Investment Q&A

Q: What are your top Canadian and US investment ideas foe times of rising inflation?

Q: Hi,

Are there any recent studies that you would recommend regarding optimal diversification (not CAPM)?

It seems these days that in bad markets everything falls regardless of sector, region, size etc. So I am trying to figure out if it’s worthwhile holding “safe” securities that return a fraction of what higher growth names would-since these safe plays still fall significantly in down markets, albeit much less than the high fliers.
Specifically, I am interested to see if someone (reputable) has proven that in the long run (10+years) it is worth holding ANY slow growth stocks returning say 5% per year and “only” fall 25% in down market versus having an aggressive portfolio of high growth stocks returning 20+% per year but fall 50% in a down market. I would think the compounding of high growth portfolio would more than offset the larger loss in a down market-but looking to see if this has been proven.

thanks!
Brad

Q: Hi 5i,

When I try to estimate a stocks 12 month target price I assume a multiple and growth. My eventual target price usually ends up lower than what most analysts calculate. Do most analysts use current multiples even thought there may be short term multiple expansion? The overall market especially in the US seems to have experienced significant multiple expansion in the last couple of years. I would appreciate your thoughts on how analysts arrive at their target prices and forecasts. (they seem to be an optimistic bunch)

thanks

Q: LSPD has issued a response to the short attack:

https://stockhouse.com/news/press-releases/2021/09/29/lightspeed-comments-on-short-seller-report

I would be very reluctant to sell shares in LSPD and more inclined to purchase more. Like previous short attacks on high growth companies like SHOP and NVDA, I'm quite sure this one will prove to be bogus and just another cynical attempt to profit from the resulting sell-off. In the case of SHOP and NVDA short attacks, the short-sellers who issued the reports even pledged to give lavish donations to charities if the stocks recovered (In the case of SHOP, $200,000 USD was pledged if it ever rose above $200!). Wouldn't we all love to buy SHOP for that price today?

My only question in all of this is whether there will ever be any regulatory control over short-attacks that can be proven to be opportunistic.

Q: Hi 5i,

In regards to AMZN, MSFT and GOOGL.
At a high level why are rising interest less desirable than having low interest rates. It seems the market gets spooked if it believes interest will rise. I hope you can explain the overall thinking.

Q: Hi guy's i have been with you now entering my 3rd year nd extremely happy. My question is if i would like to join your portfolio manager would i be just paying the difference from regular to portfolio. And my other question i have been with a financial planner now for many years jumping from one to another, with your guidance i believe that i am ready to leave them now because the fee's are killing me every month even thou it is only 1.5% on over $450000 thousand including my wife it is quite a bit. My major question is if i drop them i already have an rrsp account set up with TD it is a self direct rrsp can i get everything transfered over with out them selling my shares which means keep the same companies they have and then i can make my own adjustment when it is my hand, The reason why i am asking everytime i have done this that they sell my shares the portfolio shrinks by a couple of thousand dollars. Thank you and i am really looking foward to joining up with your portfolio.

Q: The markets pre-COVID were rising at a reasonable rate year to year, with the odd market downturn. Since March/April 2020 the markets have shot up and stocks are trading at much higher multiples than pre-COVID. Eventually, reality may kick-in. There are many companies trading at very high evaluations. If you look at the overall market (i.e. Nasdaq) you see an exponential growth curve for the past 18 months, definitely not sustainable and possibly overpriced.? I still buy stocks but sometimes feel that if the market turns around, it could be years for it to come back. (I am more concerned about companies such as SHOP, NVEI, TTD, LSPD, NVDA, TOI, UPST, ... all of which are great companies but if we overpay, payback could be much more than 5 years.) I thought same about Netflix, I was totally wrong and missed out on one of the biggest lifetime opportunities BUT there must be a point where the price is definitely too high. Are we overpaying? Will we regret this at some point? Your thoughts? Thanks.

Q: I am trying to understand the impact of a 75% Capital Gains inclusion rate. Today with a 50% inclusion rate, assuming a 50% personal tax rate, you keep 75% of any taxable gain. With a 75% inclusion rate you would keep 62.5%, or 16.7% less. Is my math correct?

