Market and Report Updates - January 10, 2023

Barkha Rani Jan 10, 2023
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Report Updates

We have posted report updates on Constellation Software (CSU) and Lightspeed (LSPD). CSU is a mission-critical software provider for a variety of industries Constellation's business model is to acquire software companies, integrate those companies into its operating units, and encourage growth either organically or inorganically. Lightspeed is an e-commerce software platform that connects suppliers, merchants and consumers. LSPD has solidified its position in the hospitality Point of Sale industry and has demonstrated strong sales growth. We believe both companies have long growth runways, however, at the moment both are in stark financial positions to each other. 

Read the latest updates by logging in here!

Investor Sentiment Survey - RESULTS!

Thank you to all those that participated in this past market update's Investor Sentiment Survey. We have published the results from the survey in a report in the link below. Please note that the weightings and categorization of these results are still a work in progress, and the model(s) used to analyze the results may change over time as more data comes in.

It appears that investor sentiment is improving slightly, and the sentiment is nearing a 'neutral' stance. Notable results include members gradually shifting toward a neutral outlook on the Canadian stock markets from a bearish sentiment, and an increasingly popular response that rates will be flat over the next 6-12 months. Expectations for lower inflation over the next year are also increasing. 

Survey Results

We look forward to releasing another round of the Investor Sentiment Survey at the next market update!

Market Update

The markets have experienced a slight pullback over the past several weeks as investors mull a series of economic data releases and talks by the Federal Reserve. Earnings season is approaching, and the financial sector begins its round of earnings releases later this week. Talks of an economic slowdown are on the rise and so are rounds of job cuts across large tech and financial firms. US inflation data is scheduled to be released this Thursday, although a persistent tone from central banks of 'higher for longer' continue to pin down equities. It's a new year with the potential for new narratives and a changing economic landscape, and in this market update, we wanted to touch on the core investing principles that we hold at 5i Research. 

5i Core Principles of Investing
It’s a new year and we thought it would be a good time to give some reminders to members on 5i Research’s services and our core investment/portfolio principles. Investing is not a science, it is an art that each individual investor needs to unlock their unique investing style. There are general investing principles that, while at times may seem obvious or unnecessary, help to protect one’s portfolio over the long-term. In the sections below, we outline some of our core investing principles at 5i Research.

Avoid Concentrated Risks
Don’t make a portfolio reliant on a single stock. If the last year has taught us anything, it is that no matter how well you know a company or how confident you are in it, it can still go down. Even if the fundamentals and results are fine! Having too many eggs in one basket can cause a lot of problems that are hard to bounce back from.

The Importance of Rebalancing
Be sure to rebalance. Similar to the above point, as certain names become a larger portion of a portfolio, make sure to consider rebalancing holdings (i.e. selling some winners, adding a bit to losers or new names). This helps avoid allowing any single name becoming too much of a weight in a portfolio but also allows some gains to be taken over time. Meanwhile, it allows more cash to be put elsewhere as winners are trimmed. When stocks are working well, it is easy to feel confident and let a position run. Rebalancing helps to keep some overconfidence in check and ensure position sizes are being managed. There are numerous ways one can rebalance. How it is done is probably less important than the act of just rebalancing in some fashion.

This parallels the above two points but an investor should ensure they remain diversified. This means across asset classes (stocks and bonds), across sectors, and even across styles to some degree. Value will not always work. Growth will not always work. Nothing will ‘always’ work. So having a bit of a taste of everything can go a long way.

‘The Stock Market is a Device for Transferring Money from the Impatient to the Patient’
Keep the long-term in mind. The last year has done a good job at making investors laser focused on the next quarter and even just the next monthly macro datapoint. It always helps to remember that at the end of the day, the basic principle behind investing is that you are purchasing ownership of companies. Companies aren’t built in quarters and a higher interest rate probably doesn’t (or shouldn’t) change the math a whole lot on great companies. This doesn’t mean to ignore these other issues and risks but sometimes companies need to be given time to ‘breathe’ and grow.

Due Diligence Involves Multiple Sources of Information
We are not and should not be your sole source of information – we view 5i Research and similar tools/services as a tool in your toolbelt. One tool does not solve each and every problem. We can be a valuable tool in providing research and stock ideas, but we should not be relied on as the only source of information out there. As always, members need to ensure they are doing their own due diligence on names and are comfortable with what they own and why they own it.

‘The Best Time to Plant a Tree was 20 Years Ago – The Second Best Time is Today’
The stock market has been in existence for roughly 230 years, and throughout history it has gone up and to the right. Yes, there have been long periods of sideways price action or severe volatility, but largely the market has been a great source of wealth creation and preservation of wealth for centuries. If any individual were to be asked whether they would have liked to buy stocks 20, 30, 50, 100 years ago, the resounding answer would unequivocally be yes. This is why we think that regardless of the present-day fears of the market, recessionary concerns, rising interest rates, investing in the market over time has proved to be a good way to escape an eroding purchasing power from the effects of inflation.
This is not a comprehensive list but we think it is a good start and some solid principles that can help an investor avoid a lot of pain and hopefully see a lot of success as well. As we embark on a new year, where new narratives will take hold, new macro forces and fears unfold, we feel that there is a lot of opportunity in the years ahead, and now is a perfect time to put in the work, to reap the future rewards.

Best wishes for your investing!