Trust, the Dangers of Consensus and Basement Cycling Musings with Justin Flowerday
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On April 1 2022, Justin Flowerday, formerly the Managing Director and Head of Research, Fundamental Equities, TD Asset Management Inc. (TDAM), took over the role as Head of Public Equities and became a member of the TD Wealth Asset Allocation Committee. In what feels like warp speed, we are approaching two years since his appointment to this role, and we were able to squeeze in a few minutes in his busy schedule to catch up and get some insights on his experience in the Head of Public equities role.
As we approach almost two years in the role of Head of Public Equities, what's one word you can use to describe your experience so far?
I can think of many, but the one that sticks out the most is trust. This is one element that I quickly realized is a common thread in our business and team here at TDAM. Trust is embodied in the great people I am surrounded by that produce incredible insights and recommendations every day, in what are often challenging times. Trust is very important, and exists, in my own work and ability to remove any biases to reach appropriate conclusions. And finally, to trust our instincts.
Did you experience any "aha moments" this past year?
I absolutely did. Quite a few to be honest. The one that sticks out the most though would be that I gained a deeper appreciation for the notion that "consensus" in investing is dangerous. Over the last 12-18 months, almost every popular narrative that has gained traction with investors has been refuted by the market. For example, for a time there was a view that rates could never again rise above 3.5-4% due to the pressure that would put on the government and consumer balance sheets in the developed world. And what happened? The economy proved resilient in the face of a 5% rise in short-term rates. Another example is the fact that rates increased, inflation fell while the unemployment rate did not move – a first in the modern world.
What is one thing that gives you optimism and one thing that keeps you up at night when thinking about the markets?
What I'm optimistic about is innovation, and in particular Artificial Intelligence (AI) related efficiency gains. We continue to see large portions of the Fortune 500 companies benefitting in the year ahead from increasing labour productivity and less required labour, especially in automating routine and laborious tasks. Some of the biggest beneficiaries are companies with a high proportion of labour costs, a large knowledge worker base, and in possession of large amounts of proprietary data, like banks, insurance companies, legal firms and software businesses. What keeps me up at night is the same thing - AI but its unintended consequences if not harnessed appropriately. What I mean by that is some of the negative impacts it can have on society and humanity in general, a reduced labour market, the impact on my kids and their professional future and the Impact on the investment environment as AI-related strategies accelerate.
What would have been the best advice you could have given yourself or investors over the past 12 months?
The best advice over the past 12 months would have been the same advice I've been trying to give myself for the last five years - companies with pricing power can continue to generate phenomenal returns in any economic environment, whether it be inflationary, disinflationary, or deflationary. The implication of this is simple – if you can create a portfolio of companies that have robust business models and pricing power across uncorrelated industries, you have a recipe for investing success.
Any binge-watching going on in the Flowerday household these days?
Always! But it all depends on who I am spending the time with. If I am with my wife, we are watching Only Murders in the Building and Colin from Accounts. If the rare moment arises and I happen to be by myself, I am down in my cold basement, on my stationary bike, trying to keep sane, and watching Tour de France: Unchained and Formula 1: Drive to Survive.
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