I understand that it may be difficult to focus on the outlook for financial markets when the welfare of our family and friends is top of mind. Nevertheless, putting events that affect the markets into perspective is an important responsibility of ours – in good times and bad. As a result, we wanted to share our thoughts on the current situation and how we intend to approach the days, weeks and months to come.

I know that this is an uncomfortable time to be an investor. However, be encouraged by the fact that our portfolios have significantly outperformed the market, because we have been positioned for some time to be conservative and defensive, and yet ready to capitalize at the same time.

On Monday March 16th, the markets had their worst day since 1987, and yet our portfolios are still holding up very well. They are essentially at the same spot as one year ago. Compare that with the overall market, which is down over 20% on average just this month.

It is not the time to be afraid. Nor is it the time to simply weather the storm. Instead, it is the time to selectively shop.

How? Over the past several days, we have been taking small amounts of cash and investing, very judiciously, to increase your ownership of high-quality businesses that are suddenly at great prices. We will continue to take this opportunistic yet careful approach.

The downturn in the market is temporary. While the circumstances that created it are unprecedented, a downturn, in itself, is a completely normal part of investing.

On October 16, 2008, in the midst of the global financial crisis, Warren Buffett penned an op-ed in the New York Times titled – “Buy American. I am.” At the time, U.S. equity markets were down roughly 30% amidst widespread market fear and investors were in dire need of inspiration. Sound familiar?

Yesterday, in search of some inspiration of my own, I read Buffett’s article and realized the bulk of what he wrote 12-years ago still applies directly to investors today. With that in mind, I wanted to share a few of my favourite nuggets from the Oracle of Omaha:

• On fear: Fear is now widespread, gripping even seasoned investors. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10, and 20 years from now.
• On where things are headed: I haven’t the faintest idea as to whether stocks will be higher or lower a month, or a year, from now. What is likely however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up.
• On investor behaviour. In the 20th century… the Dow rose from 66 to 11,497. You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

How did things work out for Mr. Buffett?

Over the short-term, things didn’t go so well. From the day Buffett announced his intentions to the American public, his purchases would get pummeled. In fact, the S&P 500 would go on to drop another +20% before bottoming. That said, this didn’t cause Buffett to flinch as he knew he couldn’t predict short-term market movements.

For many, Buffett’s advice provided the framework required to see across the valley during the worst storm to hit markets since the Great Depression. And, by putting money to work when others were fearful, investors who followed his wisdom are certainly singing his praises today.

 

Source: RBC GAM, Bloomberg, Morningstar. Buffett's cumulative return is S&P 500 TR CAD from October 16, 2008 to March 16, 2020.

This is what “buy low, sell high” looks like

While we are often quick to simplify the key to investment success with the popular adage buy low, sell high – what these words look like in practice is often overlooked. Buying low doesn’t mean investing at the bottom. If it did, we’d all be in trouble. Even the best investor of our generation couldn’t get that right.

Rather, in practice, it often plays out as follows. You buy and the market goes down. Then you buy some more and it may go down even further. However, as a long-term investor, your time horizon is sufficient enough that one day, down the road, you’re in position to sell high.

CORONAVIRUS IMPLICATIONS

The implications for economic growth over the next few months are negative. The important question now is whether the coming measures taken by governments and central banks are meaningful enough to convince investors that the impact will be a matter of a few months and a mild recession, versus something that extends well into the second half of the year and is deeper in nature.

In the near term, we expect large swings in prices to continue. That said, past experience reminds us that market declines often end in a dramatic fashion. But no one has the ability to accurately predict exactly when that will be.

So, we will remain disciplined in our investment approach. This means we will continue to focus on ensuring your portfolio is properly structured to support achievement of your long-term objectives as found in your financial plan. To accomplish this, measures we may undertake in the future include:

• Rebalancing of positions across your portfolio
• Harvesting tax losses where appropriate
• Undertaking due diligence and reviewing all holdings to ensure quality
• Opportunistically adding to existing or new positions that meet our criteria should prices become attractively cheap

Measures such as these will continue to give us confidence in your portfolio, and its ability to help you achieve your objectives over time.

If you have any questions or concerns, please do not hesitate to reach out.

Further reading: Marche Monthly – March 2020

We don’t speak jargon. We’re all about uncomplicating your life, so we speak plain English. If there is someone you care about – someone who would appreciate this simple and straightforward approach – please feel free to share this message with them or put us in touch.

Want to discuss any aspect of this special update, or any other issue on your mind? Have a story idea? I am always happy to receive your call, email or visit.

Tyler Marche, MBA, CFP, FCSI
Your life, uncomplicated
tyler.marche@rbc.com
1-416-974-4810
www.tylermarche.com