MARKET WATCH

Most markets enjoyed another good month in September, but natural resources stole the show. The U.S. and international markets rose 3%, while Canadian and emerging markets (including China) improved by 4.5% and 6.5% respectively.

As for natural resources, Canadian energy stocks rose a relatively modest 2%, while the materials (copper and other metals) index jumped 13%. But gold - once again - shone brightest. An ounce of the yellow metal burst through $3,800, ending the month 13% higher. However, Canadian gold stocks catapulted another 22% in September!

For perspective, an ounce of gold has surged by 42% this year and 50% over the last 12 months. Meanwhile, Canadian gold companies swelled an incredible 129% this year and 121% since September 2024!

Looking forward, though still bullish, I’m less enthusiastic about gold. Historically, bull markets in gold last several years. And the current environment is perfect for gold. Inflation is expected to rise, central banks are buying aggressively, the Trump administration wants the U.S. dollar to fall (good for all commodities), while numerous countries face worrying debt levels. Lastly, while we’ve invested in gold for years, the average investor is just starting. Bubbles don’t usually burst until retail investors have flooded into them for some time.

So, why the mixed thoughts? 

Gold has more than doubled in the last year. I instinctively worry when this happens. A correction could occur from profit taking or one or two of the above factors reversing course. For this reason, we are trimming some gold profits but not changing our target allocation to gold. However, we are slightly increasing our Chinese and energy allocations, while trimming targets for U.S. large-caps and Canadian REITs.

I remain cautiously optimistic but remain prepared for a correction, should it come about. 



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.

BOOKS

The Last Lion: Winston Spencer Churchill: Alone, 1932-40 by William Manchester: Book Two of Manchester’s brilliant Churchill trilogy is detailed and informative. As the title suggests, it covers Churchill’s years in the political wilderness. Though still a member of parliament, prior actions relegated him to little more than a political outcast. During this period, Churchill watched in horror as Hitler rose to power and Germany rearmed. Though trying everything within his power (speeches, essays, meetings, and letters to the Prime Minister), there was little he could do as Britain and France stood by and watched. The following stood out for me:

The degree people will believe what they want to believe: Despite ample evidence to the contrary, Neville Chamberlain (along with France and most of Britain, to be fair) believed - until Hitler invaded Poland - that Hitler wanted peace and could be reasoned with. Though I was familiar with the appeasement of Hitler, reading account after account was upsetting.

Just as frustrating was seeing how an unhinged figure like Hitler could radicalize the relatively civil German population.

Churchill’s impressive network of informants: The number of people in Germany, France, and Britain who risked their lives and careers to keep Churchill abreast of national security issues was surprising. He often had better intelligence than the Prime Minister. 

Churchill’s eccentric personality: In the opening paragraph, Manchester describes Churchill as: “England’s most singular statesman, a brilliant, domineering, intuitive, inconsiderate, self-centered, emotional, generous, ruthless, visionary, megalomaniacal, and heroic genius who inspires fear, devotion, rage, and admiration among his peers.”

There are countless examples of Churchill’s eccentricity, but two that caught my attention was his comfort storming about his home, which always had staff around, naked if he felt a matter pressing. In a related theme, Churchill often entertained guests as he took his daily bath. In one account, he performed somersaults “like a porpoise” in his bath to impress his guests (I literally laughed out loud reading this part!).

How history often makes the person: If not for Hitler, Churchill’s career would most likely have petered out in the late 1930s. Though he was an accomplished author and held numerous cabinet positions, he’d be mostly forgotten today, if not for the rise of the Third Reich.

How preventable the Second World War was: If Britain and France hadn’t repeatedly appeased Hitler in the mid 1930s; if Britain hadn’t half-heartedly pursued alignment with Russia; if Britain and France had been even somewhat prepared; if France hadn’t blindly relied on the Maginot Line to protect them - the Second World War would either not have begun or would not have escalated to the extent it did.

If you’re interested in Churchill and up for a long read, Manchester’s trilogy is well-written and enjoyable.  

WHY INVEST IN CHINESE STOCKS?

In the last year, I’ve become increasingly interested in China’s economy and stock market. After years of underperformance, the China 500 index is up 25% this year and 42% over the last year. I’ve previously talked about the quality and competitiveness of their technology. This time, I’d like to highlight factors that could contribute to their stock market’s continued strength.

