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Alternative Investing for the Masses

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Investing in 2019? David Rosenberg has 4 letters for you: QLDS

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Chief economist and strategist David Rosenberg of Gluskin Sheff and Associates sits down with the Financial Post’s Larysa Harapyn to discuss investing in 2019. According to Rosenberg, some big themes will be protecting yourself from rising interest rates and inflation. Rosenberg goes on to sum up investing in 2019 in four letters: QLDS — quality, liquidity, defensiveness and selectiveness.

Kevin Carmichael: If the Bank of Canada must bear responsibility for the debt, so must Stephen Harper, who was reluctant to curb hunger for low-interest loans
Investors have gone from contemplating the prospect of oil at US$100 to sub-$50 in less than two months
‘No major pipeline project is yet assured and now Canadian companies are being financially impaired’
Half of the 10 biggest marijuana companies trading in Canada are now U.S. based

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Silicon Valley Billionaire Mark Stevens On Investing To Protect Against A Tech Recession

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Venture capitalist Mark Stevens has profited from tech investments but is diversifying.Courtesy of Mark Stevens

As a longtime venture capitalist in Silicon Valley, billionaire Mark Stevens ended up owning more tech stocks than anything else–primarily because that’s what he and his partners at Sequoia Capital invested in over the two decades he spent there, through 2012. The firm backed the likes of Oracle, Cisco, Google, Yahoo and LinkedIn. So Stevens, who was worth $2.7 billion on the 2018 Forbes 400 list, has been working to diversify his holdings out of tech.

“If we do have a tech recession, there could be a 30% to 40% hit. I’ve tried to diversify into healthcare, energy—fossil fuel as well as alternative—multifamily real estate and senior housing,” he says. “Over time I’m trying to build a family-office portfolio that looks a lot like an endowment.” He’s also put money into some European funds and retails funds.

What about the idea of a tech recession? Stevens doesn’t expect one in the next 6-12 months, but he is prepared. “At some point you’ve got to believe there’s got to be a recession, maybe two years or more away.”  Silicon Valley does feel frothy, and the traffic has gotten worse, which is a possible indicator of an overheated situation, Stevens says.

He points out that it’s been 17 years since we’ve had a “tech wreck”; the 2008 recession was triggered by financial and mortgage issues rather than tech. “Anyone under age 40 in Silicon Valley has by definition never been through a tech recession. You have these entrepreneurs who think the world exists at zero-percent interest rates and you can raise money at ungodly valuations and that’s how the world works. Those of us who’ve been through two to three of these cycles know that’s not how it works,” he says.

Given that scenario, his advice for retail investors is straightforward. “I get hit up for stock ideas all the time. I tell people who are not in the investment business that the best thing they can do is invest in ETFs,” says Stevens, citing their low cost and the tax efficiency. He also suggests investing in a variety of bonds with a variety of maturities—2 years, 5 years, 30 years—and municipal bonds if you want to avoid taxes. “The cardinal sin is investing in things you don’t know about. People look at companies and technologies, and they invest too late. It’s like getting up on a surfboard after the wave has passed.”

Stevens says his own investing mistakes were mostly the stocks he wishes he bought earlier. That includes wishing he bought Apple when the iPod came out and buying Facebook when it went public.  He’s also bet on some startups that failed, which happens on a regular basis for venture capitalists.

Looking ahead in tech, Stevens is optimistic about two areas specifically. “The next big wave in tech is AI and machine learning,” he explains. Next up: finding companies across different industries deploying these technologies.

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A $1.7 trillion fund manager says investors questioning merits of investing in Canadian oilpatch

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One of the largest foreign holders of Canadian energy stocks says investors are turning away from the country, frustrated over Prime Minister Justin Trudeau’s failure to get pipelines built to ease a record discount for oil-sands crude.

In a letter to the prime minister, Darren Peers, an analyst and investor at Los Angeles-based Capital Group Cos., warns investors and companies will continue to avoid the Canadian energy sector unless more is done to improve market access.

“Capital Group’s energy investments are increasingly shifting to other jurisdictions and that is likely to continue without strong government action,” Peers wrote in a letter dated Oct. 19. “I hope that your government will be even more proactive in securing market access which will assure the competitiveness of Canadian energy companies.”

Capital Group, which runs about US$1.7 trillion in global assets, has a lot at stake in Canada’s oilpatch. The firm holds more than US$30 billion of investments in Canadian companies, and is the largest shareholder of Suncor Energy Inc., Enbridge Inc., Canadian Natural Resources Ltd., and Keyera Corp.

The firm also has significant stakes in other names including TransCanada Corp., Cenovus Energy Inc. and Whitecap Resources Inc., according to data compiled by Bloomberg as of June 30. Peers, a Canadian, says he’s responsible for nearly US$6 billion of investments in Canadian energy companies. He declined to comment beyond the letter.

Vanessa Adams, a spokeswoman for Natural Resources Minister Amarjeet Sohi, said the government will continue to support the energy sector.

“We understand that market access is an essential component to Canadian competitiveness, and that is why we are working hard to expand to non-U.S., global markets,” she said.

A Capital Group spokesperson said the letter represents the views of one energy analyst, rather than those of the firm.

While he lauds efforts by Canadian firms and the government to lower emissions and develop energy assets in a “socially responsible way,” Peers says policymakers need to do more to help drillers get crude to global markets. Canada’s oil trades at a record discount because companies from Kinder Morgan Inc. to TransCanada have been unable to get new pipelines approved.

“Market access is critical to an investment in a Canadian energy company and if that continues to be under threat, global investors will seek opportunities elsewhere and Canadian companies will be further impaired,” Peers wrote in the letter. “Increasingly, investors are questioning the merits of investing in Canadian energy and with that, Canadian companies will struggle to access capital, create jobs, develop resources and provide a significant revenue stream for the country.”

The Trudeau government has supported some pipeline projects, including Kinder Morgan’s Trans Mountain expansion to ship more oil to the Pacific Coast. Kinder pulled the plug on the project in May amid growing criticism from environmental groups and the British Columbia government. Trudeau was forced to buy out the project, and is now re-doing consultations in a bid to press ahead with it.

“Despite the Canadian government taking over the Trans Mountain pipeline project and showing some resolve, no major pipeline project is yet assured and now Canadian companies are being financially impaired,” the letter states.

The industry’s frustration has mounted after Canadian oil prices plunged to a record US$50-a-barrel discount to the U.S. benchmark last month. Encana Corp.’s founder and former Chief Executive Officer Gwyn Morgan said he’s “saddened” his former company pursued a deal to buy U.S.-based Newfield Exploration Co., blaming Trudeau’s environmental policies.

GMP Capital Inc.’s CEO Harris Fricker, who runs one of Canada’s biggest independent investment banks, said this week the roll-out of legal cannabis is a prime example of how Canada can get things right, while energy shows how the country sometimes gets it wrong.

“Cannabis is a poster child for how to do it,” Fricker said Monday in an interview at Bloomberg’s Toronto office. “Oil-and-gas is a poster child of how not to do it.”

Bloomberg News

Investors have gone from contemplating the prospect of oil at US$100 to sub-$50 in less than two months
Half of the 10 biggest marijuana companies trading in Canada are now U.S. based
In the reported quarter, the company’s operating expenses rose more than six times to $180.6 million from $27.7 million a year earlier
Chris Varcoe: Athabasca Oil joins a small but growing chorus of producers calling on the province to intervene

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