At Baskin Wealth Management, these are two of the most frequently asked questions:
- Is it a good time to invest?
- Don’t you think we should wait until the volatility calms before we invest?
We have been asked these questions every single year by hundreds of clients and prospective clients, and our answer is always the same: If you have a long investment horizon and can avoid checking your stock prices on a daily basis, then the best time to invest is when you have the cash.
Volatility is always present in the stock market. The day-to-day movement of stock prices can be random and often aggressive in the short run. Even the best quality companies can see their stock prices drop significantly for no good reason. If you can’t stomach the volatility, you shouldn’t own stocks.
If you are a long-term investor, with limited requirements for income from your portfolio, you can use volatility to your advantage to acquire high quality companies at marked down prices. If you are a net saver, you should invest in stocks with excess cash that is not required for day to day living. Sometimes you will pay too much in the short run, and sometimes you will get a great bargain but if you are willing to hold on to high quality dividend-growing companies, than your portfolio should grow over the long run.
A perfect example was the first quarter of 2016. January was the poorest start to the year for the S&P 500 ever. At one point during January, the S&P 500 was down 11.4% before rebounding by the end of the month. Unfortunately, the worst was yet to come. The S&P 500 fell even lower in February and then without warning the market started to rally. By the end of March the S&P 500 staged an impressive comeback and ended the first quarter of 2016 in positive territory. There was no way prevent the sickening feeling that many investors felt in January and February. However, long term investors were able to avoid the noise and acquire terrific bargains because they put their cash to work.
We continue to find high quality investment ideas in this environment and have more ideas than room in our clients’ portfolios. We are aggressively adding to existing holdings in both Canada and the US. We believe that a diversified portfolio of dividend-growing companies will outperform fixed income alternatives over the next five years. Many of our best performing investments have been held for years and most of those years were filled with volatility. We believe the companies that our clients own now will be good investments for many more years to come.
Barry Schwartz
April 11, 2016
