During our previous market updates, we’ve talked about the importance of asset allocation and staying on target. As our portfolios move up and down with the market, we trim holdings to take profits, taking the proceeds to buy areas where we are underweight. Having this formal structure allows us to remove emotion during market euphoria/meltdowns allowing us to naturally buy low and sell high. With the recent volatility of late, it is time for an update on what we’re doing.
What’s been happening?
We’ve seen a sizable pullback in almost all areas of the market – to give some context, over the last few months we’ve seen drops in a lot of core “blue-chip” companies:
As of Thursday (percentage down from 52 week high):
- Royal Bank – down 17%
- CIBC – down 20%
- Parkland Corp – down 20% (aka Pioneer gas stations, On the Run convenience stores)
- Costco – down 21%
- Rogers - down 21%
- Apple – down 22%
- Manulife - down 22%
- Visa - down 23%
- Restaurant Brands (aka Tim Hortons / Burger King) – down 24%
- Google – down 25%
- Microsoft – down 27%
- Home Depot – down 31%
- Air Canada down 32%
- Amazon – down 43%
- Disney – down 44%
- GM – down 47%
- Moderna – down 74%
- Netflix – down 75%
Bonds have also been hit with rising interest rates. So although we don’t own pure stock portfolios for any of our clients, balanced portfolios have taken a short-term step back. In these times, it is important to remember what we do - we stick to the game plan.
Let’s zoom out and take a look at the big picture.
As of the close Thursday, the S&P 500 is down just shy of 20% YTD. We use the S&P 500 because it is the biggest, diversified stock market in the world.
Over the last year, it’s down 4.44%. Bonds are heavily negative over the same time period.
With that being said, over the last 5 years, it’s up 65%... during that time, we’ve had 3 major pullbacks.
- October – December 2018 – First attempt at raising rates
- March 2020 – COVID
- January 2022 – NOW – Inflation and rising rates
Although the last 6 months have been challenging, visualizing it on a long-term chart shows where we really are. The old stock market saying “Buy Low, Sell High” seems easy to follow in normal times, however it is during these periods of higher uncertainty where further wealth is gained. Emotions are understandable but can be an enemy to long term investor. There is always a reason not to invest in the stock market, but if you want/need the long term returns of the zoomed out chart, you need a long term discipline.
One of Warren Buffett’s most famous quotes is “Be fearful when others are greedy and greedy when others are fearful’… A chart for your consideration - this is where we were this morning.
So when you’re outside this weekend enjoying the beautiful weather, sitting down on your Costco Adirondack chair (COST) while drinking your Tim Horton’s coffee (QSR). You’ll be thinking about a few things, including your spouse bugging you about fixing the fence post in the backyard. You’ll pull out your Apple iPhone (AAPL), use your Roger’s wifi (RCI.B) to google (GOOG) where the best place is to buy a hammer, Home Depot or Amazon (HD/AMZN)? Then you’ll hop in your car (GM), complain about the gas prices (PKI), stop in and buy it using your CIBC (CM) Aerogold (AC) Visa (V).
Everything I just mentioned is down 20+% from its highs… Ask yourself, will you stop using Google because the stock market is down 20%? You own big, blue chip stocks and managers. Stocks are on sale.
Process is important. When we run financial plans, our focus is ALWAYS on the 3 and 5 year numbers. Our one year performance numbers can vary widely (positive and negative). Just like your spending can (new car, big trip, no travel because of COVID). The key is to average them out overtime and keep ahead of target. We have raised cash/fixed income over the last year to take advantage of times like these.
Please feel free to call/email us if you have any questions or need anything. Thank you for your continued trust.
All the best,
The Finucci Janitis Group