A statement that usually turns out to be true and also the title of an article I will reference in today’s letter. Recent downward moves in the market cause people to question their investments and comfort level in the very short term. I have never understood how short term negative moves trigger extreme emotions while positive moves in the investment markets never have the same effect. Obviously I say that a bit wryly as we all know fear is a much more powerful emotion than greed.
At times like this it is extremely important to have a longer term perspective and remember most abrupt changes in the market are temporary whether extremely negative or extremely positive, the latter being less noticed when the moves are in the right direction. Our long term goals and strategies have not changed and portfolio construction is designed to be balanced in expectation of times like these. We have been discussing for a better part of the last year how it is possible to see additional volatility, a market correction or simply a short term decline in the future after seeing strong upward movements in the markets since April of 2020. This appears to be happening to the stock market and bond investments at the same time although we certainly didn’t predict the timing or any of the factors that have led to this other than our expectation of interest rates moving back towards previous levels prior to Covid. That is impossible.
As we have seen a shift away from only Covid-19 news in the early part of this year, the buzzword has been about inflation and then the added geopolitical risks with war in Ukraine. More recently the buzzword has become recession which invokes an even greater degree of negative emotions in investors. Recessions do not generally start at the snap of the finger. It usually takes time before recessions are realized and sometimes they never do occur when predicted. We still don’t know the outcome of rising interest rates, improving supply chains or how the war in Ukraine will impact the economy in the short to medium term. Predictions of an immediate and harsh recession so far are just that – predictions. Time will determine whether we are moving in the right direction in regards to inflation but as always it will require patience.
The following link is to a well written article this past week by Michael Antonelli, managing director and market strategist with Baird in the United States. It is a short read and worth the time as it focuses on dealing with the emotional impacts of negative market movements such as this.
Scott L. Bjornson, CIM®, CFP®, FMA, FCSI®, CPCA
Senior Investment Advisor
A few more timely words from Warren Buffett…
“Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.” / “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.” / “Stop trying to predict the direction of the stock market, the economy or elections.”
This information has been prepared by Scott Bjornson who is a Senior Investment Advisor for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Senior Investment Advisor can open accounts only in the provinces in which they are registered. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates. Insurance products are provided through iA Private Wealth Insurance, which is a trade name of PPI Management Inc. Only products and services offered through iA Private Wealth Inc. are covered by the Canadian Investor Protection Fund.