July 2017

Steering an investment portfolio through noise from all corners; white house to oil fields or North Korea to whole foods stores isn't easy unless you keep your focus on fundamentals. I did a project on fundamental valuation more than twenty years ago. Amazingly little has really changed although we have so much faster computers, cell phones didn't even exist then unless you count the so called satellite phone that was heavier than a brick. The fundamentals of investing continue to be cost of money or interest rates and how much the company makes or earnings per share. 

So looking at the two levers of rates and earnings, there is some action in raising rates albeit gingerly by major government central banks. What isn't clear is whether that will really have any impact on earnings. Sure some industries like housing had a bonanza as million dollar homes could be purchased with just 2000 per month. But other sectors like technology, utilities and banks, will see little impact of rising rates. In fact some may react positively. Besides, there is really very little appetite or even capacity to withstand much higher rates anywhere in the world. If rates go much higher, world economy will slow or even recess which in turn will bring the rates back down. Face it, we are still in a low rate environment for some time.

And that means, stocks and preferred shares that pay ~5% dividend  have no match on a fundamental basis. So we carry on as we have now for nearly a decade. It beats earning 0.7% from TSX, or 0.2% from Bonds and 5.2% in the US S&P 500 year to date (all in C$).