This has been a lousy summer for equity investors. The TSX can’t get any traction, and the S&P has given up most of its gains since the beginning of June. To add insult to injury, the Canadian dollar has grown very strong, gaining about 10% against the US$ over the summer, cancelling out any positive results from holding U.S. securities. Investors won’t find any comfort in bonds, as the fear of rising interest rates has clobbered bond prices.
Stock market results don’t always (or even often) mirror what is happening in the economy. In the real world, there is a lot to be bullish about:
– Corporate earnings in the U.S. are set to grow by double digits in 2017, and for the first time in many years, we are seeing decent revenue growth across a number of sectors.
– Canada’s economy is performing exceptionally well despite continued weak energy markets and concerns about a slowdown in home prices.
– The U.S. economy should show a nice rebound in 2017 (although a slowdown in auto sales and home construction bears watching).
– U.S. multinationals could see a lift as off-shore earnings rise when measured in U.S. dollars.
– Industrial metal prices are up 60% since January 2016. Copper, often seen as a proxy for industrial growth, has been very strong.
– U.S. manufacturers are seeing strong overseas demand, and Eurozone manufacturers have experienced a significant improvement in demand.
Global growth has picked up, and we are having no trouble finding lots of good companies trading at cheap to reasonable valuations.
So if the future looks so bright to us, why do some investors feel so nervous? We get calls and emails from clients who are hyper-focused on daily events. Hot topics of nervous conversation with our clients have centered around North Korea, Trump, all-time high stock prices in the U.S., a correction has to be around the corner, etc., etc. We also hear quite often from clients who are concerned “that times are just more uncertain than they have ever been.”
Is that really true? We believe that investors have to accept that the only certainty about investing is that the future will remain uncertain.
We want our clients to understand that just because so much information is readily available at our fingertips, doesn’t mean that the information is necessarily relevant or actionable, and nor does it help us predict the future. Once it is accepted that the future is both uncertain and unknowable, only then can we focus on what really matters for long-term investors.
What really matters in investing is what you can control. What you can control is what and when you buy, when you sell and the fees that you pay. That’s all. At Baskin Wealth Management, we focus on buying good companies with pricing power, good balance sheets, selling a product or service that is hard to duplicate. Then we try to buy these companies at reasonable valuations. We only sell when we have a better idea or when we realize we’ve made a mistake. We believe we charge our clients a very fair fee for service and only make trades when it’s appropriate.
Investing can be very frustrating. Short-term thinking can do damage to your portfolio. Even as professional investors, we suffer from the same short-term concerns that plague our clients. It is only through practice and discipline that we can all improve as investors.
Barry Schwartz
September 5, 2017
