TopPicks from Barry Schwartz, chief investment officer and portfolio manager, Baskin Wealth Management
FOCUS: North American large-cap stocks The significant divergence between the performances of the Nasdaq Composite and the S&P 500 Index versus the S&P/TSX Composite Index this year reminds us about the importance of diversification by business quality. Investors were beaten up last year by owning too many “tech” or “growth” names. This year, investors are being punished for owning commodity, cyclical and financial names. You will never own all the right investments in any one year.
The price for any individual stock is based on only two things: the earnings of the company and the value the market places on those earnings on a forward-looking basis. The first input, the actual performance of each company is what we focus on. For us, success means buying companies that consistently meet or exceed their earnings targets and often, raise their dividends.
The second input, the value the market puts on those earnings, is out of our control. It is based on sentiment and emotion. When times are bad, or when interest rates are very high, forward earnings are not highly valued, and stock prices go down even when earnings are good. When people are happy and the economy is strong, the value of forward earnings rise and multiples expand.
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