To my clients:
It was a down week for North American stock markets with the Canadian TSX finishing down 1.1%; the U.S. Dow Jones Index down 1,2%; and the U.S. S&P 500 down 1.6%.
Very quick comment about the markets first and then an extremely interesting and IMPORTANT tidbit that I learned at the RBC Wealth Management conference for investment Portfolio Managers held Monday through Wednesday this week. I think all clients should read and take comfort from the tidbit I will pass along.
On the markets, there has been rising chatter as to whether the equity (i.e. stock) markets, specifically the technology sector, are in a “bubble”. To this I’d say categorically “no”. Unlike the two true bubbles I’ve seen during my career (the dot.com mania of the late 90’s where companies that lacked even a basic business plan were awarded $1 billion+ valuations by virtue of merely adding the dot-com moniker to their name; and the U.S. real-estate bubble of 2007/2008 where mortgages were given to unqualified borrowers without any documentation based on the premise that real-estate only goes up in value), the current valuations awarded to technology stocks (particularly the Magnificent 7) are based on REAL earnings, REAL positive cash flow, and REAL revenue. Moreover, all three of these financial metrics are growing at a heady pace of over 20% per year for the collective Mag 7. So no, its not a bubble. However, valuations are definitely stretched. If the aforementioned financial metrics continue to grow at a 20%+ pace, then the stocks of these seven companies can quickly grow into their valuations. If there is a hiccup in that growth, then there will definitely be a correction. But a crash? No. Not in my opinion.
Now to the conference tidbit - I’d like to suggest that clients have chosen well by housing their assets with RBC. Did you know that RBC collects and reviews an astonishing 25 BILLION security events each and every day [I don't know precisely what constitutes a security "event" but, nonetheless, the number so astounded me (and judging by the audible murmurs, a significant percentage of the audience) that I took a photo of the slide while at the conference!}? This equates to over 27 TRILLION such events over the past three years. And from those 27 trillion events, how many material security breaches were successfully executed? ZERO! Now obviously this record is predominantly achieved through automated software platforms. However, RBC also employs more than 1,100 staff solely dedicated to managing those platforms and overall cyber-security operations (I find this level of cyber-security staffing to also be an amazing number). I just have a difficult time imagining how banks or financial institutions of smaller scale could compete with this level of investment. In today’s data and technology driven world, a cyber-security commitment of this magnitude genuinely makes me proud to have built my career at the Canadian bank emblemized by a gold lion on a royal blue background. I’m not going to attach the photo here as I’ve sometimes found that doing so inhibits distribution of these weekly updates – but if clients are curious to see the slide, send me a quick email and I’d be happy to pass it along!
That’s it for this week. All the best,
Nick
Nick Scholte, CIM, FCSI
Senior Portfolio Manager
RBC Dominion Securities Inc. │ Tel: 604.257.7569
2950 Glen Drive, 7th Floor │ Coquitlam, BC │ V3B 0J1
Toll Free: 1.844.665.9900 │Email: nick.scholte@rbc.com
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