OPTIMISM #25 - March 19, 2021Dear clients and friends, Happy Friday.
The Canadian market is flat today, but our portfolios are up.
It’s been like this quite a few days in the past month. The culprit… Shopify.
This is the Ottawa-based company that started in a garage in 2006, become publicly traded in 2015 and by 2020 was considered worth more than the Royal Bank. Remarkable.
The price peaked in early February this year at $1,901/ share. Today its $1,396, down 27%. Even at today’s low it trades for 438 times its earnings.
So if their earnings remained as current, it will take 438 years for an investor to get their money back.
There is a giant future growth assumption built in. Will they get there one day? I don’t know.
Or you could own TD Bank. Which trades at 12.3 x earnings and pays a 3.9% (and growing) dividend.
A few people are underwhelmed about their 2020 performance, so I would like to shine a light on that.
It was a difficult year. Stuff that did well generally did not make sense, like Shopify, up 192%.
Logical stuff was closer to flat.
TD did well. In 2020 it started at $67.98, ended at $71.94, up 5.8%. Add $2.96 for the year’s dividend.
However, 2021 has been much better so far, starting at $71.94 and is now $81.22, up 12.9%, plus dividends.
Conversely, Scotiabank had a terrible 2020, starting at $73.59 ending at $68.80, down $4.79 or -6.5%. Add $3.60 for the dividend.
Today, its $78.82, up beautifully.
The message is Quality and Patience.
The balanced accounts, with their ~70/30 asset mixes did better than those with all stocks, especially the ones that sold expensive bonds near the March lows and bought stocks at discounted prices.
It reminds me of the spring of the year 2000. Commodities were strengthening after a long quiet period.
Oil was 5$ in 1998. Gold was 265$ in 2000, now its $1,718 .
Technology markets were crashing after an incredible run up.
Our unloved value-oriented dividend stocks were referred to as ‘old economy’. Remember that?
Wall street said recently that we are at the end of a great run for bonds.
I saw a recent quote that summed it up beautifully. “Bonds used to be risk-free income, now they are income-free risk.”
This is an important discussion to have with your portfolio Manager.
‘The 40-year bull market in bonds is over’ and the implications are profound - The Globe and Mail
The right thing to do is to have a discussion about accepting more volatility in exchange for better long-term gains + more income.
Dividends from Emera, Fortis, Cdn Utilities, Canadian Tire, Enbridge arrived during March. BMO, CNQ and RBC paid late in February.
Life is grand.
Have a great weekend.