By Guest Blogger Ryan Lewenza
As we’re just about to wrap up another year, I’m about to begin my year-end routine of reviewing all my different recommendations and investments that I made over the year to assess how I did. I started doing this about five years ago and would strongly encourage all our readers to do the same. By going back and analyzing your calls/trades you can see which ones worked out and which ones didn’t.
When I make a trade in my personal account or for our clients I always write down the key points of the investment thesis and then I go back to see if it played out the way I thought it would. While it’s great to review the winners and feel that accomplishment of being right, I believe it’s even more important to focus on the trades that didn’t work out, so you can learn from your mistakes and try to improve your results going forward. Quoting from one of my all-time favourite musicians, Johnny Cash, “I learn from mistakes. It’s a very painful way to learn, with without the pain, the old saying is, there’s no gain.” Who can argue with the “man in black”?
So today I’m going to review the main recommendations I made in these blogposts over the last year to assess how I did, and what I can learn from my mistakes.
Let’s start with our outlook on January 5th. The key calls from that post included:
- Trump and China would likely hash out a trade deal. From the post, “I think it’s going to be a bumpy ride with occasional setbacks but I am hopeful that a deal will be consummated this year.” Outcome: The US and China finalized terms of a Phase 1 deal and should be signed in early January.
- I predicted the US economy would slow but avoid a recession. “Sure the US economy is likely to slow from the roughly 3% growth seen in 2018, as the fiscal stimulus (tax cuts and increased government spending) rolls off, but we see the US economy still growing at a decent 2-2.5% in 2019.” Outcome: The US economy slowed from 2.9% in 2018 to an expected 2.3% (still waiting on Q4), bang in-line with our forecast.
- The Fed would slow the pace of rate hikes in 2019. “As such, the Fed is expected to hike rates only 1-2 times this year, which we believe is the correct path.” Outcome: The Fed cut rates instead of hiking them.
- Equity markets would recover and post positive returns. “When all is said in done, I believe markets will post stronger results in 2019 as investors realize the global economy is not falling off a cliff and the major headwinds in 2018 (Fed rate hikes and Trump’s trade war) will turn out to be important tailwinds for the markets in 2019.” Outcome: Global equity markets were up huge this year driven in large part due to Fed rate cuts and the US/China trade deal.
On February 16th I wrote a post called “Short the banks?!” where I pushed back against the famed investor Steve Eisman who was on BNN and in the media talking up his big short on Canadian banks. His thesis is that after a 20 year housing bubble it will inevitably burst, leading to huge write-offs for the banks and steep declines in bank share prices:
- In the post I concluded with, “We’ve written ad nauseam about our concerns over Canadian housing, buy don’t misinterpret these concerns for some deep seated worry around our banks. We don’t foresee a 2008-like US housing crash and, as we’ve laid out in this blog post, we believe the banks remain very strong and should be core holdings for long-term investors.”
- Outcome: As of December 15th TD returned 13.7%, BNS +13.6%, RY +16.5%, BMO +18.3%, and CM +11.7%. While the banks underperformed the broader TSX this year, they still delivered solid returns in 2019.
On April 13th I wrote a post on the merits of dividend stocks. I highlighted their great historical returns, their preferential tax treatment, and how low interest rates and aging demographics adds support for dividend stocks. From the post:
- “In summary we love dividend-paying stocks and it’s why they are an important part of client portfolios. Every one of our current equity ETF holdings in client portfolios pay a dividend and in fact we’ve been increasing exposure to dividend growers since that’s where you get the best bang for your buck.”
- Outcome: Our Canadian dividend ETF was our best performing Canadian equity ETF this year and it outperformed the TSX by over 2%, as of December 17th.
In my April 26th post “What comes next”, I reviewed the factors that helped push the equity markets higher and highlighted the improving US economic momentum and the better-than-expected US corporate profits. Additionally:
- “In summary, the markets have had a great start to the year and while in the shorter term we could see some consolidation, I believe the fundamentals (improving economy and positive earnings growth) could propel the equity markets even higher this year with the S&P 500 and TSX hitting new all-time highs. Here’s hoping!”
- Outcome: The TSX and S&P 500 are trading at new all-time highs.
Finally, on July 9th I predicted in “Divergence” that: 1) the Fed would only cut rates once this year, and 2) the Bank of Canada would not follow the Federal Reserve and cut rates. From the post:
- “Because I believe the US economy is in better shape than the market currently is pricing in I believe we’re likely to see just one rate cut from the Fed this year versus the three that the market is currently pricing. Given this I believe the BoC will be more patient and very likely remain on hold for this year.”
- Outcome: The Fed cut three times this year versus my prediction for one cut and the BoC remained on hold.
Below is a table summarizing my key calls for 2019 with the results. I am very happy to say that I went 7 for 9 this year on my major calls. I like to say to clients “that I’m not going to get every call right and that as long as I go 6 for 10, I can fairly confidently deliver a 6-7% return with a balanced portfolio”. This year I exceeded that, which is in part why our clients are having a record year.
Looking back at 2019 my one bad call was calling for “one and done” from the Federal Reserve with respect to the rate cuts for this year. Following this I went back and looked at previous Fed cuts during a slowdown and learned that the Fed cut three times in two previous instances (in the 1990s). Now I’ll know this for the future and maybe not make this mistake again.
So while you’re getting some much needed R&R with friends and family over this holidays break, take a moment to do what I do and review your investments and try to learn from the ones that didn’t pan out, in an effort to learn from your mistakes and be a better investor for 2020.
I wish all the blog dogs a happy holidays and prosperous 2020!
Results of Key Calls This Year
Source: Turner Investments
* Trade deal is not yet finalized but likely will become January
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Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.