Hello,

I hope you had a nice long weekend. And that you avoided glancing at the business & economic newspapers. All of them depressing and negative. The Wall Street Journal, Barron's, The Economist, the business sections of the Globe & Mail and La Presse. Frankly, it was a demoralizing exercise to read article after article announcing more difficult days in the stock market and the upcoming bear market.

The reasons are well known. Inflation, the price of oil, the war in Ukraine, interest rate hikes by central banks and supply chain problems in several economic sectors.

Moreover, when we look at the financial markets, 2022 is shaping up to be a very difficult year. Since Jan 1st, the NASDAQ is down almost 30%, the S&P 500 is down almost 20%, the TSX 60 is down more than 5% and the Canadian bond market is also down sharply (the S&P Canada Aggregate Bond Index is down -9.23% and the FTSE Canada Universe Bond Index is down -10.18%).

In short, things are not going well!

And yet, I am investing even more than usual in my personal portfolio. Why?

Because my investment horizon has not changed. And neither has yours. In 5 days, 5 weeks or 5 months, I have no idea where the stock markets will be. Up, down? I have no idea. But in 5 years, in 7 years, in 10 years? I can tell you that we will be up compared to today. And it is this investment horizon that you need to keep in mind.

When we buy stocks for you, it's because we think their sales and profits are going to increase. One of the metrics I look at is the growth in these two items over the last ten years. Not the last quarter, but a decade. It's important to evaluate our various metrics over the long term. This tends to isolate the short term noise and focus on the fundamental strength of a company.

Also, keeping your investment horizon in mind increases your chances of making money for the simple reason that the U.S. stock market and the Canadian stock market have had a positive year +/- 74% of the time since 1920’s.

 

With these odds, investing when you have extra cash is a no-brainer. And that's what I do myself and recommend for you as well.

Now, for our retired clients. Those who are in disbursement mode and not in accumulation phase. You stay invested according to your risk tolerance and your investment policy.

Selling for a while to get back into the market later is a futile and dangerous exercise. Futile because you need to have the right timing when selling and when buying back, which is unlikely, let's be honest for a moment.

And dangerous because you risk missing the rebound days which historically are at the bottom of bear markets. Look at the effect of missing only the top 1% of the best stock market days in Canada in the last 30 years.

I readily admit that my advice is easier to hear than to put into practice.

But you should know that every company we buy into has been studied and we believe it will be able to weather a possible recession. And that after the current storm, investors will recognize the potential of these same companies and that we will be rewarded with a higher share price and in most cases, more generous dividends. In fact, I note that despite the economic clouds on the horizon, none of our companies have cut or suspended their dividends. On the contrary, since January 1, twenty companies (20) in our Global 35 portfolio have increased their dividend. Clearly, these CEOs are not as worried as the talking heads on CNBC !

What about bonds, you ask? Rising rates mean that, according to the Wall Street Journal, we have the worst start to a year for fixed income since 1842! (May 6, 2022, It's the Worst Bond Market Since 1842. That's the Good News.) But despite the catchiness of this headline, there are two things to know about bonds.

First, a decline in the market value of a bond does not change its original yield. That is, the coupon (actually the interest paid) will remain the same and at maturity we will receive our principal, i.e. $100. The only change is that someone who wants to sell along the way will receive less for his bond.

Secondly, the fact of receiving a better interest rate when reinvesting the capital at maturity means that in the medium/long term, the investor will have had a better total return. The decline in rates in recent years has caused current bond prices to rise, but upon renewal, we were forced to accept a lower and lower rate. The rise in rates that is temporarily hurting us is good news in the long run. In addition, this same rise gives bonds back their historical room to maneuver to play the role of portfolio shock absorber in case of a stock market panic.

So in summary, we remain calm, we look ahead a few years while remaining cautious. It is probably not the time to take out funds to buy a Ferrari, but it would be a mistake to sell in a panic. The ups and downs are an integral part of the financial markets and in the long run allow for portfolio growth. After three very positive years, we have a decline in performance. It is not pleasant, but it is not the end of the world either.

Feel free to call us to discuss your financial plan or asset allocation. But most importantly, ignore the noise, turn off the TV, don't look at your portfolio every day and enjoy the summer. We will take care of your portfolios and guide them to their destination.

We look forward to hearing from you.