Jay Smith.The Globe and Mail
Money manager Jay Smith felt stuck around this time last year. Markets were trading near all-time highs, and central banks were still musing about tightening monetary policy, making investment decisions more challenging.
What a difference a year makes.
“A year ago, I couldn’t find anything to buy, and now I can find everything to buy,” says Dr. Smith, portfolio manager and investment adviser at CIBC Wood Gundy in Toronto, who oversees about $4.6-billion in assets.
Dr. Smith, whose doctorate is in philosophy, says the market correction this year, driven by stubbornly high inflation and aggressive interest-rate hikes, has created some buying opportunities for long-term investors.
“There are so many good companies, and while I don’t know where they’ll be trading a day from now or six weeks from now, I believe that in a year or five years from now, they’ll be significantly higher – and I want those names in my portfolio now.”
While stock markets remain volatile, Dr. Smith believes the bottom of the current downturn may have happened in mid-October.
“I don’t think we’ll see damage below that level,” he says, believing that investor sentiment has started to change, particularly as inflation appears to have peaked.
Dr. Smith runs five portfolio models for his clients; capital preservation, balanced, global, North American and Canadian. His current favourite is North America, which is roughly a 50-50 mix of U.S. and Canadian stocks – with the odd overseas name – and includes both growth and value stocks.
The North American portfolio is down 10 per cent so far this year, as of Dec. 15, after being up 30 per cent in 2021. That compares with a drop of 17 per cent for the S&P 500 index and a drop of 5 per cent for the S&P/TSX Composite Index over the same period. Over the past 13 years, the average annual return for the North American portfolio is 12 per cent. All data are based on total returns, and Dr. Smith’s performance is net of fees.
The Globe and Mail recently spoke to Dr. Smith about what he’s been buying and selling.
Describe your investing style.
While most money managers are either value or growth investors, I tend to buy inefficiently priced securities, whether they’re value or growth. I find that insulates my portfolios from the kind of market we’ll be in at a certain point in time, which can’t be predicted.
Are there sectors you don’t invest in?
The two sectors I never invest in are airlines and forestry products. Both are very volatile and cyclical.
What sectors do you prefer right now?
Sectors I’m overweight include financials, in particular Canadian banks, and technology, specifically names like Apple Inc. AAPL-Q, Taiwan Semiconductor Mfg. Co. Ltd. TSM-N and Microsoft Corp. MSFT-Q. I stay away from social-media stocks. I missed some upside on those, but I also haven’t been caught up in the current downside. I also like pharmaceutical companies such as Pfizer Inc. PFE-N. Its COVID-19 vaccine has given it US$50-billion in the past year to develop its platform of other potential drugs. I also like telecommunications companies like BCE Inc. BCE-T and Telus Corp. T-T, both of which pay good dividends.
What have you been buying or adding?
One name I’ve been adding to is Taiwan Semiconductor. It makes the fastest chips in the world and is investing billions in state-of-the-art technologies. Warren Buffett recently disclosed that he bought a US$4.1-billion position in the company, and he doesn’t tend to buy technology stocks – other than Apple. I think he will add to Taiwan Semiconductor because it’s the best in the sector and has a moat around it. I bought it before he did, and I have been buying it since. I have also been adding to my large positions in Canadian banks, including CIBC CM-T, Toronto-Dominion Bank TD-N and Royal Bank RY-T. They have high yields and have exposure in the U.S. market.
What have you been selling?
I’ve been doing quite a bit of tax-loss selling. You can always buy the same position back after 30 days, hopefully at or near the same price. One stock I sold recently was Shopify Inc. I made a lot of money on it, but it started coming down, so where I had gains elsewhere, I took losses to take advantage of tax-loss selling. I have very little left. Another is FedEx Corp. FDX-N, which maybe went up too high because of the demand for shipping during the early days of the pandemic. I still have a lot of gains on FedEx, but where I have losses I am taking them. But even where I have capital gains, I’m starting to sell FedEx stock and use the proceeds as a source of funds to buy other companies.
What’s one of the best stocks you’ve owned for clients?
Apple. I bought US$150,000 of it for a bunch of clients, and it’s worth more than US$4-million today. So that’s been a success.
Name a stock you wish you didn’t sell.
Clairvest Group Inc. CVTGF. Unfortunately, I sold some of it, or clients have donated it to charities because it has had such a large gain. I wish I had every share of Clairvest I ever bought because it’s been a huge success story. I still have a very large position, but I wish I had it all.
What advice do you give friends and family when they ask?
If you get into the stock market, don’t think about it as a one-year experiment. Put money in that you can leave there for the long term. My view is that if you buy quality stocks with growing earnings – you’ll never lose any money because, over time, the market goes up. I’ve been through eight bear markets now and every time it comes out on the other side significantly higher than it was at the beginning of the bear market. But the reality is, you don’t want to be forced to sell in a bear market. One thing I try to do is hold people’s hands so that when things look horrible, as they do now, I remind them that in the future, things are going to work out quite a bit differently.
This interview has been edited and condensed.
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