For economist David Rosenberg, successful investing is as much about what you own as what you sell – and when. After about 30 years reading the economic tea leaves for companies such as Bank of Nova Scotia, BMO Nesbitt Burns, Merrill Lynch and now Gluskin Sheff + Associates, Mr. Rosenberg has developed a knack for when to hold, and when to fold. He avoided the turn-of-the-century dot-com crash and was one of the first economists to warn of the U.S. housing-market collapse and subsequent 2008-09 recession. The Globe talked to Mr. Rosenberg recently about his investment style and his view on whether Canada is in a recession.
When did you start investing?
I have been investing for about 30 years. I learned a great deal from my father, who was a very astute and active investor. He was a civil engineer. He taught me to buy low and sell high and to identify special situations in the market. My dad also loved to play the bond market.
How has that advice panned out in your portfolio to date?
I think I've had more wins than losses, but there have been both. It's like golf; you only remember your birdies. My first investments were in a couple of tech companies: Lumonics and Mitel. For the $5,000 I had invested, those were big wins. They helped pay for my tuition at the University of Toronto.
What other investments have you made over the years?
I have always been a believer in buying stock in the company you work for. I had Bank of Nova Scotia and Bank of Montreal shares when I worked at both of those companies. Those were very good investments. When I was at BMO Nesbitt Burns, they had a top-ranked research department and so you got a lot of great ideas from the analysts. I remember participating in that famous made-in-Canada mining boom in the mid-nineties. I also got caught up in the tech mania [in the late nineties]. In early 2000, I started working at Merrill Lynch. A month into the job, when I found out we had a technology call ahead of the regular equity call … that was a real sign post for me that the rally was extended. I quickly turned cautious on technology just in time for the dot-com bust. I can't say I caught the peak, but I blew it out as soon as I could. Sometimes your success in investing is what you don't own, not just what you do own.
What has been your worst investment move?
It's something I didn't do, which was not taking the opportunity to purchase the apartment that Merrill Lynch had rented for me in Manhattan. When I had the opportunity to buy that in 2003, I should've done it. It was a great unit in a great location and has gone up significantly since. It would've been nice to have a U.S.-dollar asset, especially as a Canadian investor.
What sectors do you like right now?
The vast majority of my investments are in our portfolios at Gluskin Sheff. I can't talk about specific companies, but I can talk about specific themes. Here at the firm, we're very focused on risk-adjusted returns and on companies that generally have strong and sustainable cash flows. That runs through practically everything we buy globally. The broad theme is this: Identify the reliable source of growth on the planet. It isn't China, Europe or Latin America. It's the $15-trillion animal known as U.S. domestic demand. You can tap that any number of ways. In Canada you can do that by focusing on banks or auto-parts companies or forest products, or companies that have a currency tailwind from the weak Canadian dollar and growing penetration into the U.S. domestic demand market. You can do that in Canada, in Japan or in Europe. In the past couple of years we've been increasing our exposure to the foreign market and cutting back on Canada. There are opportunities in Canada, but it's very selective.
Can you comment on your holdings in Gluskin Sheff stock? The price has fallen in recent months.
I'm a shareholder. The stock is reflecting what's happened in Canada this year. It's been a challenging year. If I wasn't bullish on the stock price I wouldn't own it, but nothing goes in a straight line. The stock, since I started at the firm six years ago, has done very well.
What are your views on bonds today?
I wouldn't call myself a huge bear on bonds, but why take the duration risk? I'd sooner be in cash than be in a long, plain vanilla bond portfolio. You actually have no coupon protection. If yields were to go up, you're going to be stuck with a negative return – and who wants that? The way you want to play bonds is by playing the spread of corporates, vis-à-vis governments.
I don't like the yields, but I still like the spreads. Go long corporates, short governments against them, you can add on a little bit of leverage on top of that and actually generate a decent mid-to-high single-digit return with that type of strategy. That's really the only way you'll make money in fixed income over the next several years.
What is your current outlook and advice for investors?
This bull market in equities isn't going to end until we see the whites in the eyes of the recession. I don't see one in the next two years. It's not a recession in Canada today. We are going through a very weak patch. We tend to import our recessions. If we do go to a recession, it would be the first made-in-Canada recession. I'm not going to knock myself out making that call. As for investor advice: It's not about timing the market. It's about time in the market. Continuously focus on the long-term trend line, and ignore the noise. What a mentor of mine, Don Coxe, taught me many years ago is to fade what's on page A1 and buy the page B16 story on its way to page one. In other words, you have to constantly pay attention and understand what's already priced in and how investors are positioned. Herd mentality is not generally a good thing.
This interview has been edited and condensed.