's kind of a risk management tone. We've talked about the volatility index in the past — otherwise known as the VIX — and it spiked yesterday. There are some programmatic trading things that take place when the VIX moves around. But we tend to really go stock by stock. Where are we getting opportunities relative to that base and bull case that we could envision over the next 12 to 18 months? And you see a day like yesterday; the S&P was down 1.35% or something like that. Again, we hit an all-time high Friday. So it's not like everything went to the bargain basement bin yesterday or anything like that either.

Yeah, exactly. And then Stu, one of the things we did talk about, though — and it's important we keep coming back to this because this is one of the ongoing themes for regular listeners — we're driving along the road and we're going to hit some speed bumps. Nothing comes down. Economic numbers don't move in one direction in a straight line. There's some hiccups along the way when you expect there to be volatility. If you're doing one particular thing, that volatility is actually your friend on days or week where things are down. Any suggestions from your AI-like mind?

Yeah, well, it is a little bit of a snoozy strategy, but it's dollar cost averaging.

No. Stop! I thought you were going to come up with something else just for a day like yesterday.

Yeah, the DCA. I had a cape that said DCA on it. The DCA boy. This very rhythmic approach to building your portfolio over time in an environment like this. It always makes sense, but it definitely makes sense in this environment.

Yeah. All joking aside, there are really some speed bumps that we're expecting. There's uncertainty, as you say, where we're going. We're pretty sure where that is. But the path there and how long it's going to get there is a little more uncertain. A number like yesterday makes it that much more uncertain. And that's why using a strategy like that — and Stu's talked about how he even builds positions in his portfolios that way — becomes a really smart way for a typical investor to start to build positions in areas they'd like in the midst of a market that you feel you want to be in, but there's still some risk out there that you want to be cautious of.

Yeah, that's bang on. I couldn't have said it better myself, Dave.

Wow. You don't think I'm listening to you, but I listen to everything. For 25 years I've been listening to everything you say.

Yeah, I think we could get you a cape, too. We could get you a DCA cape.

I would like that. I just don't want the tights that go with it. I don't have your build. And that's the problem with the video. But we'll wait till one actually gets posted before we start to get complaints about our appearance, and then we'll make an adjustment from there. Okay, Stu, thanks again for catching us up on an interesting day yesterday. And hopefully we'll have some other interesting things to talk about next week. I'm sure we will. There's always something going on in a market somewhere. So take care and we'll see you next week.

Great. Thanks, Dave.