This year has been filled with ups and downs. And then some more downs. After some fairly strong performance through the first two years of the pandemic, markets began a significant retreat, particularly in the areas of technology though all sectors of the market have been affected.
Going hand in hand with these market declines have been a host of real economic problems including (but not limited to) inflation that’s proved to be sticky, a sharp rise in interest rates to curb that inflation, and the looming potential of a significant economic slowdown. On top of all that, geopolitical tensions have continued to rise over the past few months. While the pandemic was one thing that occupied everyone’s thinking while offices were closed and children studied at home, the receding pandemic has revealed all the persistent issues that were pushed to the back of our minds while the one VERY BIG THING happened.
Russia’s invasion of Ukraine, ongoing and maybe even heightened tensions with China over its claimed disputed territories, the recent brutal and deadly heat waves that swept Europe, the United States and Asia, worries about food and energy shortages; the end, as historian Dan Carlin says, is always near.
So perhaps it shouldn’t be surprising that on the back of all this negative news, Bloomberg reported that Consumer confidence in Ontario was as low as it had been in March of 2020. Unsurprisingly this happened to coincide with a low point on the TSX so far in the year, with oil prices dropping after having kept the TSX afloat through much of the first few months.
Investors are not crazy for being worried. In addition to turbulent markets, our economies are in flux, and the geopolitics of right now are intimidating. But investors should be reminded that it is when pessimism is high that opportunities tend to be better. As Warren Buffett famously said “be fearful when others are greedy, and greedy when others are fearful.” As an investing philosophy it may lack nuance, but offers some sound advice about the madness of crowds.
I suspect few would be willing to throw all their chips into a strategy as bold as Buffett’s maxim, but that’s probably true of Buffett himself who does considerable research on his acquisitions. As is often the case investors must chart a course that works for them, balancing the needs of their investment goals with the risks they can stomach. What Buffett’s words should remind us of is that markets aren’t “bad and good” so much as they represent shifting terrain of opportunities that can only be recognized by a cool head. Turbulent markets and uncertain times that prompt emotional responses from crowds are not good guideposts for our own decisions.
There is much still lying ahead of us, and the global economy has many vulnerabilities, from debt crises in the emerging world, Canada’s own vulnerable housing market, and the absence of a history successful “soft landings” by central banks when trying to curb inflation. It would be wrong to assume that simply because sentiment turned very negative that we’re on the other side of a market correction, and it is interesting to note that even as markets have been bracing for a worsening economic situation, US employment numbers have remained strong, and signs of inflation have been receding. The world is unpredictable, and good decisions are rarely made by a crowd in mass panic.
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