This week has seen some pretty big swings in the market, mostly to the low side. The volatility was mainly due to the anticipation of, then action by the Fed increasing rates .75%, in an attempt to combat inflation.

 

This move caused bond values to drop, and equity markets to drop as well.

 

We didn’t anticipate this drop in markets, and I’m sure it comes as no surprise that our advice is to maintain your position.

 

Let me explain why that’s our advice:

 

It’s based on the belief that the market will come back. No one can predict what the market will do day to day, but it has always come back. I’ve written this previously, but every single correction, recession, depression in the history of time has recovered, and the market has always come back and hit new highs. So, stay patient and it will come back.

 

The natural reaction is to want to pull out now and wait for things to be better and then enter back in. The problem with that is that it is timing the market, and it has been proven that no one can time the market. You might get lucky 1 time out of 10, but 9 times out of 10 you will be worse off. And if you do somehow get lucky, you will try it again… and lose. Here’s why: if you wait for things to be better, or for you to feel better, the market will be at a higher point than when you pulled out. For that strategy to work, you actually have to put money back in when it looks and feels worse… and if you pulled out when it looked bad, you definitely aren’t putting money back in when it looks awful. Those of you thinking you should have followed your gut a month ago and pulled out- are you wanting to go back in today?

 

If I were to show you a chart of the market history and asked you to pick a time when you should put money in, you would inevitably choose points like what we are experiencing right now. And if you picked times to pull out- that would be when you were feeling great about everything and wanting to add more into the market if you had cash available.

 

As all this is going on, we are seeing bright spots in the markets. Bonds are looking attractive for the first time in many years. They are actually giving yields in the 4% range (remember 0, or even negative interest rates?) And a lot of stocks are looking very attractive. What I mean by that is when you look at the price they are trading at, vs the earnings they are making (Price/earnings ratio), many of the great businesses we like are at historic lows. It doesn’t mean they won’t go lower, but they are at a great point to buy into.

 

And that’s the type of thing that we are doing. For the portfolios I manage, we rebalanced earlier this month and we sold off some of the gains we’ve made in companies like Cenovus (which was up 96% YTD at the time) and Canadian Natural resources (which was up 60% YTD at the time) and bought into companies like Amazon and Apple: some of the companies that have attractive valuations I mentioned before.

 

So we stay invested because we believe the market will come back, and in the meantime we are taking advantage of some of the opportunities that are presenting themselves.