MARCHE MONTHLY TURNS 50
Welcome to the 50th edition of Marche Monthly! Our very first edition was in October, 2019. Four years later, given a special edition we added in mid-March 2020, here we are at #50.
Suffice to say, a lot has happened over this period. We have gone through a complete cycle in investment terms and also in emotional terms - control of our emotions of course being integral to investing success (more on that below).
By the fall of 2019, we were in the longest bull market in history. Then the pandemic hit, and as we noted in our March 2020 edition (published March 6th):
“Last week, the Dow Jones Industrial Average had its worst week since the 2008 financial crisis, dropping 15% from its peak. For our clients, there is little to worry about. As we have been saying, the market was long overdue for a selloff anyway. Some way, somehow, it was going to happen. I think this is a normal, healthy correction.”
What I found in my discussions with clients at that time was that by and large, they weren’t worried at all - something of which I remain proud. Because it shows that we have been successful in educating our clients that volatility and corrections are a completely normal part of investing, and something that in fact we can take advantage of, by finding companies we believe are undervalued and buying them, in essence, on sale.
Then on March 18th came the only special, mid-month edition of Marche Monthly ever published. Its title? “It is not the time to be afraid.” The blog began:
“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.
“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.
“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.”
And selectively shop we did (just as we are doing now; see below). As we were pleased to report by December of that year, our clients’ portfolios achieved double digit returns in 2020, an outcome that confirmed the most important lesson of the year: Stay invested.
It is a lesson that remains every bit as important here in the fall of 2023. In 2021, the S&P 500, which we consider the authoritative index of how the markets are doing overall, went up 27%. In 2022, it dropped 19%. So far this year, it has gone up 10%. Along with this substantial volatility, we have seen dramatic increases in inflation and hence interest rates, at this moment the market is in correction territory again, and the economy is flirting with a recession.
Our strategy for long-term investors remains unchanged: Stay invested.
As you can see from the Cycle of Market Emotions, the current correction can have investors feeling despondent, when they should actually be feeling very positive that we are at the point of maximum potential opportunity! In contrast, when the market is at its highest (as it was before the pandemic, for example), that is counterintuitively not the time to feel euphoric, but in fact to have an attitude of caution - because we are at the point of maximum potential risk.
As Warren Buffett famously said: “Be greedy when others are fearful, and fearful when others are greedy.” To which I would add: Volatility is a normal and healthy part of investing. We will continue to generate above-average returns over the long term, because we own the right companies at the right prices. The market always goes up over the long term - despite the shorter-term ups and downs.
The growth of $10,000 since January 2000. An investment cannot be made directly in an index. Graph does not reflect transaction costs, investment management fees or taxes. If such costs and fees were reflected, returns would be lower. Past performance is not a guarantee of future results. Performance data as of December 31, 2018.
Source: RBC Global Asset Management Inc.
THE MIDDLE EAST
All eyes have been focused on the Middle East, as the region has seen a sharp escalation in tensions following the Hamas terrorist attacks in Israel. While recognizing that the human toll is much more significant than the investment implications, we note that the markets sit relatively unchanged since the initial attacks. For a number of reasons, a higher floor price for oil could be established for the foreseeable future.
THANK YOU AGAIN!
In last month’s edition of Marche Monthly, I referred to the number of referrals we have received from clients this year. Especially as the end of year approaches, many people, businesses and charities are wondering whether their investment strategy is still the right one, or how they could be doing better. Those are exactly the reasons for many of the referrals we receive: people wondering if their advisor is getting them the best possible returns.
There is a very good chance we can do better for them. Our fixed income strategy, for example, has outperformed the markets for the past five consecutive years, and RBC gives us access to the largest bond inventory in Canada. And as noted above, most of our equity investors have experienced double-digit returns in four of the past five years.
We would welcome an introduction from you, and would provide a completely confidential, complimentary and no-obligation review. Thank you sincerely for your continued trust and confidence in us.
YEAR-END OPPORTUNITIES
Many of our clients have had significant capital gains in taxable accounts over the past three years. Thus, some clients will have the opportunity this year - an opportunity we do not get very often - to trigger capital losses through a strategy known as tax-loss selling. The net effect of the strategy is that taxes arising from capital gains in prior years can be offset by losses this year.
We are triggering capital losses where applicable in many of our taxable accounts, and if you would like to discuss this strategy further, please reach out to us; you can also review this informational piece.
AN EXCELLENT TIME TO INVEST
There is reason to believe that the campaign of interest rate hikes carried out by the Bank of Canada will soon end, and that the US Federal Reserve will not be too far behind. So, consider this: history shows that in the 18 months after the Fed ended increases in its last four hiking campaigns, yields on cash-like investments have traditionally decayed rapidly, while both equity and fixed income returns were not only strong in the year that followed, but also maintained relative strength over a five-year period.
It can feel very comfortable to stay in cash (see the cycle of market emotions above!). But history shows us that for long-term investors, it is not a good move.
As I said in last month's edition of this blog, I think that when we look back a few years from now, we will see this as a time of great opportunity. Now is an excellent time to buy mispriced assets and lock in high interest rates and dividend yields. If you would like to discuss these opportunities further, please contact me.
--
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.
WHO WE ARE
**To learn about our unrivalled team of experts, delivering Canada’s widest array of wealth management services to our clients, visit our website, here and here.
WHAT WE DO
