“The market will do whatever inflicts the most pain on the greatest number of people.” This is the “Pain Trade” rule of capital markets. It essentially says that when everyone agrees on a given idea, everyone is wrong. Timing when a good trade becomes too crowded is very tricky. In my opinion, the worst Pain Trades from a portfolio return perspective are not the ones where investors lose 20-30% in a few months or a year, but rather when they fail to make +100% returns over time. It is human nature to avoid the pain of loss, and Prospect Theory reminds us that possible losses “hurt” about twice as much as prospective gains. That focus on what might go wrong should not overwhelm the longstanding fact that stocks consistently generate good returns over long timeframes. Right now, many investors are asking if they should be raising cash and taking profits. Valid thoughts. But right now, the greatest Pain Trade is actually staying invested in US large cap stocks. Good money managers know that when there is universal agreement on an investment, it is usually time to get a bit cautious. At The Newton Group, we will continue to stay close to fully invested, but have our eye on the clock in the event it strikes midnight. In the end, the worst Pain Trade is being underinvested.
Should you have any questions or concerns, please feel free to reach out.
Portfolio Notes
(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral
(-) Costco Wholesale (COST-US) Third-quarter earnings topped Wall Street expectations, driven by higher sales and lower-than-expected operating expenses. Even with a recent C-Suite transition, Costco delivered a business-as-usual quarter, as members flocked to its warehouses in search of quality merchandise at value prices. Total revenue in its fiscal 2024 third quarter increased 9.1% year over year to $58.52 billion, beating analysts’ expectations of $58.07 billion. Owned in Core, ESG+, and US Portfolios.
(+) Eldorado Gold (ELD-T) This week RBC upgraded Eldorado to Outperform. They have outperformed their peers over the last year. Eldorado Gold is a growth gold producer with a portfolio of four producing assets in Turkey, Greece, Quebec, and development projects in Greece. Owned in Core Portfolio.
(+) Royal Bank of Canada (RY-T) which has the largest market capitalization of any stock on the TSX, said the investment banking environment looked promising as it surpassed profit expectations. The lender’s shares rose over 5%, the biggest advance since May 2020, to all-time peaks. The bank raised its quarterly dividend by 4 cents to $1.42 per share. Owned in Core, ESG+ and Cash Flow Portfolios.
Company Of The Week: Royal Bank
RBC SECOND QUARTER SLIDE PRESENTATION
Weekend Reading
Update on US Elections and Trump Notes from Greg Valliere, Chief U.S. Policy Strategist, AGF Investments. AGF
RBC MacroMemo - May 28 - June 10, 2024 Easing inflation / Central banks / Economic convergence / U.S. is OK / U.S. consumer / China’s true growth / Chinese housing stimulus / Japan 1.00% / Canada capital gains RBC ECONOMICS
Happy fun Cold War 2 update It's getting a little warmer out there. NOAH SMITH
This Isn’t Your Father’s Marijuana Use A new study shows pot use has exploded—surpassing daily alcohol use in 2022. Potency is way up, too. Thoughts on the new age of weed and what to do. WASHINGTON MONTHLY
Canadians need more time to digest new capital gains inclusion rules Scrapping the plan is best, but Canadians need enough time to seek advice after tax professionals have fully absorbed the details. FINANCIAL POST
Is Nvidia too Big to Fail? Nvidia’s revenue more than doubled in its most recent fiscal year, and its operating margin was 61%! MICHAEL BATNICK
Full Circle On Independent Boards Some thoughts and a brief summary on research that shows a negative performance link between board independence and firm performance. GREENWOOD
Do You Need Alternatives to Get Rich? Exploring the role of alternative investments in wealth creation and a discussion whether they are necessary for achieving financial success. DOLLARS & DATA
Bill Walton’s Insane Brilliance One of the reasons for our success over the decades is our willingness to get out of the way of momentum stock market sectors long before the clock strikes midnight. It is one of the most redeeming things about being contrarians. BILL SMEAD

"Knowing the future is not important. Knowing the trend is."
- Jim Roppel