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Slip into something more comfortable and delve into personal finance with Josh Sheluk and Colin White, experienced portfolio managers at Verecan Capital Management. Each episode demystifies complex financial topics, stripping them to their bare essentials. From investment strategies and financial planning to economic headlines and philanthropic giving, delivered with a blend of insight, transparency, and a touch of humour. Perfect for anyone looking to understand and navigate their financial future with confidence. Subscribe now to stay informed, empowered, and entertained.
Verecan Capital Management Inc. is registered as a Portfolio Manager in all provinces in Canada except Manitoba.
Welcome to Barenaked Money, the podcast where we strip down the complex world of finance to its bare essentials with your hosts, Josh Sheluk and Colin White, portfolio managers with Verecan Capital Management Inc.
Colin White:Welcome, everybody. Josh and Colin here to have a little bit of chat about, how great the summer is going and how wonderful markets are and how we're obviously going through the best soft landing in the history of soft landings. Did I get that right, Josh? Is that what we're gonna talk about?
Josh Sheluk:Soft landing. Is it a unicorn, or do we call it a different mythical beast?
Colin White:I'm I'm not sure. A pegosaurus has always been one of my favorite mythical beasts. Like, if we're gonna go down the mystic mythical beast, spirit animal route.
Josh Sheluk:Is that a real thing? A pegosaurus? Or are you talking about a pegasus, or is this like a pegasus and a dinosaur crossed?
Colin White:We all had our own imaginary friends as we grow up. Don't be so touchy.
Josh Sheluk:That's fair. Yep. That's right.
Colin White:So what do you think, Josh? Is, all of the great news last couple of weeks and, your awesome performance on the investment side last couple weeks in indicative of, we've reached the inflection point, the turning point. We should all relax. Is that is that where we are?
Josh Sheluk:Well, so I guess a soft landing isn't quite as unprecedented as I made it sound at the outset. There have been some periods through history where we've seen rate cuts and inflation come down. And although things, things seem to be slowing or weakening, they can continue on for a long stretch in this situation. So it's possible. I don't think it's a high probability event that this continues like this for a sustained period of time.
Josh Sheluk:So that's that's where we are. We as we always do, we're predicting the future so we just try to rely on probabilities. And it's not a very high likelihood, especially here in Canada where you see quite material weakening economically. It's not a high likelihood that we're able to sustain this for a long period of time. Weaker growth numbers, I think.
Colin White:So would it be a fair characterization to say that do you think there's still a little bit more pain ahead?
Josh Sheluk:Well, we haven't had much pain. So when you say more pain, I don't know what you mean. More pain than than nothing.
Colin White:Josh, you're underestimating how worried we've all been.
Josh Sheluk:You know?
Colin White:Worry, worry causes pain. I mean, we we've worried ourselves into 2 or 3 recessions recently. And then we and then it didn't show up. We we invented micro recessions to
Josh Sheluk:Yeah. Emotional recessions. Emotional recessions for sure. Yeah. I I think it it pays to be cautious at the moment is what I'd say.
Josh Sheluk:And that doesn't necessarily mean that there's gonna be some real pain or anything out there. But I think, again, the likelihood or probability of some pain is higher than you would think otherwise. So it pays just to be a little bit cautious with your portfolio positioning. And if you need money over the next year or 2, maybe be a little bit safe with with that.
Colin White:Yeah. I I I think that, you know, from what I see, there's there's pockets where we expect more pain. I think that the the magnificent 7 still have a rocky road ahead now. Again, whether that's in the last 6 months or 6 years, you know, as as you so admirably pointed out, eventually, evaluations have to matter. No, it could be 6 years from now, but you know, eventually it has to matter.
Colin White:So I think that there certainly are areas, and this is not a great market, in my opinion, to be really, really super confident about a particular outcome and, and place a significant bet in one direction or another, for sure. And I think diversification's actually paying off quite nicely right now. And I think that's gonna continue to be the case. And, you know, leaning into the wind a little bit, And maybe there's room to play with your duration on your fixed income side. Maybe there's room to play with, you know, your concentration on the equity side a little bit.
Colin White:But don't get crazy. You know, I'm of the opinion that, yeah, this this feels a lot like a soft landing. And I define a soft landing as one that does not end up with a meaningful recession and, you know, allows us to push off the bottom and move move higher again. So it's kind of a loosey goosey definition. And it would be a little remarkable, you know, given the the sledgehammers that we have to change direction.
Colin White:Like it's not like we've got a full control panel in front of us with lots of dials and knobs that are immediately responsive that we can tune the economy to where we want it. We really have these bludgeoning blunt instruments, you know, like ray cuts and speeches by important people. And, you know, so there's no real fine tuning of this. So it will be a little remarkable, in my humble opinion, if we do manage to bring this into a situation where we don't end up in urgent rate cuts. I was gonna say panicked, but panic's not the word.
Colin White:I think what we're hoping to avoid is that we end up in any kind of a situation where we're urgently having seeing economic reactions to
Josh Sheluk:things. Yeah. You mentioned the sledgehammer. That the sledgehammer was interest rates increasing by 5% in what was at a 3 to 6 month period of time, like, very, very abruptly. Right?
Josh Sheluk:So Yeah. That is very unusual to have interest rates move that far that fast, off of also, well, basically, 0. So that's never happened. So to say that that's not gonna have any ramifications down the road, we'd be living in the mythical universe, I think, that we talked about at the outset. But I I think you you mentioned so sorry.
Josh Sheluk:Go ahead if you have a question.
Colin White:No. No. No.
Josh Sheluk:Yeah. Well, I was just gonna bring it back to what you mentioned about the Magnuson 7 or whatever. The largest cap stocks in the world have really dominated the headlines and the performance so far again this year. And just a couple data points that I've seen recently. 1, and I'll I'll try to source them properly here.
Josh Sheluk:A company called Empirical Research said that in the 100 some odd year history of the S and P 500, the index has never been up more than 10%, with one stock delivering 30% or so of that return. And that's NVIDIA this year. S and P 500 up over 10%. Well over that, actually. 30% of that responsible just from NVIDIA itself.
Josh Sheluk:The one company, which is quite remarkable when you think about it. And this company was already one of the largest companies in the world coming into this year, and it's gone up dramatically since that. And then the other thing was from Ned Davis Research. And I told you about this already, but I'll I'll say it again for our listeners. So there's only been two periods of time when the largest 7 companies in the world have outperformed to significant extent over an extended period of time.
Josh Sheluk:The first was in the late nineties. Didn't end well. The second is now. And I don't know how it's gonna end, but it tells you that there's some embedded risk in being aligned with those largest 7 companies or with the index as a whole or the best performing parts of the market over recent times.
Colin White:It's just funny because in that explanation and and what these commentaries are, they talk about how things end. But I think it's important to point out things never end. The ball keeps bouncing. Like, you know, the the market moves, the economy moves. It's just the size and magnitude of the the dips that you're gonna go through.
Colin White:And, you know, we in Canada, you know, if a certain vintage have Nortel to look back upon where one company was well over 35% of the index at one point. And, you know, now not to say that Nvidia is going to go bankrupt like Nortel did. You know, that's not my point. But that is an illustration of the the inherent risks when you have a a market dominated by key players like that. And it's a it's a risk to be managed.
Colin White:You know, I I I don't think that health FOMO kicks in and, you know, the sex appeal picks up and the hype picks up and but you really have to be, you know, careful about being influenced in that way. You know, you that's that's a real dangerous place to put yourself. And back to what I said earlier, I think diversification diversification is key. Now part of me wants to argue with myself because I've seen a lot of products coming out, but there are a lot of emphasis on product about, you know, equal weighted rather than cap weighted. So part of me is thinking, well, wait a second.
Colin White:Product normally gets launched at exactly the wrong time. So maybe now's the time to double down on the Magnificent 7. Maybe. So that contraindicator for me has kind of sparked me today. I was going, oh, no.
Colin White:I don't know people talking about this. Well, maybe we should lean in. I'm confused. And I'm not sure what to take from that.
Josh Sheluk:Yeah. Well, not every product can be launched at the wrong time, can it?
Colin White:Well, you know, that was that maybe was my belief earlier this week, but as the week has gone on, I said, wait a second. Maybe they're talking properly now. May may maybe this we are living in a mythical land with soft landings and Pegasauruses. So may maybe the product launches are now going properly. Maybe this is a com the the complete break of the time space continuum.
Josh Sheluk:That's right. That's right. Yeah. So so, yeah, we're we're at this point today. Economies are seem to be weakening more so in Canada than the US.
Josh Sheluk:Inflation, we're getting pretty solid, consistent data now where it is is within range or within spitting distance of range of where we wanna be. And the markets keep doing well. So it is it is, a nice place to be right now.
Colin White:Well, it kinda strikes me is that we were inevitably gonna get here. You know, this this is where all of all of the actors in the market wanted to see this happen. You know, the the central banks wanted to see this happen. Governments wanted to see this happen. We were gonna get here.
Colin White:Now, I I think a lot of the cost of the consumer sentiment. When you
Josh Sheluk:say here, you mean weaker economic growth and weaker
Colin White:Exactly. Yeah. Exactly. So we're we're we're gonna we were gonna see the slowing. It was, you know, to me, it was inevitable we were gonna see the slowing.
Colin White:Yeah. And I do think that we're just quibbling about the details right now. And, you know, this was kind of inevitable to get to this point where it gets a little bit worse from here. Yeah. There's there's an active debate that we could have on that.
Colin White:I probably agree with you. This probably is going to feel a little worse. Right? Yeah. And is it quantifiably going to be worse from here?
Colin White:I don't know. It's going to feel a little worse at some point for sure before we start up the other side. But there's an inevitability to this. And to to see the range of the see the magnitude of the reaction to each of the little individual steps as we get here is is the part that I think is a little out of step with maybe how how much we should be reacting to these things. But, you know, I'm comfortable.
Colin White:I'm having a good summer. I think it's going well.
Josh Sheluk:Yeah. Me too. And I guess our takeaway is stay diversified, stay maybe a little bit cautious, just keep an eye open, one eye open. Is that fair?
Colin White:Absolutely. Cautious is always good. Because remember, it's not about making a lot of money. It's about keeping what you got. So protecting the downside is way more important than hitting it out of the park.
Colin White:If you're breaking a sweat trying to figure out what your financial advisor's talking about, you're not getting the service you need. You probably hate trying to get an answer from them, but you also think moving your accounts will be a headache, and it might be. But working with don't rock the boat wealth planning dot com or dot ru isn't exactly stress free, is it? Call us. We will demystify the world for you.
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Announcer:discussions are not a solicitation to buy or sell any securities or to make any specific investments. Any decisions based on information contained in this podcast are the sole responsibility of the listener. We strongly advise consulting with a professional financial adviser before making any financial decisions. Listeners should be aware that investing involves risks and that past performance is not indicative of future results. Barenaked Money is produced by Verecan Capital Management Inc, a licensed portfolio management company in Canada.
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