Peter Hodson: Every investor had one thing on their mind — inflation
A trader works on the floor of the New York Stock Exchange. Photo by Brendan McDermid/Reuters files The Toronto MoneyShow, after a pandemic hiatus, was held last week. It’s a great show: a giant exhibition and forum on all things investment and money related. It was even better to get back to actual in-person discussions with investors, rather than conferences over Zoom. Attendance was high, but spirits were not. Let’s look at five takeaways from the show.
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Article content Whether it was talking to conference attendees, or sitting in on some of the hundreds of presentations, doom and gloom was everywhere. No one was excited about the market, and the prophets of doom got the biggest audiences. One cheerful fellow even predicted a bear market for another 20 years. Investors lamented about how everything is down, even bonds.
Article content Cryptocurrency and cannabis investors have lost so much that related companies didn’t even bother showing up. The mood was grim, with the conference starting just a few days after markets fell four per cent in a single day. Attendees looked at me like I was from another planet when I commented in a speech that “it was not all bad.”
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Article content There were presentations and booths by a company selling rare wine as an investment, a private condo in Texas looking for investors and a company flogging music royalties. They all received large audiences, because investors are seeking something — anything — other than stocks and bonds. Many investors were simply looking for an investment that didn’t act the same as the rest of their portfolios — the beloved non-correlated asset class.
We have nothing against alternative asset classes. After all, we are portfolio managers of a United States hedge fund. But investors need to be careful about shifting money into other asset categories just because something isn’t working. The switch may be at the exact wrong time (prior to a rally), or into something investors either don’t fully understand or may not be right for them.
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Article content This is not 2008 Despite the doom and gloom, some of the rare speakers who were not completely negative (including me) noted a few things when comparing the current economic period to that of the great financial crisis of 2008.
First — and this is important — no one was talking about any impending bankruptcies that were likely to hit on the Monday morning after the conference. This was in sharp contrast to 2008, when investors were too scared to wake up in the morning due to the fear of yet another car company, bank, brokerage or mortgage company going under. Nope, this year we have made it through another week, month, quarter and year without a giant bankruptcy.
Another area of difference is jobs. In 2008, the U.S. economy was losing 400,000 jobs a month. But at the MoneyShow, attendees were discussing how there are 11 million job openings in North America and no one can find workers to fill them. It is indeed a different time.
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Article content A cold shoulder on hot themes In prior years, the exhibit hall was filled with junior mining companies, cannabis companies and cryptocurrency companies. Actual rock stars roamed the halls, promoting the latest fad they had signed onto. Well, these all turned out to be duds, so maybe there is a good contrarian indicator here.
This year was the first in many that the show was what some might call normal. No themes predominated, not one area of focus attracted all the attention from investors. My gut tells me this is a very good thing. Investors might do well to get back to basics, and ignore thematic investing.
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Every investor had one thing on their mind No one, at least compared with other money conferences over the years, really wanted to talk about stocks and specific company attributes. Nope, all they wanted to talk about was inflation and interest rates. Specifically, when they are both going to peak.
Company fundamentals, at least for now, do not matter one bit. Companies reporting strong earnings? Who cares. Higher dividends? Who cares. It’s all about inflation. That’s the only thing that matters to some (perhaps most) investors right now. It makes stock picking very difficult. You might find the greatest stock in the world today, but if inflation keeps rising, that great stock is likely to drop 20 per cent next week.
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Article content The laser focus on one or two data points will eventually change, but it is sure annoying to any investor who believes that company fundamentals actually matter.
Peter Hodson, CFA, is founder and head of Research at 5i Research Inc., an independent investment research network helping do-it-yourself investors reach their investment goals. He is also portfolio manager for the i2i Long/Short U.S. Equity Fund. (5i Research staff do not own Canadian stocks. i2i Long/Short Fund may own non-Canadian stocks mentioned.)
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