Having managed professionally for over three decades, those of us at Goodreid have learned a few lessons. One of the most important teachings of the market is to live with, and respect, the process. Economies and their pricing tool, the equity market, naturally cycle, searching and adjusting to reach a perfect balance between supply and demand. Throughout this process the system spends almost all its time out of whack, with either a growth or contraction bias. Living with this imbalance means accepting with grace and having peace of mind during both upcycles and downcycles.
That said, investors would have to be robots not to experience some greed and fear emotional impulses during bull and bear markets. Professional management helps to curb that, by you being one iteration away from the management of your wealth. In addition, partnering with an investment firm that has experienced all this before…. many times, is comforting.
It is said that there is a price for everything. In the investing world the price for an expanding economy and rising market is greater risk. Valuations become stretched, investors rely on stock momentum more than fundamental analysis, and debt levels increase. As the air comes out during tough economic times and a bear market, there are the necessary casualties, but most of us who respected the process will be the beneficiaries of a new economic cycle and with it a new bull market, full of opportunity. What is required is patience and perspective.
Bear markets, such as the one we are now in, last an average of 9 months, with those associated with recession lasting longer, at 19 months vs. those without an economic recession at 6 months. The key point is that they are not terminal events. They are a part of a cycle. By the time a recession is officially declared, bear markets are often over. This is because markets are forward indicators pricing future cashflows, not the past or present.
While we at Goodreid do not claim to have a crystal ball and cannot predict the date or level of the bottom of this bear market, we are confident that we are well into it. Necessary market damage has been inflicted. The gambling cohort has largely capitulated. The selling feels overdone and is at historic levels. But markets have a way of humbling investors and “oversold” can become “more oversold.”
Negative investment returns during bear markets must be expected and accepted. That said, we follow our strong disciplines of owning quality companies with above average earnings growth prospects and compelling valuations. This allows us to add relative value regardless of the environment. Certainly Goodreid’s performance for a balanced client during this bear market has relinquished a portion of last year’s gain, but it has outperformed our peer group benchmark index, and is just one step in the investment journey. To create a fair performance perspective multiple cycles must be considered. The result is decidedly favourable.
We are excited with the opportunity within our portfolios. As the economy recovers, we expect many of our companies to shine and for their share prices to reflect their promise.
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