Good morning everyone, welcome to the presentation of the quarterly
letter on April 23rd. I hope you are doing well and that spring is
starting to arrive where you are, because it hasn't started to arrive
here yet.
Let's get started this morning. We have a few topics to discuss.
First of all, welcome. As I always say, we will start doing these
presentations a bit more regularly. I just want to mention that we had
a so-called "beautiful" budget, with quotation marks, from
our federal prime minister, and we also have a provincial budget.
Isabelle is working on a presentation to provide a summary of the
provincial and federal budgets, as we have clients who are not in
Quebec. This presentation should be posted on our site in the next few
days, or next week, once everything is finalized and approved by our
department. So, stay tuned for those who prefer to listen to Isabelle
rather than me.
Now, let's move on to the quarterly letter. What's quite funny over
the past few weeks, especially since the beginning of the year, is
that I've received a lot of comments from clients. As usual, we have
all the colors of the rainbow in our clients' comments, but this time,
it's quite extreme. We've had people telling us "I don't
understand anything, the market is doing super well while everything
is going badly," and others saying "I don't understand
anything, the market is doing super badly while everything is going
well." This just goes to show that perception is quite special.
In my opinion, it depends on which side of the street you live on, but
it's completely different.
To give you an update on what's been happening since the beginning
of the year and what I think is happening, which is more of an opinion
on the markets, I touched on this in the quarterly letter by saying
that it feels like change is in the air. In 2023, we had a year that
we call the year of the "seven magnificent," the big
American companies. We talked about it, I wrote a lot about it, and
they drove the market up. In 2023, companies like Amazon, Google,
Meta, and Nvidia drove the returns, especially on the Nasdaq, but also
American returns in general. Just these seven companies made up the
majority of the stock market returns. So, it was very difficult for
portfolio managers, including us, to compete with that because no sane
person was as heavily invested in these companies. Even if we held the
majority of these companies, we didn't have the proportion that these
companies represented in the index. So, we had good returns in 2023,
but compared to the Nasdaq, it was practically impossible.
To put this in perspective, people with a somewhat short memory who
forget quickly, 2022 was quite awful for these companies. So, people
had a good 2023, but those who were there for two years just saw the
pendulum swing back, and not even for the majority completely. What's
happening in 2024 is that with the year we had in 2023, there's a kind
of changing of the guard happening, which is very healthy. There's a
lot of profit-taking happening with these companies. So, even if the
companies are doing relatively well, the expectations were so high for
profits. We're entering this week, it starts this week, Google starts
in the third week of April. The quarterly results will come out, which
are also the annual results. These are the big results that will come
out in the next two or three weeks on the American market. Canada is
always a little bit behind, probably because our accounting rules are
a bit stricter.
What's happening in 2024 is that many managers, who have had the
last five months, since October, November, December, January,
February, and even March, these are months that have all been positive
for the most part. So, managers are taking profits. Since interest
rates haven't started to come down yet, and we're not sure when they
will come down, even though we know it's a matter of time, we're not
certain enough. Managers are moving in the stock market, meaning they
stay invested as they should, but they change their strategy a bit.
They move out of the "seven magnificent." I'll take an
example, they will reduce their position in Apple, and then take that
money to go into another sector, into other companies. We're starting
to see that the market should be supported by the other 493 companies
in 2024, and not by the seven. That doesn't mean the seven companies
will do badly, it just means they won't be the drivers of returns.
What I think is very healthy is that people are starting to evaluate
the value of companies with a higher interest rate for a good year.
Money has a cost, meaning when we invest, we need to make a return
with that money. If companies borrow, they need to make a certain
return because they have interest to pay. So, buying growth at any
price is somewhat resolved. People are starting to look at it, it's
good to invest in a company, but what do I get for the money I invest?
We're starting to see companies, people are starting to invest in
companies that are cheaper, have less debt, and especially generate
positive cash flows. The majority of big companies, yes, make money,
Amazon and Google of this world, but the value at which they trade is
still quite high. Some trade at 40, 50, 80 times earnings. It's still
quite expensive. When we have an interest rate at zero, it's fine
because money has no cost, but when we're at interest rates of 5, 6,
7, 8, depending on the credit rating, we start to see companies for
which it costs a lot.
When we look at what's been happening since the beginning of the
year, why we have quite extreme comments in our clientele, it's
because the markets are starting to rebalance. That is to say, we have
a day like Friday. Friday was the perfect day for us, it was a
terrible day for many people. That is to say, one of the biggest
companies in the world, Nvidia, fell by 10% in one day. The Nasdaq
collapsed by about 1.5 to 2%, I don't remember exactly, but it took a
good hit. While dividend companies, more stable companies, went up. On
the American index, the DVY went up by almost 1.5%, and we went up by
about 3.1%. So, people who watch TV, and who will listen, I don't want
to speak ill of TVA, but TVA is a bit more negative often in the
evening, so they will say "oh well, the stock market did badly
today," and they look at their portfolio and see that they went
up. When we start to see this fluctuation, yesterday it was a bit the
opposite. Yesterday, the Nasdaq went up, while more industrial
companies also went up, but much less. We're starting to see, in
financial terms, a weaker correlation with the market. That is to say,
we stick less to the market. It's normal, we don't hold the 500
companies of the S&P 500, we don't hold the 60 companies of the
TSX. Even if we hold a lot of them, we don't hold them at the same
percentage. It's normal that we have a disparity between what happens
in the stock market and what we do in performance in the short term.
In the medium and long term, we will always tend to follow the market
because, in the end, the market will dictate where we are heading.
