Welcome back folks, to Part 2 of my interview with Peter Hodson, former Chairman of Sprott Asset Management LP, Editor of Canadian MoneySaver and CEO of 5i Research. You can find Part 1 here.
Thanks again for sharing your perspectives and experience with my readers Peter, let’s get back to the questions…
My Own Advisor: What’s your take on Canadian real estate these days?
We are not concerned about a real estate bubble. The economic picture in Canada is OK, and interest rates should stay low enough to keep investors interested in real estate. We would be cautious on Vancouver, as usual, but the rest of the country looks decent as far as real estate goes. Real estate is driven by jobs and rates: both are OK at the moment.
My Own Advisor: What’s your take on bonds these days?
A lot of investors are ignoring bonds because they fear rising interest rates. However, bonds can still play a part in a balanced investment portfolio. Bonds provide regular income, and safety. Most investors should have some fixed-income exposure as a cushion. There are floating rate bond ETFs and laddered bond ETFs if you are very worried about higher interest rates.
My Own Advisor: What are your favourite investing books?
I like the basics: ‘One Up On Wall Street’ and “A Random Walk Down Wall Street”.
My Own Advisor: For an investor just starting out, unsure about investing, what would you suggest? (Other than reading Canadian MoneySaver or My Own Advisor blog of course).
There is an industry course called The Canadian Securities Course. It is the course brokers are required to take before they can sell products. It is a great reference, but it also shows you that the industry is designed to sell you something. Understanding this can really help an investor when they are investigating a new investment that ‘sounds’ great but maybe in fact is not. We would suggest also the Peter Lynch approach: buy something that you know. If you like a product then find out who makes it, find out the company’s growth rate, find out their balance sheet and more. Do not buy anything you do not understand. Play it conservative when starting out. Slow and steady wins the investing race.
My Own Advisor: Give us your elevator speech – what two or three things should all investors be mindful of?
Watch out for debt. It can be a company killer. It is hard to go bankrupt if you have no debt and excess cash. Watch for dividends. The first dividend is the best sign for future potential. Growing dividends are far better than high dividends. Don’t be greedy, but do not sell too early. You will never get a 10-bagger (a stock that goes up 10-fold) if you sell after the first double.
My Own Advisor: Let’s go back in time and offer some advice to a younger Peter Hodson. What advice do you have for your 20-something self?
I would tell myself not to sweat the small movements in stocks. Sometimes, stocks go down, and it simply does not mean anything. Do not worry about small movements. The fundamentals will win out in the end. Also, there will be at least 10 times of complete panic in the markets in the next twenty years. Use these times to buy, not to panic.
My Own Advisor: Could you tell us a little about your personal portfolio and how you invest?
I am no longer able to buy Canadian stocks because we do not want any conflicts in our research at 5i Research. I own a handful of names from before 5i was founded, but we cannot discuss them. Now, I invest in hedge funds run by former colleagues and partners on Bay Street, and in US companies. I own some very fast growing companies in the US, such as Facebook, Athena Health and Tesla, but they are fairly volatile and most of my money is in hedge funds, real estate and index products.
My Own Advisor: Last question Peter, any financial predictions you want to share with us for the rest of 2014? (I wrote a few of my 2014 financial predictions here)
I think equity markets will have another good year. Rates will stay lower than what most think, and earnings will be strong as top line revenue growth finally comes back. Since companies have cut costs so much, profit margins will expand. This, along with higher valuation multiples resulting from a continued return of confidence, could be very good for stocks. I would also expect a blistering takeover market. Credit is cheap and abundant, and valuations are low. For a company seeking to buy another company, now is the time. I think oil prices will do well, again because of the economy. The gold sector will likely have a huge bounce in 2014, and is off to a great start already. I think technology stocks will see a lot of action. Whether it is 3D Printing, electric cars or Internet applications, there is a huge wave of technological innovation underway, and investors will want a piece of the action. I think small cap growth stocks will outperform. Investors have less need for value stocks the more confident they get. Since market conditions are constantly changing, I should add that 5i Research produces a regular blog that highlights our market comments and provides lots of general advice.
Thanks again Peter for some great insights. Readers, more insights will probably appear from Peter on My Own Advisor later this year – so stay tuned. Peter, keep in touch.