My latest article for Seeking Alpha shows that Warren Buffett and the team at Berkshire Hathaway is back to beating the market in a significant way. I have long suggested that retirees consider Berkshire as a holding. It is the largest position in my wife’s accounts. And maybe the stock belongs in most every account for those who build their own stock portfolio. A major theme this week was sticky inflation in Canada and the rate hold in the U.S. The stock markets were not impressed. Buffett beats as stocks retreat – on the Sunday Reads.
One can argue that Warren Buffett is the greatest investor in history. I’d go along with that premise. Here’s my latest on Seeking Alpha …
Warren Buffett is back to beating the market. Ho-hum.
From 1997 the beat is ‘only’ 2.1% annual. But it delivered 65% greater value.
From my Seeking Alpha post …
But of course the greater gains came in previous decades. Berkshire has had a compounded annual gain of 19.8% from 1965 to 2022, compared with 9.9% for the S&P 500 during the same time.
That is truly incredible. The stock has made so many rich beyond their wildest dreams.
And here’s the price chart for the recent outperformance, vs the market and a few popular ETFs …
Retirees can sell shares to create homemade dividends. The holding is incredibly tax efficient as Berkshire does not pay a dividend. You can manage your own capital gains. I could see us harvesting at a 7% or more spend rate for my wife’s Berkshire holding.
That said, Canadians should monitor the size of their U.S. holdings. Check with your accountant, as large positions could get the interest of the IRA (tax man) in the U.S. There can be U.S. estate tax considerations as well.
The inflation watch in Canada
In Canada the inflation rate ticked up to 4%. Gasoline and housing costs fuelled the higher reading.
The cost of keeping a roof over your head increased by six per cent in the year up to August, an uptick from 5.1 per cent in July. Within that, rent was a major factor, with average rents increasing by 6.5 per cent across the country.
A MoneySense post looked at the recent history of inflation and core inflation in Canada. That’s sticky, and now heading in the wrong direction.
And here’s more from Professor Tombe, on the food inflation fight …
Is a recession in progress?
Oxford Economics suggests that Canada is already in a recession as reportd in the Daily Hive. They are calling for a soft recession that would end mid 2024. And they expect housing prices to fall another 5% to 10%. That could put more downward pressure on the Canadian Dollar as we might be out ahead with economic softness and the potential of rate cuts. From early 2021 the trend for the Canadian dollar has been down …
The Fed pause
I made the easy prediction on the Fed in the U.S. holding rates. There’s little sign of any serious stress in the U.S. economy as inflation remains sticky and above target. It appears that we are ‘higher for longer’ and the stock markets did not like that signal this week. The S&P 500 was down almost 3%, Canadian stocks said ‘hold my beer’ – down 3.8%. Global stocks were down about 2%.
Of course these falling stock prices might be a sign of a very good value opportunity. That would by my opinion. You can buy the market, a high dividend ETF, the low volatily ETF from BMO, the dividend aristocrats, individual stocks, take your pick. Falling prices and negative sentiment creates opportunity.
The same goes if you are investing in a core ETF portfolio.
And as I wrote almost tw0 weeks ago, the markets have mostly stalled, and that is normal market activity, and a chance to set the table for the generous gains that historically have followed.
Of course we should always be buying when building wealth.
More Sunday Reads
At My Own Advisor – how do you measure success?
I’d agree that we attain success when we reach our goals. That can apply to investing, career and life in general. Goal setting is important. Monitoring the path to success, along the way, is crucial.
You’ll find an example of goal setting in this post on GenYMoney – 40 finanical lessons in 40 years.
As some readers may know, I had a bit of an audacious goal to get a 7 figure investment portfolio by 40. About 5 years ago, my portfolio sat at $280,000.
Here’s what I learned on the journey to the double comma club.
That is a wonderful post. Reaching your investment goals can a very simple and rewarding process. GenYMoney offers 1-20 in that link, she’ll be back with lessons 21 to 40.
At Tawcan, Bob wonders if the big Canadian banks will cut their dividends?
Dividend cuts are very rare for the big banks, I’d agree with Bob, that if the economy takes a turn for the worst …
My view? Canadian Big Five banks didn’t cut dividends during the financial crisis, they also didn’t cut dividends during the COVID-19 pandemic. Chances are, they will hold off on any dividend increases until the dust settles.
It’s also quite possible that dividend increases will continue but be more conservative.
Daddy is in the same camp …
At Findependence Hub, six enduring insights for fixed income investing.
Of course we always check in with Dividend Hawk for his week in review. General Mills and Starbucks reported earnings. I also received Qualcomm dividends last week. Hawk enjoyed several from McDonald’s, Manulife, Metro, Dominion Energy and more.
And here’s the posts and podcast picks from Banker on Wheels. They start with this wonderful quote …
The Intelligent investor is a realist who sells to optimists and buys from pessimists.
Benjamin Graham
Banker offers this visual from Visual Capitalist …
Asia will move ahead of the developed markets of the world.
Also in the mix – will you need permission to spend in retirement from Christine Benz at Morningstar.
Dan at stocktrades.ca offers 10 Canadian dividend stocks to consider this September.
And happy Fall …
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Thinking to Buy CNR as its been Trending down what are your thoughts on some industrial stocks do you think they will move down with rising interest rates ? Telecom is super beaten right now and Telus / BCE has got everybody drooling for more 🙂 but am seeing some good resistance from Quebecor stock in the telecom space its been quite resilient.
zasid,
Maybe not in the sectors you’re looking at but if you’re investing for growth have you considered CSU & or ATD? They’ve been nothing short of outstanding for at least a decade and don’t seem to be slowing down. They’ve outpaced Berkshire Hathaway by a very large margin.
Hi Zasid, see my comment below. I think we can create a portfolio and keep adding to all of them over time without too much overthinking.
All said, I like the higher yield stuff. There is very good value and they should benefit when the rate hike cycle cools off.
I still like my banks and telcos and pipelines. I continue to chip away at oil and gas stocks in my TFSA, as I also build those higher yielders.
Thanks Dale, always enjoy your Sunday reads!
What would be your top 3 CAD and US stocks you would buy/add to on this pullback?
Cheers
Hi Cris, more than individual picks, I like the idea of creating our own index. You can look to the Canadian Wider Moat stocks, that includes the grocers and railways.
https://cutthecrapinvesting.com/2021/07/31/checking-in-on-the-canadian-wide-moat-portfolio/
On the U.S. side I did put together a post, the higher convictions stocks have a double asterix.
https://cutthecrapinvesting.com/2023/07/27/the-performance-of-our-u-s-stock-portfolio-and-building-the-portfolio-in-2023/
I think the best way at it is to embrace a portfolio approach and then add, and I don’t think you have to get too cute about it. That said, we might find a few companies that we favour more than others. In my wife’s account I overweighted Berkshire and Lowe’s in the spousal.
When I was in accumulation for my Canadian account I generally added to what was the most out of favour – seeking value.
One more and most important thing about cash-back credit cards: the cash we earn is 100% tax-free.
Great point.