OUTPERFORMING THE MARKET

We all know it: the market has been very volatile. It has been going up at times, but mostly down. Here is something to keep in mind: we are outperforming it by a wide margin. Whereas the S&P 500, which we consider the best indicator of the overall market, is down 23% this year, our client portfolios are down between 5-6% – and most of that has occurred in the past two weeks. To put it another way, our portfolios are just slightly ahead of where they were this past June, and the market is back to where it was in 2020.

So we have great conviction in our long-time strategy, which you can read about in past editions of Marche Monthly (an excellent summary is here). One pillar of our strategy is to always be in position, during periods of volatility, to shop for companies we think are underpriced. We last went shopping in May, as we reported in the June edition of this blog, and locked in some terrific prices that we expect will deliver above-average returns to our clients over the long term.

ALL TOGETHER NOW

We are close to going shopping again, since we see that stock prices are currently moving en masse: regardless of particular stocks’ intrinsic value, they are going up and down with the rest of the market, meaning that some very attractive stocks are going to be available at a discount. If and when the conditions meet our criteria, we will again take advantage and lock in some great long term prices for our clients.

GROWING OPTIMISM

We believe prices are especially discounted for growth stocks. These are companies that tend to grow faster than the market, and do not usually pay a dividend, because the best use of their profits, in order to help fuel their growth, is to reinvest in their own company. The prices of stocks such as Amazon, Alphabet and Disney, for example, are as attractive as they have ever been, and I believe that long term investors will be significantly rewarded by buying those companies at today’s prices.

A SLIGHT SHIFT

If you are a regular reader of this blog, you might recognize this as a variation on our tried-and-true strategy of buying “boring,” companies that, along with meeting other criteria mentioned here, pay dividends, which among other things are a great hedge against inflation. This slight shift highlights just how attractive I believe growth stock prices are at this time.

INFLATION

The primary causes of the volatility in the market are inflation and interest rates, and also the guidance of US Federal Reserve chair Jerome Powell, which I think has been somewhat confusing. The goalposts he has been using to measure inflation? They have been moving. Sometimes it is headline inflation, other times it is core inflation (inflation not including the energy and food sectors) and still other times it is grocery prices or wages, all of these changes creating uncertainty in an already very uncertain market.

All of that said, inflation is still high, but it peaked in June of this year. It is coming down, and I maintain my view, expressed in June 2021, that it is transitory, although stubborn. Interest rates, the raising of which is used by central banks to combat inflation, are also still high and expected to rise. My view is that once the market thinks interest rates will eventually start to come down, investors with a long time horizon will be positioned for above average returns for several years.

BIG ON BONDS

After the market dropped at the start of the pandemic in March and April 2020, we made more stock trades than we had in the previous several years, in alignment with our strategy of buying companies priced below their intrinsic value. On the fixed income side, in the past month we have been more active in the bond market than we have for several years – to take advantage of higher interest rates. In the past, we have bought mostly short term bonds, because in a lower-interest rate environment, we were not being paid enough for the risks associated with owning longer term bonds. Now, we are buying more longer term bonds than we normally do, although cautiously, to remain positioned to strike if interest rates happen to move meaningfully higher.

This approach is especially promising for bonds that reside in registered accounts, where all interest income is tax free.

All told, while in the past we have not always viewed bonds as an actual asset class, in the present environment we do indeed see them that way.

INTRODUCING JEAN

I am very pleased to introduce Jean Jeevaratnam, who will start to take over some of Joy’s current administrative responsibilities, so Joy can devote even more of her time to ensuring that we continue to deliver the highest level of client service.

Jean, who joins us from five years of service at another major bank, has a Sri Lankan background, was born in France and moved to Canada at just one year old. As someone who deeply believes that everyone deserves to be heard, Jean is especially attuned to our vision here at Marche Wealth Management: For our clients to feel so well listened to and understood, that we earn the business of every next generation.

Jean holds a Diploma in Business Marketing from Seneca College, is currently working on her Canadian Securities Course, and enjoys spending her spare time with her Yorkie, Mason. Welcome to the team, Jean!

SOMEONE YOU KNOW

This summer I met with many of our clients, many of them in person. What about your family, friends and colleagues? Are they wondering if their wealth management strategy is the right one, or if they are doing as well as they should be? Feel free to put them in touch with us. We receive many such referrals, and provide a point of view with absolutely no pressure or obligation. We see these consultations as an important part of the service we provide you.

If you know someone who is a passive investor – buying the index and/or using a “robo-advisor,” as opposed to a human advisor, they may be having an especially tough year with the S&P 500 down 23%, while not having the support to capitalize on volatility or take advantage of tax planning opportunities available in times like these. Again, we are here to help.

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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 month’s blog, or any other issue on your mind? Have a story idea? I am always happy to receive your call or email.