Weekend Reading – Reasons to be Bearish
Welcome to a new Weekend Reading edition, highlighting some important reasons to be bearish.
First up, some recent reads just in case you missed them!
Maybe one reason to be bearish moving forward is reading content like this – some authors are telling us dividend investing is dead?
Ignoring that I recently shared this update about top stocks in our portfolio:
Weekend Reading – Reasons to be Bearish
Image Source: Pexels, Klemen Kuster
Aligned with this Weekend Reading edition is Ben Carlson’s post on The Cult of Equities.
I’ve been thinking about high stock market valuations for some time now, and while market trends have been our friends in recent years, something has to give at some point.
I certainly didn’t see emerging markets hammering the S&P 500 this year, let alone the TSX delivering more double-digit returns only 6-7 months into 2026 but where we are.
I also didn’t see Canadian banks up 20% or 30% year to date (and more!) either but again, here we are.
There are other signs to me that things are due to shift, potentially abruptly.
Inflation remains hot. People are struggling with their mortgage renewal rates. AI seems to be disrupting the workforce and with it, welcoming a bunch of investor FOMO (Fear Of Missing Out). There are too many 20-somethings saying just “buy the S&P 500 and chill” – they don’t know about bearish markets at all and they might not even know this term exists.
Most importantly to me, our portfolio returns have been just too good since 2022 when not much worked that particular year including any 60/40 balanced portfolio – although one year does not make a retirement and you can still retire on a 60/40 portfolio!
I’m of the opinion with equities work well until they don’t.
Stocks go up, sometimes a lot, so they will go down at some point because they went up too fast in the first place.
My/our counter to any potential equity market slide is this two-pronged approach as of this summer:
- We remain invested for about 90% of our portfolio (in our mix of Canadian stocks + ETFs) in case markets go even higher than today, but increasingly,
- For the first time in a long time we are likely to trim some ETF units this summer in registered accounts and divert gains in those registered accounts for some spending safety in the months ahead thereby keeping the remaining 10% of portfolio in our desired cash/cash equivalents mix.
There are many reasons to feel grateful for the returns YTD since our portfolio is up over 20% but also signs to be very cautious and quite bearish.
At the time of this post, I firmly sit in both camps.
As always with investing, my decisions and your decisions are about trade-offs.
I welcome your thoughts as well…
Weekend Reading – Beyond Reasons to be Bearish
From The Globe and Mail, I liked this and I see this with the DIY investor and reader community on this site: AI is putting more pressure on the industry advisor model (subscription).
More pressure is good pressure…
To be frank, including the assets under management (AUM) advisor in the past that strongly criticized my DIY investing path to early retirement (link here), I’m glad AI as a tool is disrupting the wealth management industry.
AI can be used for the greater good.
AI is adept at analyzing large amounts of data, summarizing results and modelling multiple scenarios effectively and efficiently – which can be an enabler to financial knowledge and literacy to many. Paying thousands upon thousands of dollars for advice to be hoarded by your financial advisor is just not going to help you be accountable long-term.
Unlike the Globe article, I do not believe many investors are best-served through an expensive AUM model where “financial planning and behavioural coaching are worth 1 per cent or more a year…”. Many investors can go it alone and/or may only need periodic check-ins for their plans or projections.
This means I believe many investors, prospective retirees and current retirees should have access to a broad spectrum of tools and services at many pricing models – so the more free or low-cost solutions the better.
In other reading:
What Happens if OpenAI Delays Its IPO to 2027?, by Morningstar.
Nothing in Investing Is Doing Nothing, by James Montier of Behavioural Investment.
A Century of US Stock Returns, by Nick Maggiulli of Of Dollars and Data. From that post:
“But the longer you extend your time horizon, the rarer the negative returns have been historically. Over 10 years, the probability of experiencing a negative annualized return of any kind is just 13%.”
Finally, it was a real pleasure to talk early retirement with my friends at TD Direct Investing recently. You can check out the video among others on our new YouTube channel!
Continued investing success and have a great weekend!
Mark
Yes, I’m trying to be calm, too.
My cash wedge is my largest holding, and represents about 3 years of withdrawals. However, it only makes up about 12% of my portfolio.
The current Canadian banks run up is unprecedented. Their price-to-earnings ratios are at historical highs.
I asked AI for an analysis of the current situation compared to other times in history when their P/E ratios were so high (see answer below as food for thought).
The Big Six Canadian banks currently trade at historically high valuation levels, with an average price-to-earnings (P/E) ratio hovering around 16.5 to 18.9 (depending on the bank).
Historically, the Big Six have usually traded at comfortable, conservative multiples of 11 to 13.
