by Mike Andrews
In my three-decade career, there have been many valuable lessons I have been fortunate to learn and acquire. Some came from “the school of hard knocks;” experiencing things firsthand and having to make decisions without certainty; relying on my gut, my beliefs and most importantly being steadfast in my values.
Many of you have heard me quote a Roy Disney statement “when your values are clear, decisions are easy.” One of my core values is to be courageous and loyal, to my family, my friends, colleagues, and clients. Loyalty to be there in times of need (anybody can show up in good times) and to be courageous to share with them some candid advice from time to time.
2021 was a very prosperous year for your collective investment portfolios. 2022 has started off rocky. The omicron variant, unrest in Ukraine, inflation concerns, and debt levels are some of the causes, and the list goes on. I will be the first to stay abreast of these events as I am genuinely interested and never short of an opinion when asked. Yet, I have come to look at these volatile periods as necessary for our clients to prosper. As history has taught us again and again, we cannot expect gains without volatility. And that applies to 2021 and 2022, respectively.
I recently reviewed a financial journalist’s publication that was promoting catastrophe while at the same time offering great insights into which “mystery, hot” stocks to buy to protect yourself. It seems as though all you had to do is buy their newsletter. It was another clear example of sensationalizing current events with the only purpose of provoking a primal fear response. Taking action based on fear has a high probability of being financially detrimental, as I have seen in 1987, 1999, 2000 (Y2K), and 2008. There will always be publications that promote short-term negativity because they have no vested stake in your long-term personal or family well-being, or especially in your financial prosperity.
Here are a few facts and lessons I have learned to temper the sensationalism:
1. During a market correction, having a purpose and timeframe is all that matters. Money for short-term cash needs should not be invested in a long-term portfolio.
2. Buy and hold requires it to be done when markets are rising and falling. Research has shown that investing after a market decline of 20% or the day after a market peak in a given year has a remarkably similar outcome 5-10 years later.
3. The perfect portfolio is worthless against discipline and personality (confidence and risk tolerance). Nothing matters if you cannot stay invested. As the old saying goes “if you can’t take the heat stay out of the kitchen.” The secret is to know how much heat you can take to stay in the kitchen and manage your portfolio accordingly.
The chart below illustrates the volatility in the markets over the last 94 years to give you a sense of the heat level in the kitchen.
The average drawdown from peak-to-trough in a given year in the U.S. stock market going back to 1928 is -16.3%. You can see two-thirds of the time there has been a double-digit correction at some point during the year.
Source: A Wealth of Common-Sense Blog Posted January 20, 2022, by Ben Carlson
4. Every time the market falls, it feels like it may fall even further. Hindsight shows us over and over, that, every major decline has been a buying opportunity.
5. Why the market is falling, does not matter…… you might think it feels different, but it really is not.
The market falls at unpredictable periods and for unpredictable reasons. The consistency is that it rises and falls, and then rises and falls again. The reason it is falling should create good dialogue and conversation, however, you should not have regret over not having predictive behaviours because market timing is a high-risk sport with few winners.
One of the most compelling lessons I have learned is the resiliency of businesses to adapt and prosper. I have admired and seen first-hand the agility, tenacity, resilience, and innovativeness of business owners I have had the privilege of meeting over the years from across the globe. In every major event or crisis that I have witnessed in my 35 years, the constant has been the entrepreneurial spirit, leadership, and success of businesses, whether they are private companies from London ON, from across the province, or nationally. The same holds true for publicly traded family companies like the Thomson family, McCain family, and Saputo family. Evidence shows that businesses are resilient despite the market cycles. We as investors have to have the confidence that businesses as a whole will continue to prosper, new businesses will be built, and they will prosper, and we will all be better for it…. as long as we stay invested.