Dear Volatility
You may have noticed that things have been looking quite good lately with regards to your accounts. The markets have been steadily growing over the past couple years in what would seem to be a worry free environment. Events that would typically spook the market have had very little effect, such as Brexit, Korean missile launches or the surprise win by Donald Trump.
We wanted to take a moment to remind everyone that although most portfolios are doing well, the market still goes down at times. We are hopeful that this edition of the Martens Report will prepare you for any volatility that will arise at some point in time… and even embrace it. Typically volatility is unpleasant but a very healthy part of investing. So, you might be asking where we are going with this. We have just stated that we will have an eventual negative period in the market. Why not move everything into GICs and Cash? The reality is that trying to time the markets is next to impossible. We have no insight into when volatility will occur or how big the swings will be. We could even continue to rise significantly from here, before that eventual 10% or 20% correction even occurs. The legendary investor, Peter Lynch was once quoted saying that “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” We are suggesting you do nothing drastic to your portfolios. The reason for this is the investment process the majority of your fund managers use perform well through times of volatility. At the moment, many of our clients' top holdings have an extra cushion of cash in the portfolio, or stocks that would typically be viewed as more stable - they are prepared. We also fully expect they have a list of several companies they are very interested in owning, but, due to the higher prices of these stocks it makes no sense to start buying at the moment. A correction in the market would present the opportunity for your managers to begin buying the companies they are watching right now. It would be an opportunity for them to revamp the portfolios for future growth. Unfortunately this only really occurs when we experience some volatility. We would like to leave you with an excellent piece from the management team at EdgePoint Wealth who wrote a letter to their missing friend ‘Volatility’ titled Dear Volatility. It is a very short and easy article and I encourage you to take a minute to read it. While the title is a little bit tongue and cheek, they discuss how their firm actually loves periods of volatility and has seen their greatest periods of outperformance when times are more volatile. As always if you have any questions about your portfolio please feel welcome to contact us any time. Sincerely, Andrew & Peter