January 21,2016

Market turmoil underscores value of long-term planning

It’s challenging – we know.  If you are following the markets, and frequently checking your account balances, it’s not easy to turn off your emotional response to what has been happening.  Once again, market turmoil underscores the value of having a long-term plan in place.  Your strategy will provide the framework that can help us keep perspective during tough times like these.  A long-term strategy can prevent you from making hasty decisions that you may, in time, regret.  For example – one of the worst things an investor can do when ‘the sky is falling’ is panic and abandon ship.  If you get out of the market altogether while waiting for things to stabilize, there is a good chance you are going to miss out on a rebound once it happens.  Buying high, and selling low has never been a solid investment strategy.

Nobody has a crystal ball for these matters.  We do not know if the market uncertainty is going to continue, or how long the current conditions will last.  And we certainly do not know when the markets are going to bounce back, but (at some point) they have always done so in the past.

Along these lines, we wanted to share the following excerpt that was sent to us by Great-West Life, created by GLC Asset Management Group.  (full commentary can be found here: Weekly Market Snapshot 1-15-2016) It does a fantastic job of expanding on these concepts about maintaining perspective and acting in accordance with your long-term financial plan or investment strategy.  Instead of reacting to what is currently happening, and making a decision that you might regret down the road, try to remain objective.  (And as we stated at the beginning: It’s challenging – we know.)

Courtesy of GLC, via Great-West Life:

A volatile start to 2016

Capital markets in 2016 have begun on a negative tone. Global equities and commodity prices have continued to fall throughout the first few weeks of January. Worries about soft global growth (led by concerns over China’s slowing economic growth), the sharp drop in crude oil prices, and geopolitical unrest are noted frequently as contributing to the ongoing sense of uncertainty and to poor investor sentiment. While headlines are becoming more dramatic and dire, we do not think this is a repeat of 2008 crisis (particularly in the US) and we caution against any knee-jerk reactions to dramatic headlines.

Keeping perspective

To help you put market conditions in perspective, here are some key excerpts from GLC’s most recent Weekly Market Snapshot (released January 18, 2016), in which Ron Hanson, Chief Investment Officer at GLC discusses current market conditions and provides his perspective on where the opportunities and challenges lie ahead.

“It is most definitely a difficult environment and a cautious approach is warranted. However we do not think this is a repeat of the 2008 crisis, particularly in the US. Both the US consumers and the US financial system are in much better shape now. US economic growth is not robust but we believe the probability of recession this year is still relatively low…

[Referencing the Canadian market] “Going forward, to get more constructive, we will need to see some stabilization in the oil price. With the bears firmly in control it will likely be several months before supply declines to the point where prices can start to turn meaningfully. In the meantime, it is probably prudent to start thinking about putting some money to work in areas that have been severely punished, have strong business models and solid balance sheets that will ensure they weather the current storm. As Warren Buffet said “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

“Meanwhile bond investors are relaxing in the front row clipping low coupons and watching bond prices rise. The 10 year government of Canada Bond yield hit all time lows closing the week at 1.15% while US 10 year rates dipped down near 2%. This is yet another reason for (and good reminder of) the importance of diversification.”

“Given the magnitude and speed of the current equity decline, markets are oversold on many measures; hence the prospect of a technical bounce is likely. Nonetheless, it is certainly prudent to be cautious but we also know that it is in these periods of downside volatility where the greatest opportunities lie. As the old market saying goes “When they’re yellin’ you should be sellin’, and when they’re cryin’ you should be buyin’.”

Staying on track to meet your investment goals

The key to investing in turbulent markets is to avoid making hasty decisions that are mis-aligned with your long-term financial goals and could seriously set back your plans of achieving those goals.  As professional money managers we recognize that stock markets move in cycles, and throughout these cycles our role remains largely unchanged – stay focused on buying investments that compensate you for their commensurate risk, and generate excess return over the long run. Staying disciplined in our investment processes (i.e. avoiding the knee-jerk reactions), and taking an objective view of the markets and the economic conditions driving the markets is how we stay focused.

Likewise, whether 2016 goes down in the history books as ‘the year the markets soared’ or ‘the year the markets soured’ is not in any one person’s hands. But you can choose to make 2016 ‘the year you were glad you had (and stuck to) a long-term investment plan”. Now is the time to re-confirm that your investment portfolio is aligned with your risk tolerances and long-term goals. And now is the time to realize the benefits of professional portfolio management (experts with the time, tools and experience to navigate market risks and capitalize on market volatility), diversification (particularly in volatile markets), and rebalancing strategies (to stay within risk tolerances) to keep you on track with your investment goals as markets move, shake and make their way through what may turn out to be another interesting year in capital markets.

The views expressed in this commentary are those of GLC Asset Management Group Ltd. (GLC) as at the date of publication and are subject to change without notice. This commentary is presented only as a general source of information and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax or legal advice. Prospective investors should review the offering documents relating to any investment carefully before making an investment decision and should ask their advisor for advice based on their specific circumstances.