Record-high household savings seeking higher returns: Chinese households have accumulated over 160 trillion yuan ($18 trillion U.S. or 120% of GDP) in savings, most of which sits in bank accounts earning 1.5%. However, with Chinese stocks yielding about 2.5%, JP Morgan predicts $350 billion could flow from savings into equities. This prediction is, in part, based on retail investors opening 2.65 million new accounts (up 165% year-over-year), in August alone.

An extended period of low interest rates driving capital allocation: In recent years, Chinese companies focused on gaining market share and improving products and services. The running joke became, “When China walks into a room, profits walk out.”

That focus has changed. With interest rates in China expected to remain at historic lows and limited growth opportunities in real estate, the Communist Party has instructed companies to focus on shareholder value. Capital spending (as a percentage of cash usage) has declined from 71% in 2012 to about 49% in 2025. Meanwhile, share buybacks increased from nearly zero to 5%, while dividend payments rose from 18% to 24% over the same period.

With its stock market relatively cheap and outperforming, funds from within China will be incentivized to flow into stocks.

Fund flows from outside China: Over the last 15 years, roughly $23 trillion has flowed from international markets to American stocks and fixed income. This happened because the U.S., with its strong currency and outperforming markets, was seen as a superior investment opportunity.

With the U.S. market currently underperforming, its currency expected to fall, and an often belligerent American administration, these flows are beginning to slow. Should they reverse course (which would be a big deal), China would be one of the main beneficiaries.

If even a fraction of these funds, much of which originated in China, are invested in Chinese stocks, an appreciable rise in their value would be expected.

These combined factors could create a feedback loop lasting years or even decades. Beijing has explicitly encouraged a "slow and sustainable bull market" to boost consumption. This could be a significant factor as the recent housing correction has weighed on domestic consumption (people spend less when their net worth falls) for the past few years.

DOCUMENTARIES & PODCASTS

Money, Power and Wall Street by Frontline PBS: Tanya and I enjoyed this four-part documentary on the 2007-8 financial crises. Looking back, it’s painfully obvious how badly things would end. Terrible incentives, moral hazard, financial leverage, an interconnected financial system, and little regulatory oversight created a perfect storm waiting to happen.

It may be some time, but something on this scale will happen again. Humanity has a knack for reliving our worst mistakes.

Berkshire Hathaway Episode 3 by Acquired: This last episode of Acquired’s series on Berkshire Hathaway covers Warren Buffet meeting Bill Gates and their subsequent friendship, the company’s successful investments during the 2008 crisis, as well as Coca-Cola, Bank of America and Apple. I also appreciated that the podcast criticized Buffett and Munger for missing out on the tech boom (Apple investment aside).

All in all, a great series on one of the world’s most impressive companies.

How Elon Works by Founders Podcast: This podcast on how Elon Musk runs his companies is impressive. Based on Walter Isaacson’s biography, it walks through Elon’s unique thought process, work ethic, business acumen, and yes, character flaws.

Despite these character flaws, he’s consistently convinced his employees to give their hearts and souls to his companies and the missions they stand for.

If you don’t get a chance to listen to the podcast, here are 31 highlights from the episode. My favourites are:

• Apply the Algorithm constantly. (1) Question every requirement. (2) Delete any part of the process you can. (3) Simplify and optimize. (4) Accelerate cycle time. (5) Automate.
• The only rules are the ones dictated by the laws of physics. Everything else is a recommendation.
• You should go ultra-hardcore on deletion and simplification. See this great example!
• If you aren’t adding back at least 10% of the things you deleted, then you didn’t delete enough.
• Never ask your troops to do something you wouldn’t do.
• Stay heads-down focused on doing useful things for civilization.

THINGS TO CONSIDER

"If we open a quarrel between past and present, we shall find that we have lost the future."

- Winston Churchill

"I think it's very important to have a feedback loop, where you're constantly thinking about what you've done and how you could be doing it better. I think that's the single best piece of advice: constantly think about how you could be doing things better and questioning yourself."

- Elon Musk

"When you truly understand something, you can express it at any level of detail while maintaining coherence. 

The master can provide the one-sentence version, the paragraph version, and the chapter version, all of which tell the same story at different resolutions. The novice can only repeat what they've memorized at one resolution."

- Shane Parish