It’s got to be -100 degrees celsius outside as I sit here in my Calgary office writing this annual letter, reflecting on 2022 and the crazy yet highly educational year it was. The stock market is always changing, but this year stands out for many reasons.

They say you learn more from your losses than your wins, and after 16 years in the capital markets, I can say 2022 was, by far, my most educational…

Silver lining: The learnings from 2022 will guide me for the rest of my career. And I’ve never been more fired up to build, grow, and take calculated risks.

12 Valuable Learnings & Reminders From 2022

  1. Price discovery is more psychological than math. This rule applies to the value of stocks, houses, groceries, and Christmas presents.
  2. Stocks are dead money without greed. And greed makes all of us a little delusional.
  3. Fear is the greatest motivator. It will make investors turn on a dime and recklessly sell, all hoping to be the first out the door. Nothing is safe in the wake of a wealthy, fearful investor.
  4. While we relentlessly study capital structures for small and microcap companies of interest, and generally appreciate a tightly held company, too much paper in one investor’s or firm’s hands is dangerous in a bear market.
  5. Management is, by far, the most valuable asset small and microcap companies have. The excellent management teams were able to raise money in 2022, cut costs back in early spring, and prepare themselves for the potentially long road ahead. They’ve ‘stocked up’ for the proverbial winter because they’ve been here before.
  6. Geopolitics trumps economic/market data.
  7. In a bear market, volume beats value.
  8. Inflation becomes a self-fulfilling prophecy.
  9. The drill bit still moves markets. Even today, nothing pays like discovery. Don’t give up on miners and explorers.
  10. Boring, modestly cash-flowing assets in a bull market are the belle of the ball in a bear market.
  11. Companies that don’t communicate well with shareholders don’t run their businesses well.
  12. There’s no time like family time.

What to Look Out For in 2023

When will we see a market trough?

Nearly impossible to predict, but history is always the best guide.

A timeless market adage is that bottoming is not one day in particular, but a process which sees carnage along the way and builds investor pessimism. When pessimism reaches a boiling point, buy.

Pessimism is exceptionally high right now, especially toward Canadian small and microcaps. Just look at the valuation drop of the TSX Venture Composite and, most importantly, the obliteration of trading volume. In November, the TSX Venture Composite had a trading day with volume below 10 million shares!!! It hadn’t had a day with that low volume in almost 20 years!

For some context of just how outrageous that is, during the peak of Q1 2021, we had many days which saw over 200 million shares change hands… at a valuation nearly double what the Composite is today.

From my vantage point, we are nearing ‘peak pessimism’. If I’m wrong, and we have much further to go, Canada’s public venture capital market’s existence could be questioned. For the record, I’m confident it will survive and thrive in the years to come.

As we end Q4, U.S. smallcaps have rarely been as cheap as they are now relative to the large caps.

So, how much of the bad news has been priced in for small and microcaps in Canada? I estimate we are 70-80% of the way to the bottom, barring a debt crisis akin to what we saw in 2008 (which I don’t think will happen).

Wrapping Up

The potential ‘Black Swan’ at the moment, like ’08, relates to debt. We are seeing surging credit card balances (recently increased at a rate not seen in over 20 years in the U.S.), a near-stalled-out housing market (Canada worse than the U.S., but both are hurting), and the cost to survive increasing faster than wage gains. Demand destruction is happening all around us with discretionary purchases, but the biggest threat to the stock market and valuations likely won’t come from Main Street woes as it did in ’08…

Rather, the greatest risk is the surprise of a leveraged institutional player getting squeezed to the point of failure by rising rates or FX. Think I’m crazy? Google ‘$65 Trillion of Derivatives Debt’ and venture down that rabbit hole.

Opinions vary slightly, but it takes around 9-12 months for the effects of a rate hike to be fully felt in the economy.

In light of that, Q3 2023 will probably see Main Street capitulate, and, therefore, central banks will likely be done with hikes then. By Q3, the Fed will even hint at rate decreases.

Watch the U.S. unemployment rate. If it rises 2% or more (a real possibility in 2023), inflation is dead, and so is monetary tightening. The second event to look out for will be the formal announcement of a recession. This will be music to my ears. The recession has already started; we need policymakers to admit it so they can pivot.

Remember, the worst is over for the markets long before it is for the economy. The S&P 500 typically bottoms within 130-150 days of the announcement of a recession.

2023 Stock Market Sectors to Watch — The Old and New

A.I.: Although the talk of the town these days, ChatGPT is the tip of the iceberg for this space. Many significant innovations are coming in 2023 relating to A.I. that will have real-world applications for everyday people. ChatGPT was the fastest consumer platform or product to gain 1 million users, ever. The game-changing A.I. content generator took less than a week to reach the coveted million-user mark. For some context, it took Instagram roughly 2.5 months to reach that milestone, Facebook 10 months, and Netflix 3.5 years.

Precious Metals: Silver and gold companies were able to raise capital and conduct effective work programs in 2022, despite the capitulating equity markets. It’s key to remember that the U.S. Dollar Index is sitting near 20-year highs. Given how the country is spending these days and the headwinds in its economy, one can assume this strength won’t last. That’ll be welcomed news for precious metal investors, and we’ve seen strength in gold and silver this past month, with silver recently topping US$24 an ounce and gold US$1,800.

Energy: Lithium and oil & gas. This energy crisis is nowhere near over. Biden had to drain America’s Strategic Petroleum Reserve (SPR) by 180 million barrels in 2022 to keep gas prices expensive instead of ridiculously expensive. The SPR is at its lowest level in nearly 40 years. Further, we’ve seen fractures in U.S. and Saudi relations. Mohammed bin Salman Al Saud (Crown Prince of Saudi Arabia) doesn’t want to listen to Biden, and the President will need to refill the Strategic Petroleum Reserve. Additionally, particularly in countries like Canada, governments will continue to support (both financially and socially) the development of lithium projects — likely leading to M&A within the space.

Happy Holidays To You and Yours

Pinnacle Digest doesn’t exist without you, our loyal readers and viewers. I am very grateful for your engagement with our platforms. After more than a decade of being a leading publication for Canadian small and microcap investors, I am as excited as ever for the future.

Bringing you new content, contests, and ways to interact with other investors is our way of thanking you.

I hope you have a wonderful holiday season with your loved ones. See you in 2023!

Merry Christmas,





P.S. Click here to find out why December 22nd has been a special day for TSX Venture traders in the past.