In a 75% inclusion rate, can 75% of the loss be used against gains? ie. a $100 gain would be offset by $100 loss meaning no tax would be due just as it is today?

If this is true, you may be best to lock in gains and save 16.7% if its a holding you plan on selling in the next year or two anyways. You can always buy it back immediately after locking in the gain. 16,7% seems significant

On the LOSS side, it seems more black and white. Today you can claim 50% of the loss and if there is a change to 75% inclusion rate, you can claim 75% of the loss next year. If there is no change to the inclusion rate a 50% loss claimed this year or next year is marginally better to claim now but if the inclusion rate changes from 50% to 75% it will be worth 50% more next year. It seems to me you are better off waiting until next year to claim any losses.

Is this a valid analysis or am I missing something.

Many Thanks
Scott

Q: What percentage of each would you suggest for a good balance between Canadian and US stocks at this time? (Thanks so much for your help. I have benefitted immensely from your good advice for a few years now.)

Q: Where could a person find as near to "real time" as possible all of the holdings of mutual funds and ETF's - when looking at company documents on their websites they can be months behind current. I even tried SEDAR but could not find.

Q: How do you interpret Institution Holdings? Does this information help you analyze a company?

In the information about companies on the 5i website, most US companies and some others show Institution Holdings above 100%. This presumably is incorrect so what is happening? Where Institution Holdings are under 100% on the 5i website, is it likely that these numbers are reasonably accurate?

Q: Do you think LSPD or NVEI would be a target for a short attack, the way Shopify was. That one seems to have been short lived? Can you outline the features that would make any stock ripe for a short attack. Thanks

Q: Very recently Robert Pace, Chairman of the Board at CNR, bought 50,000 shares of CNR at $152.55. Today the stock is trading at a little over 3% less per share. How much would you let this information influence a purchase decision on the stock at this time.

As always, thanks for your word of wisdom.

Q: Hello Peter,

Have you been able to assess the probability of the US and Canada raising capital gains inclusion rate to 75%? If so, what is the impact to dividend and growth stocks?

If this does look imminent what would be the strategy to address a potential 10%-15% decline for Non-registered, RRSP, and TFSA accounts? We are almost retired and do not have 10-15 years of investment time for the effect of this change to balance out.


Cheers,
Jerry and Debbie

Q: I saw some advice awhile back about converting Canadian dividend companies that are also listed on the US exchange to their US listing, so that the dividends would then be paid in USD. I think the idea was to avoid the conversion from USD to Canadian dollars for companies that earn much of their money in USD. I'm not sure if I saw that on 5i or somewhere else. Can you comment on this - is it a good idea and are there any exchange or tax considerations?

Q: Hi team,

I know you are fundamental analysts, but you mention technicals from time to time. I am curious on your thoughts of the RSI as an entry or exit indicator on a stock. I look at it, not so much to see if a stock is overbought or oversold, but more so to judge how a stock is holding up in a bad market. Do you use it in your analysis and do you have a preferred website where RSI data is readily available?

Thanks again.

Q: The Buffet Indicator is 239% right now. It is wayyyy above the year 2000 tech bubble, which was 150%.

Should we be worried?

Thank you

Q: What do you think about bank fees in Canada? I just feel like I am getting screwed paying $10.95/month at RBC when there are free chequing accounts online.

Do you see any upside to having a bank account with one of the major banks?

Q: What is the "Exchangeco" company? Does it makes sense to take the option of exchangeco shares?

From the circular:

Eligible Canadian shareholders will be able to elect to receive shares of Exchangeco (“Exchangeable Shares”) in lieu of the Penn Shares to which they would otherwise be entitled. Each whole Exchangeable Share will be exchangeable for one whole Penn Share, subject to adjustment.

Q: Please recommend some materials or online resources that help explain stop loses.
I understand that 5i is not necessarily a fan of them but are there times when you might use one? Thank you
I appreciate your help.