For people who have the perception that we are not making returns, I
don't know what to tell you, but look at your portfolio carefully,
because yes, we are making returns. At the end of March, as you can
see on the letter, if we can just scroll down a bit to see the
performance a little better. If we look at the performance of the last
three months, as I was saying, at the date of March, we made 8.5% in
the fund. Again, this is not your personal portfolio, it's not your
return, it's the performance of the private fund before fees. So,
we're talking about 8.5%, it's not 0, it's not -5. If we look at
today, April 23rd, the performance of the indices, I will round up
because we haven't been approved by compliance, and it moves while I'm
talking to you, so it's a fairly active number. We're talking about
performances of about 4, 5, 6%, that is to say about 4% for the
Nasdaq, 5% for the S&P 500 American, 6% for the Canadian stock
market. Again, don't take me at the exact percentage, but roughly
about 5%. So, even if you have the perception that we have more bad
days than good, like the Canadiens, but in the end, we realize that
the performance is there, and that we manage to have a better return
than the index in the short term, because we don't have that
volatility. You will see that the performances over the next few
months will tend to be high too, because we've had good performances
for six months. Even if you see over a year that we have a performance
of 18.6%, so much the better, and over three years, we're above 10.
But that doesn't mean we're going to do that all the time, we won't
have 12 positive months. which have been doing very well for the past
few weeks, a few months. And when things are going well, unlike
people, but I tell you because when we have a company in the portfolio
that we have, for example, 3-4%, and it starts to rise, and rises
faster than the others, it takes up more and more space in the
portfolio. And as it takes up more and more space in the portfolio, it
becomes more and more important. So, it becomes more and more
dangerous at some point, because if I'm wrong, it will hurt the
portfolio's performance. And it has a double effect, the more it
rises, the more expensive it becomes. So, you see the logic, the
better the company does in my portfolio, the more I hold something
that is expensive, and I should take advantage of it to sell some.
That's why I'm not a big fan of stock indices. People say "I'll
buy the index and do nothing," it works for the index in the long
term, precisely for that reason. Because look at what happened last
year with the "seven magnificent." During the year, they
exploded, so the returns were super good, the index did well, of
course. But now, it starts the year with an index that is excessively
heavy in these companies, while the companies are very expensive. So,
the index tends to overweight the companies that did well at their
highest level. So, the more expensive they are, the more we buy. And
conversely, the cheaper they are, the less important they are, the
less we buy.
So, I hope that answers the question of why stay invested. We will
take some positions in that, but you will never see me being 100% in
cash, never ever. I'll just go over what we've done in terms of
purchases and sales, and you'll see that we continued to buy. And the
sales we made, if you look at the top right, it's Alphabet and Apple.
But Alphabet, which is Google, Apple, you all know them, they are
companies that did very well last year. They are companies that we
still hold, but we just cut them because they are too expensive for my
taste. It's an energy company, but it's not really an energy company,
it's a company that sells products to energy companies. So, it's a
distributor of related products in the energy world. The company is
doing so well, over a year, the performance, I won't give you the
exact performance, because over a year, I can't tell you on December
31st, I don't remember by heart, but we're talking about since the
beginning of the year, it's over 50% return. And over a year, more
than 100% return. So, when that's the case, I don't complain, it's the
biggest companies in our portfolio. But when the company gives me a
100% return in a year, well, I'll put some in my pocket. It's a
company that I still love, but I cut it because the company is going
too fast.
And when you look at the end of the line, the companies we added, we
added two gold companies, Newmont and Barrick Gold. Not because we are
sure that gold will do well, but because gold companies are trading at
a discount compared to the value of gold. So, I prefer to hold gold
companies rather than the metal. We have a little bit of gold metal,
but I prefer to hold the companies. So, if you look at the bottom
right, Royal Mint, Canadian Silver, I sold some of my silver metal to
buy producers, because there is a difference between the value of
silver and the value of the companies. All the additions of existing
titles, as we sold, and we had cash inflows, I continue to increase
the titles we have in the portfolio.
So, I hope that answers a bit where we think the market is going in
2024, why we need to stay invested. I think 2024 will be an
extraordinary year for many people, but not for the majority, not for
everyone. That is to say, people who will follow the wave of 2023,
that's my opinion, it doesn't mean it will happen, people who will
have bought last year's winners, Tesla, Nvidia, Apple of this world,
will have more difficulties. People who will go towards companies that
have good cash flows, that pay dividends for the most part, that don't
have a lot of debt, will benefit, because a lot of money in the market
will move from mega-capitalization money to small and medium capitalizations.
So, that's my comment for the quarter. We'll move on to another very
quick topic, which is a bit of news. Thank you, Sonia. Just to let you
know that we are a bit active, our team will do a walk for CHEO, which
is the equivalent of the children's hospital in Ottawa. So, the team
will do that for volunteering. We will also do the walk of the
gibelotte festival in July. So, we will be on site, you will see
photos of our team. For those who are not from Sorel, it's the Sorel
festival, the gibelotte. We have a breakfast conference, it is full,
but if you haven't seen the invitation, and it interests you or you
just missed it, you can still contact us. If there are people who
cancel, we can add you to the waiting list, and there will be others
to come. So, follow our social networks, and check the emails, because
more and more, we will put the information on our social networks, and
we will have more and more presentations that will be done either live
like this, or posted directly on our social networks. The breakfast
conferences in May will be really in person. So, if you are
interested, be active. And we are planning to do the next presentation
on July 23rd, it remains to be confirmed, it's the end of July. But
generally, we are quite on time. On that note, I wish you a good
lunch, thank you very much for your time, and have a good spring, it
can finally happen. Have a good day, and see you next time.
