One of the benefits of having been an Investment Advisor since 1997 is that I’ve managed client portfolios through many different types of markets, both up and down. I worked during the unprecedented rise and crash of the Nasdaq during 2000 – 2001 and then the global recession during 2008/09 when so many were saying things like, “I think the Canadian Banks are going under”. Fast-forward to last February/March, when news of the pandemic rocked the world and we all witnessed precipitous declines across the globe. In each of these time frames (and other periods of extreme volatility), there has been one common denominator and that was fear. Or, in the case of outlandish valuations - greed.

Here we find ourselves today, exactly a year after the low point in the TSX & S&P500, when we saw markets dip to levels not seen since around February 2017. It was indeed a gut-wrenching time. I don’t think it would be an overstatement to say that the recovery from the March 2020 bottom has been nothing short of miraculous.

Perhaps you’ve seen the Emotional Roller Coaster graphic – where it begins with optimism and starts riding up through excitement, thrill, to euphoria at the very top. Then of course on the other side (down) comes anxiety, followed by denial, fear, desperation, panic, capitulation and despondency. At the bottom of the trough we find depression, then a move into hope + relief. It’s interesting to note there are far more “negative” emotions on the way down, than up! Is this because we’re more prone to react to fear than the other way around? I’m not a psychologist, but it sure feels that way.

So, where do we find ourselves now, in the collective mindset, when it comes to the stock market? I think it depends on where you look. There are the thrill seekers, wanting to speculate mainly due to FOMO (fear of missing out) or YOLO investing (you only live once). It is this faction (mostly novice day traders and small investors) that have latched onto an odd assortment of almost bankrupt companies, creating a frenzy of activity.

On the other side of the equation, we have anxiety and the “this feels too good to be true” mindset. I think this is because we have programmed ourselves to brace for negativity so it doesn’t hurt as much when it happens. The serious problem with this is that we become frozen and then miss out on opportune moments for buying (and profit-taking too).

Perhaps the most important aspect of my role as an Advisor is to protect clients from the fear/greed cycles and from speculative investing. What remains steadfastly true since I began in 1997 is that sector allocation, valuations and future earnings potential are all key to a well-balanced and successful portfolio. I will continue to adhere to these principles because they’ve proven to work time and time again.

Libby

 

 

 

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