November was an exceptionally strong month in the stock markets. Today I talk to you about:

  • Portfolio Positioning
  • Economic Developments
  • Are You Wealthy?

November was a phenomenal month and possibly our best month ever. As the year enters the last month I begin to reflect on the year. To say it has been challenging is an understatement. What we saw in November was positive vaccine news which triggered a quick rotation into more cyclical names. People stopped looking for growth in tech stocks and started looking for more normalized earnings from companies that were trading at lower earnings and book multiples.

What did this mean? The earnings that they were expecting have now been brought closer than previous expectations. As a result investors were willing to pay more for increased earning expectations.

In addition, the US election seemed more clear and an undisputed election outcome seems more likely.

Portfolio Positioning

Portfolio positioning was already in the ETF XLI which is U.S. industrials but the problem is that it isn’t currency hedged. Even though it is affected by a falling U.S. dollar, the investments still had a strong positive return.

The morning that Pfizer announced the efficacy rates of their vaccine I had planned to change portfolios to further expose them to value and in particular the unfortunately I wasn’t able to do this before the announcement however the position still performed well for the rest of the month.

I remain focused on the U.S. however the Canadian banks and TSX in general are starting to look attractive to us as we gain more clarity around the economic consequences of shutdowns from COVID-19. The US in most parts of the country seem less restrictive than Canada and the U.S. consumer is less leveraged.

Comparing price to book and price to earnings multiples there is a significant disparity. There is also a significant difference in the sector and company make ups of US and Canadian stock indices.

Data

  • U.S. retail sales are up 3.2% year over year which is amazing economically.
  • Manufacturing in Germany is doing well but services are retracting again however this is expected as there have been increased shutdown measures due to COVID-19. The U.S. is well into expansion in both services and manufacturing.
  • 30 year U.S. mortgage rates have decreased again from 3.01% to 2.92?
  • Canadian exports and imports are very close to pre-pandemic levels. U.S. has not recovered as well.
  • Canadian core inflation is around 1% which is well below the 2% target and would confirm the Bank of Canada’s declaration and commitment to keep interest rates low for the next couple of years.
  • US building activity is very strong.
  • Australian manufacturing is quite strong even with discourse between China, Australia’s largest trading partner.

Overall I’m seeing a positive economic outlook.

Are you wealthy?

No matter your net worth, it is often difficult to determine if you are wealthy. The feeling of wealth really stems from the definition of wealth. Not the Webster Dictionary definition but your own personal definition of wealth. Does wealth to you mean:

  • Love
  • Health
  • Family
  • Well-being
  • Money
  • Something else?

While the word wealth is often associated with money, it can mean many different things.

When I look at someone’s financial wealth I not only look at the assets they have but also the ability to earn income, their human capital. What is their ability to adapt to changing situations? I also look at this as their intellectual capital.

Once you have thought about what wealth really means to you then we can begin to look to see if you are in fact wealthy.

Most have heard the saying that if you have your health then you are wealthy.

If you’ve ever asked yourself “what is this all for?” then you will have begun down the path of defining wealth within the scope of your life and human experience.

Now that you’ve defined wealth I want you to think about the purpose of wealth. Having this wealth, or lack of it, what can you do with this wealth? If you need more of it then what do you need to do to acquire this wealth?

If wealth is health then perhaps going to the chiropractor, dentist or physiotherapy might increase your wealth. 

If you define wealth as financial independence then perhaps a close look at your spending patterns and revenue incomes is within your near future. This will increase your cash flow and possibly your net worth.

No matter how you look at wealth, make sure that it is tied to a deep meaning.

Find happiness in what you have and joy in the pursuit of more of it.

Until next time,

Trevor Dale, CFA

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