This edition of Market Factors begins with a bullish view on commodity stocks thanks to a weakening greenback and electrification. We move on to list the six investing lessons derived from Warren Buffett’s career and in the diversion we discuss the dumbing down of television content.
The S&P TSX composite index screen at the TMX Market Centre in TorontoTijana Martin/The Canadian Press
Spot prices vastly exceeding consensus
When I was working my way up in the finance industry in the 1990s we’d make fun of the old timers for always defaulting to mining and energy stocks when looking for investment ideas. Many of them had started in the business in the 1970s. At that time inflation rates were insanely high and dictated that materials stocks were the only sector generating decent returns. “What’s your idea for the week, boss?” we’d ask. “Something that gets dug out of the ground, perhaps?”
The old timers might be getting their revenge soon if Scotiabank strategist Hugo Ste-Marie is right. U.S. dollar weakness combined with supply disruptions and underinvestment in new mines have commodity prices climbing, with mining stocks poised to play catch-up.
Commodities are priced in U.S. dollars. So when an erratic president threatens and belittles trading partners it results in selling of U.S. dollar assets and subsequent pressure on the greenback and upward moves in commodity prices. This trend goes a long way in explaining the broad-based nature of recent materials price strength.
Precious metals are particularly sensitive to geopolitical instability and U.S. dollar weakness. Silver prices are up almost 50 per cent year to date and gold is higher by roughly US$1,000 already in 2026.
Copper prices are stabilizing now after a big rally caused by supply shortages. These shortages are likely to be commonplace as the global electrification trend continues. (The shortage would be smaller if the Panamanian government would let First Quantum operate the Cobre Panama mine and also good for me because I own First Quantum stock. But I digress). As for nickel, export quotas in Indonesia are supporting that commodity price.
Conventionally, mining stock prices loosely reflect the consensus estimate for a commodity price. In the current market, spot prices exceed consensus estimates by a wide margin. If prices remain strong, analysts will be raising earnings and cash flow estimates to reflect the higher commodity price every quarter as the companies report profits. This would add fuel to the mining stock rally.
Currently, the silver price is over 100 per cent higher than the consensus estimate for the year. This implies big increases to full-year cash flow estimates by analysts. The gold price is 22 per cent higher than estimates, nickel is 21 per cent higher and copper is 19 per cent higher.
Commodity prices are volatile, silver more than most, so spot prices could pull back and limit gains. (Weaker economic data in G10 countries could be a catalyst for weakness, as would a recovery in the U.S. dollar). But the gains in metals prices have so significantly outperformed the related stock prices that the risk-reward scenario is extremely positive for equities.
The old timers will be pleased.
Warren Buffett, Chairman and CEO of Berkshire Hathaway, speaks to reporters before presiding over the annual shareholders meeting in Omaha, Neb., May 4, 2019.Nati Harnik/The Associated Press
Education
Six lessons from Uncle Warren
Morningstar’s Larry Swedroe described a report from Sparkline Capital analyst Kai Wu which derived six big investing lessons from Warren Buffett’s career: Mr. Buffett’s portfolio allocation strategy can easily be replicated by the average investor, intangible assets (like patents) are the new competitive moats, traditional value investing needs an update, scale creates challenges for even the best investors, the principles of investing are timeless and that using the same criteria as Mr. Buffett – high intangible value and high quality scores – can democratize his money making ability.
There is worthwhile wisdom in this piece but Mr. Buffett’s competitive advantage was temperament, as his late business partner Charlie Munger noted. The Oracle’s ability to stomach volatility, buy when everyone else was terrified, know when high-quality companies should be held or sold, and the discipline to hold oceans of capital until the right opportunity arises - even as financial media sneers - are all things that set him apart.
That’s why he described his style as “simple, but not easy.”
Diversions
Two-screening dumb tv
I’ve been watching Foundation on Apple TV Plus and not because of the original Isaac Asimov books, which I found impenetrable. One of the lead stars, Lee Pace, was a main character on a show that’s on my This Show Is Amazing I Can’t Believe it Isn’t A Lot More Popular list – Halt and Catch Fire – and I was trusting his judgement.
The show started well but around episode five I think it fell victim to the two-screen programming trend. This happens when a network asks the shows writers to dumb down and slow down the narrative so that anyone can watch the show and scroll on their phone at the same time.
I hate this. It makes characters act in ways that underscore plot points instead of how a person might act in that situation. Everything gets repeated. All the characters act as if they have IQs below room temperature. We are all getting dumber by the hour.
The Wire was brilliant for many reasons but one of the main ones: everyone talked and acted in ways that seemed real, like I might in that character’s predicament. They were unpredictable at the same time, in ways that people surprise you in real life. It’s not that hard.
The essentials
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Globe Investor highlights
David Berman asks: Is it too late to hop on the gold bandwagon? If you think the answer is no, check out Arjun Deiva’s Number Cruncher on 10 Canadian gold stocks trading at reasonable valuations. And here is something else to ponder too, from Andrew Willis: surging gold and silver prices are expected to spur more mining takeovers
A weaker U.S. dollar is a double-edged sword for investors, says Mike Dolan
If the “Sell America” trade heats up, who is most likely to stoke the flames? Jamie McGeever has some thoughts
The Contra Guys’ Philip MacKellar reviews his top income pick for 2026
Quick hits
I have so many thoughts about Warren Buffett and the story above reminded me of a few. For one, I’m fascinated by his dependence on brands and wonder whether any current brand names can maintain cache without the entire U.S. population watching the same ten TV shows and the same accompanying ads, as they did through the bulk of his career.
One of Mr. Buffett’s least talked about skills generating outperformance was avoiding paying capital gains tax. He avoided a massive tax bill by swapping Procter & Gamble stock for P&G’s Duracell business. Never selling top holdings also delayed tax and boosted returns.
I’m not sure journalism can be objective about AI. Many of us see it as a threat, either consciously or subconsciously, and are far more likely to focus on the limitations rather than the advantages.
The trade I mentioned on Jan. 19, selling the S&P 500 ETF to buy the S&P 500 equal weight ETF, is not working yet. The conventional benchmark is up 1.4 per cent (in Canadian dollar terms) since the start of last week, and the equal weight is up 0.7 per cent.
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