When and Why Have Valuations Been This High Before?To find similar P/E ratios in the upper teens and beyond, you have to look back to the aftermath of major market crashes when bank earnings plummeted, which artificially inflated P/E ratios:
Spring 2020 (The COVID-19 Crash):
During the initial onset of the pandemic, bank P/E multiples soared into the upper teens and twenties (e.g., RBC spiked over 20). The cause: A sudden, drastic drop in expected corporate and retail earnings due to widespread lockdowns, while bank stock prices recovered faster than their bottom lines.
The 2008–2009 Global Financial Crisis:
P/E ratios spiked briefly as earnings collapsed due to massive write-downs and loan provisions. The cause: Earnings contractions rather than soaring stock prices.
The Cause of the 2026 Valuation Surge
Unlike the spike during the 2020 crash, the current run-up is driven by a steady surge in share prices, where stock appreciation has outpaced even the banks’ strong earnings. Analysts attribute this to several factors:A “Sweet Spot” in the Economy: The banks have successfully navigated the post-tariff environment, maintaining net interest income and keeping loan losses (bad debts) remarkably contained.Global Capital Diversification: Investors looking to escape highly concentrated, tech-heavy American markets have poured money into the perceived safety, stability, and high dividends of the Canadian oligopoly.
Nice to hear from you, John!
Totally agree: “The current Canadian banks run up is unprecedented.” Not buying more here, just holding. 🙂
Do you own all big-6 banks?
The cause of the 2026 surge aligns with my own thinking:
-modest/stable lending period with predictable interest rates,
-lower Tier 1 capital requirements, and potentially,
-flight to safety for income and growth (from U.S. stocks and the Orange Man).
What do you see for the rest of 2026 in banks? Up? Flat? Down?
Cheers,
Mark
Hi Mark. I’ve got 3 plus years of cash equivalents in our portfolio’s. I’ve always bought what I thought were good companies and always planned on holding them forever. Like buying much more than selling. With my dividend cash flow I’m not too worried about any downturn. If it was a good company before a market downturn it’s still likely to be a good company after one. I try my best not to listen to the noise and sleep well at night. Life’s too short not to enjoy every day. Cheers Mark.
3-years’ worth of cash/cash equivalents is golden….and with lots of dividend income you seem set for life.
I liked your comment: trying to be more positive with my golf game re: “Life’s too short not to enjoy every day”…including my bad rounds of golf of late. 🙂
Cheers back,
Mark
I like Calmish it should be a new category. I guess I’m both Bullish and Bearish at the same time depending on geography, sector etc. Basic economics will tell you that returns come from where money flows to. As of the last 12-18 months it has been places like Italy, Germany, Türkiye, Mexico and yes Canada (+12% in FDI in 2025, 2026 will likely be higher), not China and not the US. This is reflected in the returns we have been and will be seeing. So I’m cautiously optimistic for some EAFE countries and Canada, not so much the US as business needs rules, predictability and trust to function most conditions are very, very, very much missing and then there are the midterms.
To me AI (as in OpenAI and SPCX) is simply a pipedream if not scam, there is no business case where meaningful returns can be expected. Oracle just got downgraded to BBB b/c of it’s dependance on OpenAI, more might follow if the wheels continue to come off.
Unfortunately as humans we are prone to believing nonsense esp. if it is wrapped in prophesy speak and whish thinking it is in our DNA after all. Has anyone actually read the SPCX IPO? Never mind that it’s already incorporated in the NASDAQ (but not the SP500) because they “conveniently” changed the rules, don’t tell me this is all above board. Same will happen if OpenAI goes public.
Quite Bearish on AI for a number of reasons like the questionable data center buildout and insane CapEx vs realistic revenue projections. Ultimately history has shown nothing good will ever come from bad people. Altman, Musk, Ellison and the likes are imo about the worst examples of humans our species has produced in a very long time.
I, off course, could be wrong but if I am we are all screwed.
Thanks for your detailed comment.
My hunch is, something has to give with these markets. Just know how much nor when!
Nice travels – you get around!
“Unfortunately as humans we are prone to believing nonsense esp. if it is wrapped in prophesy speak and whish thinking it is in our DNA after all”, well, yes, you just described everyone following the Orange Man in the U.S. Sigh….
I agree with you on Altman, Musk, Ellison, etc. Never a fan of any of them…and something will happen to shift things at some point. In a bad way.
Thanks for sharing these weekend readings! I’m back after a long blogging hiatus, so it was a pleasant surprise to see a familiar blogger still here. I will definitely take a look at these articles and see what everyone in the community has been up to. I’m looking forward to reconnecting and reading more of your work as well. AFFJ
Oh, good! All my best and happy to reconnent anytime.
Mark
I sometimes listen to the calm voice of JL Collins. Everytime the market goes up, there is fear and “this time is different” but somehow there is a recovery and the market climb carries on. As long as you have your cash wedge for 2-3 years minimum, you are likely ok. With dividends ( assuming they aren’t cut) my wedge is about 5 years. Could we have a lost decade? Sure. I am diversified geographically and hope that portions of the portfolio will rebound quickly enough. Time will tell! When there is a signficant market drop, it will be a gut punch seeing my net worth drop. I’ll just have to ignore what’s going on and follow my decumulation plan.
