What a crazy month it has been…
One of my strongest childhood memories is from 1984, the year I turned 10 years old. I had spent the weekend obsessively playing a video game on my brand-new Commodore 64 computer, in all of its 8-bit glory. I don’t remember what the actual game was today – only that it had a monster-like character, and that night, when I went to bed, I had an intense and vivid nightmare in which the monsters from the game were coming down the highway that entered my small town.
I woke up in a panic, drenched in sweat, and immediately looked out my bedroom window. Other than a single car travelling at 2 a.m. down the highway the better part of a kilometer across the field, all was still. No monsters in sight.
That didn’t matter to me though – I bundled myself up in my covers, buried myself so no monsters would see me, and huddled sleeplessly in the cocoon I had created for my own security. I think it took me nearly a year before I could fall asleep without being cocooned. Regardless of the irrationality of my own thoughts, the reptilian part of my brain had activated, and I believed that the monsters would come as soon as my eyes were closed.
Thirty-six years later, I sit here today with that image in my mind. In 1984, HIV had just been isolated for the first time and definitively connected to the AIDS epidemic. It is hard to imagine today, with HIV being a serious, but treatable condition, but back then, many people lived in irrational fear about even coming into contact with an HIV-positive person. Three years later, in 1987, princess Diana took the hand of a HIV-positive patient in a well-publicized moment of compassion, shocking a world in which even the nurses wore gloves when making physical contact with AIDS patients. Such fear, with the hindsight of three-and-a-half decades, seems incredible to us today.
And yet…. here we are today with COVID-19* affecting stock markets. I can’t help to think back to the parallels to my 10-year-old self, and the world’s initial fear of HIV.
After this week of bad news, I’m sure we would all want to hide in our respective cocoons. That is, ultimately, how our brains react to uncertain news.
I write this note after one of the most tumultuous weeks in investment history and certainly the most challenging week in over a decade by just about any measurement. Markets around the world have dropped 30 to 35% around the world and I am sure they will continue to gyrate for some time. Ultimately, as much as we would like to say that markets behave rationally, the truth is that when faced with the unknown, markets behave like the humans who run them. Sometime reptile brains take over and, like my 10-year-old self, they behave irrationally and fearfully. Ultimately, markets do poorly when the future is uncertain.
There is no doubt in my mind, the events of the last couple of weeks ultimately come from a place of fear. That said, I see many positive things going on. Governments around the world are taking steps to stop the spread of COVID-19 and inject financial liquidity into their respective countries – including a massive $82 Billion package announced today in Canada. Like every other pandemic, it’s hard to put a value on businesses when the impact is uncertain. One thing is clear, however, pandemics do not last forever and, more importantly, historically, those who stay invested, and those who add to their investments during the bottoming of stock markets, have the potential to do the better in the long term.
If your time horizon for your investments is long term, don’t stress about current events. While we can’t predict what the future holds for COVID-19, historically, markets impacted by unusual events have recovered.
In any market downturn, if you have a long-term investment horizon, staying invested has been by far the best strategy. Often, when markets rebound, they do it suddenly and trying to time the markets is nearly impossible. Missing just a few of the up days can mean a significantly longer recovery period for your investments.
Be smart: play the long game and stick to your investment strategy. Depending on your risk profile, you may consider moving some extra funds into the market in times like these. Again, we can’t predict the future – but the past suggests that moving money into bear markets in stages way over the next little while (to avoid the day-to-day volatility) has the potential to help grow your wealth.
One of my favourite books is a terrific thing to pick up and read in the midst of all of this: The Ascent of Money by Niall Ferguson, a UK historian. Ferguson covers over 1000 years of investment history, putting market swings in a much bigger context than anyone else I have read. If you find yourself isolated at home, it’s a very entertaining and informative read. Amongst other things, you’ll learn about the Dutch Tulip investment bubble, and the Medici family, who basically invented the bond market, and used the fortune they made to patronize the arts and music. One family member even became the Pope. The Ascent of Money is a fantastic read for all of us as we shelter at home in the next few weeks. I’ve even started re-reading it myself this week.
If you don’t have time for a lengthy book, you can also read this great short article by GLC asset management with contains a fantastic graph of the last 70 years of the bull and bear markets to give context to the many market ups-and-downs of the past.
In the meantime, if you are a client, feel free call me if you have any questions on your investments. We’re trying to be in regular contact with everyone we work with to provide information and updates, but as you can imagine, it’s a big job. We will never be too busy to talk, so by all means call us.
If you aren’t one of our investment clients, live here in Ontario, and you haven’t heard from your investment folks, I’d be more than happy to chat with you and take a look at where you stand in the bigger picture.
We’re here when you need us.