DIARY OF A PORTFOLIO MANAGER
“I can hear machinery
Blinding me with science, science
Science”
Thomas Dolby, She Blinded Me With Science
It’s been an interesting two years. The bad news is that the TSX and S&P 500 are both negative going back the past two years. As are bonds, global markets, international markets, real estate… The good news is that the Canadian and US equity models we construct to manage your accounts are both up over the past two years. What we are doing is working but we are always looking to improve.
There is no magic formula that can forecast the future and solve all our woes but that doesn’t mean that some folks won’t try to find one.
Lately, I have been testing out a machine learning tool that generates recommendations. Essentially, it is an artificial intelligence tool. It’s very complex but, in essence, it looks at everything going on and how might it affect various companies. The goal is to add alpha (increase return) and reduce beta (risk). Will it work? Only time will tell.
I am looking at it to validate something that I am already thinking. How can we take all this info and drill down to an idea?
1) Let’s look at something that may be interesting. We can start with some trending themes. 5 that pop up now are:
- Rising interest rates
- Israel – Hamas conflict
- Inflation rates
- Rising treasury yields
- Supply chain disruptions
2) The Israel – Hamas conflict is most timely. What are some of the possible impacts stemming from that?
- Increased demand for defense equipment
- Rise in cybersecurity threats
- Decline in air travel and tourism
- Fluctuations in energy markets
- Disruption in supply chains
- Increase in insurance premiums
3) Looking at the first impact, the tool is looking at news validating the theme.
4) What stocks may be timely buys based on above?
5) Honeywell was already on my watchlist. This is good validation. What are the reasons that the tool likes Honeywell?
6) From there, I will go on to do my usual due diligence around earnings and valuation and determine if it is indeed a buy and at what price.
Are we predicting the future? No. The more info we have at our fingertips that we can convert to actionable ideas, the better.
Have yourself a great weekend,
J. Todd Kennedy, CIM, FCSI
Senior Portfolio Manager
613-566-4582
toddkennedy.ca