Managing a portfolio in times of Geopolitical uncertainty

February 28, 2022 | Robert Thomson


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For a situation like we are seeing now, our Fight or flight instincts can compel us to take action when we feel threatened, and that usually coincides with what turns out to be the worst time to take action. 

I’m sure like me, all of you are alarmed by the events taking place in Ukraine.   

 

I’ve received some emails from clients asking how I approach the management of portfolios given these events, so I thought it would be a good idea to give some insight. 

 

There has been a lot of research done on how people naturally behave, and how that behavior or instinct translates to investment actions.  Many of you have probably heard the theory that whatever it is you feel you want to do with regards to investing, you should do the opposite.  Sell when you want to buy, Buy when you want to sell.  Though it is never as simple as that, there is quite a bit of truth to it.  For a situation like we are seeing now, our Fight or flight instincts can compel us to take action when we feel threatened, and that usually coincides with what turns out to be the worst time to take action.  For Food, or Water, or Shelter, yes. But when it comes to investing: rarely

 

So- right now what we as portfolio managers at RBC Dominion Securities are looking at are the implications to the long term view of the economy and the companies we own, given any events that are occurring.  What is happening right now on the markets is mostly an emotional reaction.  Most people wouldn’t have thought that after a low opening yesterday, markets would have finished “up”.   That’s because as chilling as the events are, the North American economy and the companies we own, have very little exposure to the Ukrainian market, and the long term view at this point remains largely unchanged.  

 

What we don’t do is attempt to capitalize on what may look like short term fluctuations, and resist any knee jerk reactions.  Never listen to that “gut feeling”- look how it would have worked out yesterday.  The fundamental problem with moving out of the market at times of uncertainty is that for that strategy to work, you need to get back in when things are even worse or more uncertain.  And the fact of the matter is that every single recession, depression and correction in the history of the stock market, has come back. It’s batting a thousand.  We certainly are not in a Depression or a recession.  We aren’t even in a correction.   The North American Economy is strong and there remains tremendous willingness from governments around the world to support their economies with stimulus.  So, the outlook at this point remains very positive. 

 

But we are monitoring, and day by day we look for any signs of change to that long term view.  

 

Attached is a recent publication from our Portfolio Advisory Group discussing the conflict and its impact on markets. 

Consequences of Russia's strike on Ukraine