September has been a month to forget as equities tumbled across the board. Although Canadian stocks continued outperforming international markets, they have fallen 5% in September (and 13% YTD). Meanwhile, on the other end of the spectrum, the U.S. markets declined 9% (and 25% YTD).


Par for the course, commodities were outliers. Gold, when priced in Loonies, as our holdings are, rose marginally (when priced in USD, it fell almost 4% due to the strong U.S. dollar). Canadian energy stocks, however, had an awful month, falling 12%. The good news is they remain 29% higher on the year and up 47% over the last 12 months.


It’s always hard to know why markets move in a certain direction, but September’s movements point to the following reasons: persistent inflation, likely meaning further interest rate hikes; markets (especially south of the border) still being somewhat expensive; September historically being a weak month; and increasing concerns over an expected recession. In regards to the last reason, at this point, a potential recession looks to be shallow, but time and future events will tell.


Despite our portfolios continuing to dramatically outperform, they’d typically be doing even better. When equities fall - especially when the fall is significant - bonds rise. This happens for a couple reasons: funds leave riskier equities and flow into safer bonds, bidding them higher, and central banks usually lower interest rates (good for fixed income securities) to stimulate the economy. However, this time, central banks have been forced to steeply increase interest rates in an attempt to tame the current high levels of inflation - meaning bonds have also declined significantly this year.


For historical context, in the 143 half-year periods since 1950, only nine of these periods have seen stocks and bonds fall at the same time. Not only was the first half of 2022 one of those instances, it has been the worst…by quite a margin! So despite the fact that our fixed income holdings also outperformed (due to their shorter durations), our portfolio performance is still negative over the last 12 months. Having said that, I’m quite happy with how we’ve performed given the circumstances.


Although it’s hard to know what the future holds, I remain optimistic that we’ll continue to outperform. One thing is for certain: we’ll maintain our religious practice of rebalancing, as it’s helped improve our returns.

As always, feel free to reach out if you have any questions, and if you’re looking for more timely information on the markets, you can find them on the research section of my website, or on my Twitter, Facebook, and LinkedIn feeds.


Red Rising by Pierce Brown: Last month, I mentioned to clients how Dune was the first sci-fi book I’ve read and how much I enjoyed it. Their response was that I needed to read Red Rising. Wow were they right!


I won’t ruin it, but the book takes place in the future on Mars, explores a number of complex social themes, and the story is the wildest of rides. But…there was a downside - I stayed up late reading for a week or two. Seeing how much I enjoyed it, Tanya asked me if I would be starting the next book right away. I am not, I need some sleep!


The World Really is Getting Better by Derek Thompson: It may not always feel like it, but for the average human, life has gotten better over the last 30 years. A lot better! This isn’t to say everything is great, or that we shouldn't worry about the issues the world currently faces, but it’s also important to recognize how dramatically life has improved for most people.

Cato the Younger - the Most Interesting Stoic Ever? by What is Stoicism?: Cato the Younger knew what he stood for and stood up for those values - even when it cost him his life. We could use a few more Catos today…


It Starts with Inflation by Ray Dalio: In one of his latest posts, Ray Dalio points out how inflation is likely the key to what happens next economically.


Why Facts Don’t Change Our Minds by Elizabeth Kolbert: “Mercier and Sperber prefer the term ‘myside bias.’ Humans, they point out, aren’t randomly credulous. Presented with someone else’s argument, we’re quite adept at spotting the weaknesses. Almost invariably, the positions we’re blind about are our own….


“The Gormans, too, argue that ways of thinking that now seem self-destructive must at some point have been adaptive. And they, too, dedicate many pages to confirmation bias, which, they claim, has a physiological component. They cite research suggesting that people experience genuine pleasure—a rush of dopamine—when processing information that supports their beliefs. ‘It feels good to ‘stick to our guns’ even if we are wrong,’ they observe.”


Biology Enables, Culture Restricts by Farnam Street: Years ago, the saying, “That’s not natural” was a common response to a behaviour or lifestyle that was frowned upon. In his wonderful book, Sapiens, an expansive examination of the history of humans, Yuval Noah Harari shows there is very little that isn’t “natural”, given the propensity and need for DNA to mutate. Rather, culture is the agent of restriction. As a result, the expression “Biology Enables, Culture Restricts” stuck with me and is one of my favourites. This post by Farnam Street explains this idea more fully.


The Discovery of the X-Ray by Delanceyplace: Ever wonder how X-rays were invented? Like a number of other inventions, it wasn’t intentional.


Illusions of Knowledge by Howard Marks: The urge to peer beyond the horizon is strong. So strong, in fact, we’re often lured into following those who make predictions for a living - despite knowing how accurate their track record is. I tend to agree with Warren Buffet’s notion that predictions tell you more about the person making the prediction than what happens in the future.


In his latest newsletter, legendary investor Howard Marks expands on this idea, while providing examples both historical and personal.


Powers and Thrones: A New History of the Middle Ages - Niall Ferguson in discussion with Dan Jones: To get my bearings, I watched this interview before starting Dan Jones’ book, Powers and Thrones. It turns out the Middle Ages also faced a number of the issues we’re dealing with today, namely: climate change, pandemic, mass migration and technological revolutions.

The Pursuit of Worldly Wisdom by Farnam Street: Every time I read this article, I’m reminded of how little I know, why I need to keep learning, and how much fun the process can be. If you ever wonder why acquiring worldly wisdom is so important, read this and you’ll wonder no longer!

An Environmentalist Gets Lunch by Works in Progress: This short article, which includes two great charts, sets the record straight on some commonly held environmental beliefs. The first chart illustrates greenhouse emissions along the food chain. The second shows the safest and cleanest sources of energy.


The Solar Power Duck Curve Explained by Visual Capitalist: “Since solar power relies on the Sun, peak solar production occurs around midday, when electricity demand is often on the lower end. As a result, energy production is higher than it needs to be, and net demand—total demand minus wind and solar production—falls. Then, when evening approaches, net demand increases, while solar power generation falls.


This discrepancy results in a net demand curve that takes the shape of a duck, and the duck curve gets more pronounced each year, as more solar capacity is added and net demand dips lower and lower at midday.”

Unfortunately this duck curve creates two problems: it can overstress the grid and it makes other sources of energy, like coal and nuclear, less efficient when their midday production is curtailed. The solution is to create adequate ways (ex. batteries and pumped storage - see below) to store the excess energy for use later in the day as energy demand peaks.


China Aims to Start Work on 270GW of Pumped Storage by 2025 by David Rogers: China is making major investments into pumped storage.


South Korea’s Plan to Raise Their Birth Rate: In an attempt to increase the world’s lowest birth rate, South Korea will pay almost $9,000US in newborn child allowances.


Nate Bargatze - The Tennessee Kid: After less hits than misses when looking for comedy specials, friends recommended Nate Bargatze. We weren't disappointed. It was funny and we continued laughing about it for days afterwards!


“In 1990, more than 8 percent of children died before their fifth birthday. But that figure fell to 3.6 percent in 2021.”                       

- Derek Thompson, from The World Really Is Getting Better


“What the pupil must learn, if he learns anything at all, is that the world will do most of the work for you, provided you cooperate with it by identifying how it really works and aligning with those realities. If we do not let the world teach us, it teaches us a lesson.”

- Joseph Tussman


“The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.”          

- Daniel J Boorstin


“If you're unwilling to adapt to the future, you'll justify the past.”

- James Clear

“The chief prevention against getting old is to remain astonished.”

- Kevin Kelly

Matthew Lekushoff
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