August and September have been tough months for Canadian investors; in fact tough for investors pretty much everywhere. The correction that everyone “correctly” predicted since the stock market started to recover in 2009 finally happened. There really has been no place to hide. As of September 11, 2015, pretty much every major asset class was showing a negative performance for the year. The graph in this link spells out the sorry story. http://www.capitalspectator.com/negative-momentum-weighs-on-all-the-major-asset-classes/ . The theme of the past few years was to trumpet how much money you made in stocks. Now it’s look how smart I am, I only lost this much.
In times of market stress, investors can get dumb advice and take even dumber actions. There was an article in a Canadian newspaper this weekend recommending that investors look into selling Call options, buying Put options, or shorting stocks. That’s not advice for protecting your portfolio, that’s advice for blowing it up. One of the great challenges in bad markets is to avoid doing stupid things. This is where experience and a well-thought-out investment plan really come to the fore.
Unfortunately, this isn’t the first bad market that Baskin Wealth Management and its clients have lived through and it won’t be the last. We don’t predict what will happen to the market but we are always prepared. Here’s how we structure our portfolios and what we do when the bear roars.
• We don’t sell stocks just because the price has gone down. We purchase stocks based on fundamental business analysis. Over the short-run anything can happen, but in the long run, value will always surface.
• We maintain a diversified portfolio of at least 20 companies across a number of different industries.
• We don’t increase our trading. Buy and hold is our core belief. Our best investments are ones that we have held but constantly monitored over the long run.
• We own shares in companies that produce products and services that people use every day. Our companies have conservative balance sheets, generate ample free cash flow and use that cash flow intelligently to compound shareholders’ capital.
• We keep an on-deck roster of companies that we would love to own at better valuations. So if the market presents an opportunity, we pounce and don’t hesitate to trade up.
Above all, understand the difference between investing and trading. Traders suffer the daily ups and downs of the market and must make hundreds of decisions. Investors can sail serenely above the volatility, confident that a time-tested strategy we will see them safely through the storm.
Barry Schwartz September 28, 2015