He’s pretty popular with the FIRE folks in the USA: JL Collins.
I think 2-3 years’ worth of cash wedge is plenty. We’re about 2-years’ worth and that feels pretty good these days.
How is the execution of your asset decumulation coming along? Might have to spend more this year, Sandra, if the market keeps going up!!
Ha. Cheers.
Ha! The taxes would kill me. 😉 Planning our fall trip so we can spend some of it before the US admin destroys the world economy. haha
Seriously, eh? re: Orange Man.
Happy travel planning!!
I’m definitely have two minds of the AI driven market. 1)I can’t believe the returns in the market as well as my own.
2) from what I read the AI Industrial Revolution has much more to run. A few points I keep coming back to. If you look at the hype curve for AI we are still in the early stages. The companies that will benefit from AI are many… a) the companies creating the AI b) the companies supporting AI and c) the companies who will utilize AI for their business. So it seems AI will lift most companies. I don’t think we have had many big breakthroughs yet and perhaps we won’t. Carney’s book Value(s) had some interesting mostly positive thoughts on the AI revolution and job losses. So my investing is the same, and hopefully I’ll enjoy the ride.
I agree on your AI hype-curve. The fun or problems with this are just beginning!
Any particular AI stocks you own?
Mark
No particular stock but I bought and continue to add( a bit here and there) to QQC.TO.
I could see that for tech-kicker. Inside TFSA or Non-Reg?
Thanks for sharing.
Mark
TFSA. My TFSA is mostly dividend stocks except QQC.
Nice. Same. A few stocks but lots of low-cost ETFs for growth.
Continued success!!
It is bonkers YTD returns, but that’s also on top of 2023, 2024 and 2025.
I often wonder when this party ends? What’s the end game or pause on all this hype?
I think AI is going to be great for many things but terrible in other ways, including the lack of human connection.
I own AI stocks via the S&P 500/U.S. holdings so not very worried at all about FOMO/missing out.
How do you own AI Steve?
Cheers.
Yea for sure many scary potential things in AI. I always had XAW in my RRSP so the thinking is that it is broad based enough to capture the various stocks that are suppose to benefit from AI.
Yes, it should and also take advantage of emerging markets when they roar – like this year – killing the S&P 500 returns YTD.
We shall see what the next 5 months bring!
They can say what they want about the errors of dividend investing. I’ll still keep my money there.
Just for fun I looked back and since 2015 I am just short of the $1 million in dividends for 10.5 years. Will cross that this year.obviously.
2010 was the first year I started tracking my divs – $16,742
What a change!
Getting harder to keep up though as the mandatory withdrawals are lowering any re-investment potential.
Although it is human nature to complain it is hard to justify any problems I have.
RICARDO
Wow, incredible…seems dividends more than meet your spending needs!
Doesn’t sound like you have many problems!!
Mark
Most of the Canadian bank stock price increases are due to P/E multiple increases imho. I expect the multiples will revert to their historical mean multiples sometime. While I hope bank earnings will surge to soften this event, I expect their stock prices will decline. I am very overweight in Cdn banks since they were glorious dividend growers (since early 80s) but won’t be selling them since they are mostly in our non-registered account. Selling out of the money covered calls is an option (pun intended).
My sixth largest holding currently is cash after selling BTE in May/June. I like to think we are ready for whatever may occur.
Canadian banks have been stars this year, but yes, likely some reversion to the mean coming.
Smart to always be a bit on guard!
Mark
Good stuff, Colin. Gains are good but you know that well by now.
I agree with some reversion and wouldn’t be surprised at all if TSX goes flat until the end of the year.
Something has to give at some point.
Stay well!
Mark
Ha, I like it = Calmish.
What do you make of this market?
Mark
Exhilarating, frightening and maddening all at the same time. I don’t know if it’s real or artificial. I don’t know what’s driving it. I don’t know if it’s going to continue to climb, crash or stabilize. Everything I thought I had a decent grasp on has evaporated. But all of that isn’t the largest issue. I’m no longer confident that there is any kind of control remaining. Hence my profit taking in April.
And it is incredibly disheartening to consider the plate of crap we are leaving to the younger folks. That goes for much more than just market problems. (good thing I stopped drinking decades ago 😉 )
Certainly these trade wars are not helping my own sanity. Such a sad and strange world we live in now. Not sure it’s going to get better with time…
You’re rubbing off on me! 🙂
Mark
I’ve moved away from being Bearish or Bullish into a new camp I’m calling Calmish. 😉
Having said that, I have to admit my BP still has a conniption fit seeing the blatant and extensive market manipulation going on.