Warren Buffett is worth $130-billion dollars US. He is the world’s fifth-richest person. Almost all his wealth is from investments he has made in companies. As such, he is the world’s most successful, and famous, value investor.
Warren Buffett has a strategy. We follow it. What are some of its key elements? Here are two:
Invest in companies you understand, that are in countries you understand.
For us, Russia fails those tests. We do not understand Russian companies and we do not understand the country itself (although we do understand that it’s risky to be invested there right now).
And so, as you would expect, we have almost zero exposure to Russia. This is just one of the reasons we are significantly outperforming the market so far this year.
There is always someone who will say that you need global exposure, and that our strategy is flawed for that reason.
Wrong. We have all kinds of global exposure. We get it by investing – you guessed it – in companies we understand that are in countries we understand. In other words, we predominantly invest in great companies that are domiciled in the United States and that have global operations, giving us that global exposure.
Global, US-based companies such as Visa, Mastercard, Google and Amazon. And because they are all so large and strong, none of them will be hurt by ceasing operations in Russia (all four of these giants have withdrawn). In the February edition of Marche Monthly, we mentioned our recent investment in Restaurant Brands International, (RBI) which owns Tim Hortons, Burger King and Popeyes. RBI is in the process of exiting their small stake in Russia – something that will not have a serious negative effect on their stock price and certainly not a lasting one.
Our strong positioning has not been by chance. Referring again to the February edition of this blog, we repositioned our portfolios earlier this year to capitalize on volatility. We are always watching very carefully for companies we think are underpriced, and on that basis, we added a few new names to our portfolios.
Even earlier, in 2020, we started building a position in Air Canada and Disney because global travel is growing amid loosening pandemic restrictions and an overwhelming desire among many people to fly. As evidence of this trend, WestJet reports that demand for some flights is now as high as 2019, that WestJet will have 94% of their pre-pandemic routes up and running by summertime – and that they are actually adding capacity to their transatlantic schedules.
We have also added to our positions in Google and Amazon, because we think these tech companies will be strong for the long term, and recent volatility allowed us to buy more at an advantageous price.
Also helping us outperform the market is our position in a utility company by the name of TC Energy – formerly TransCanada Pipelines – which is up 21% this year and pays a dividend of more than 5% and growing (our search for dividend-paying companies being another pillar of our investing strategy, in part because dividends help give us returns at a level higher than inflation).
Speaking of rising inflation, it has pushed up interest rates because the central banks are aggressively increasing rates in an effort to slow spending and thereby reduce that inflation. We were prepared for this scenario, for example through our investments in the big Canadian banks and insurance companies, in which we have long had large positions. We actually benefit from rising interest rates because it allows these institutions to charge more for the money they lend, which in turn raises their earnings and thus their stock price and allows them to increase the dividends paid to our clients, which helps protect them against inflation.
OIL PRICES
The Russian invasion of Ukraine has again highlighted our world’s dependence on oil, as many nations are reducing their purchases of Russian oil but can’t do so completely at this time. This aligns with an overall trend that is clearly away from oil, hence our ownership in companies like Brookfield Renewable, a Canadian company that pays a dividend and has strong financial backing. Renewable energy is not yet in a position to replace oil, but we believe the renewable space will continue to grow and attract investment.
WHAT WE’RE NOT TALKING ABOUT
As I was preparing this month’s blog, it occurred to me that, for the first time in more than two years, I had not given any thought to the pandemic. Most of our world’s attention is focused instead on interest rates, inflation and Russia/Ukraine. This definitely does not mean the pandemic is over, or that the challenge of Covid has disappeared, but I am happy to say that our clients seem to be in better spirits: they are excited about having substantial plans for this summer, including travel and time away with family. Our clients want to have some fun this summer, and here at Marche Wealth Management we wish that for every single one of you.
LAST SPRING
In the March 2021 edition of Marche Monthly, we shared our view that for long-term money, stocks were a better choice than bonds, because “in [a rising] interest rate environment, bonds will not preserve your capital, especially after taxes and inflation.” One year later, interest rates continue to rise, and the accuracy of our strategy continues to be proven.
(An important note: for people who need to access their capital in the next five years, staying in fixed-income instruments is strongly recommended as the safer option).
THIS SPRING
As tax season draws to a close, we are here to provide you with whatever assistance you need. We have been working closely with many of our clients’ accountants, for example.
Important dates for tax season are listed at the end of this blog. Please reach out if you have any questions at all.
OUR TEAM
Last month I introduced our new team members: Dan Dharmarajah, MBA, CIM, Tracy McClure, CPA CA, CFP and Myra Villaflor.
Dan is an experienced manager of high net worth and ultra high net worth portfolios and will be assisting me with the research, administrative and executional aspects of portfolio management.
Tracy is an accountant and Certified Financial Planner who will be dedicating her time to delivering Canada’s best financial planning to our clients.
Myra will be working alongside Joy, performing a range of administrative duties to keep our office running smoothly.
These three professionals are working closely with Joy and I, and as a team we are getting even stronger every day.
And so, we are proud to end this month’s blog by signing off as a team: