The Difference Between Mostly Dead, and Dead

8463430_origThe first (and so far only) good day in the markets for 2016 shouldn’t go by without instilling some hope in us investors. The latter half of 2015 and the first weeks of 2016 have many convinced that the market bull is thoroughly dead, having exited stage left pursued by a bear (appropriate for January). The toll taken by worsening news out of China, falling oil, and the rising US dollar have left markets totally exhausted and despondent. But is the bull dead, or just mostly dead? Because there’s a big difference between all dead and mostly dead. In other words, is there a case to be made for a resurgence?

I am, by nature, a contrarian. I have an aversion to large groups of people sharing the same opinion. It strikes me as lazy, and inevitably many of the adherents don’t ultimately know why they hold the views that they do. They’ve just gotten swept up in the zeitgeist and now swear their intellectual loyalty to some idea because everyone else has. And when I look at the market today, I do think there is a contrarian case for a market recovery. Not yet, it’s too early, but there are reasons to be hopeful.

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This book had a big impact on me growing up.

First, let’s consider the reasons we have for driving down the value of most shares. Oil prices. The price of oil has come to seemingly dictate much of the mood. Oil’s continued weakness speaks to deflation concerns, and stands in for China. It’s price is undermining the economies of many countries, not least of which is Canada. It’s eating into the profits of some of the biggest companies around. It’s precipitous fall has lent credence to otherwise outlandish predictions about the future value. Yet this laser like focus on oil has eclipsed anything else that could turn the tide in the market. Other news no longer matters, as the oil price comes to speak for wider concerns about China and growth prospects for the rest of the world. In the price of oil people now see the fate of the world.

That’s foolish, and precisely the kind of narrow mindset that leads to indiscriminate overselling. The very definition of babies and bathwater. And negativity begets more negativity. The more investors fear the worse the sentiment gets, leading to ever greater sell-offs. Better than expected news out of China, continued employment growth from the US, and the fundamental global benefit of cheap energy are being discounted by markets today, but still represent fundamental truths about economies that will bring life to our mostly dead bull tomorrow.

Don’t mistake me, I’m not trying to downplay the fundamental challenges that markets and economies are facing. Canada has real financial issues. They are not driven by sentiment, they are tangible and measurable. But they are also fixable, and they do not and will not affect every company equally. The same is true for China, just as it is true for the various oil producers the world over. What we should be wary of is letting the negative sentiment in the markets harden into an accepted wisdom that we hold too dear.

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Put another way, are the issues we are facing today as bad or worse than 2011, or even 2008? I’d argue not, and becoming too transfixed by the current market sentiment, the panicked selling and the ridiculous declarations by some market analysts only plays into bad financial management and will blind you to the opportunities the markets will present when a bottom is hit and numbers improve.

So is the bull dead? No. He is only mostly dead and there is a big difference between mostly dead and all dead. We will navigate this downturn, being mindful of both the bad news and the good news. Investors should seek appropriate financial advice from their financial advisors and remember that being too negative is just another form of complacency, a casual acceptance of the world as it currently appears, but may not actually be.

Remember, the bull is slightly alive and there’s still lots to live for.

For over 20 years we have been helping Canadians navigate difficult markets like this, by meeting in their homes and discussing their personal situations around the kitchen table. If you are looking for help, would like a complimentary review of your portfolio, or simply want to chat about your finances, please contact us today.

Hyperbole and a Half: Terrible Financial Advice

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Walking into my office this morning I was bracing for yet another day of significant losses on global markets. It’s a tricky business being a financial advisor in good or bad markets. But seeking growth, balancing risk, and managing people towards a sustainable retirement (a deadline that looms nearer now with every passing year) only grows more challenging in terrible markets like the ones we are in.

In some ways it can seem like divining, working out which thread of thought is the most crucial in understanding the problems afflicting markets and panicking investors. Is the rising US dollar enough to throw off the (somewhat) resurgent American manufacturing sector? Has China actually successfully converted its economy, and is no longer requiring infrastructure projects to drive growth? Is oil oversold, and if so should we be buying it?

Aiding me in this endeavor is the seemingly boundless supply of news media. There is never a moment in my day where I do not have some new information coming my way providing “insight” into the markets. The Economist, the world’s only monthly magazine that comes weekly, begins my day with their “Economist Espresso” email I get every morning. No wake-up period is complete for me without glancing at the Financial Times quickly. My subscription to the Globe and Mail and the National Post never go unattended. Even facebook and Reddit can sometimes provide useful information from around the planet. After that is the independent data supplied by various financial institutions, including banks, mutual fund companies and analysts.

So what should you do when the Royal Bank of Scotland (RBS) screams across the internet “Sell Everything Before Market Crash”.

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The answer is probably nothing, or at least pause before you hit the big red button. It’s not that they can’t be right, just that they haven’t exactly earned our trust. RBS, if you may recall, was virtually nationalized following losses in 2008, having 83% of the bank sold to the government. In 2010 despite a £1.1 billion loss, paid out nearly £1 billion in bonuses, of which nearly 100 went to senior executives worth over a £1 million each. In 2011 it was fined £28 million for anti-competitive practices. In short, RBS is a hot mess and I suppose it is in keeping with it’s erratic behavior that it should try and insight panic selling the world over with a media grabbing headline like this.

I may be unfair to RBS. I didn’t speak to the analyst personally. The analyst was reported in the Guardian, a newspaper in the UK whose views on capitalism might be best described as ‘Marxist’, and inclined to hyperbole. It’s not as though I am not equally pessimistic about the markets this year, nor am I alone in such an assessment. But it should seem strange to me that an organization whose credibility should still be highly in question, who undid the financial stability of a major bank should also be trusted when calling for mass panic and reckless selling.

The analyst responsible for this startling statement is named Andrew Roberts, and he has since followed up his argument with an article over at the Spectator (I also read that), outlining in his own words the thoughts behind his “sell everything” call, essentially spelling out much of we have said over the past few months in this blog. I find myself agreeing with much of what he has written, and yet can’t bring myself to begin large scale negation of sound financial planning in favour of apoplectic pronouncements that are designed as much to generate headlines and attention as they are to impart financial wisdom.

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The point is not to be dismissive of calls for safety or warnings about dire circumstances. Instead we should be mindful in how we make sense of markets, and how investors should approach shocking headlines like “sell everything”. I am not a fan of passive investing, the somewhat in-vogue idea that you can simply choose your portfolio mix, lean back and check back in once every decade for a negligible cost. I advocate, and continue to advocate for ongoing maintenance in a portfolio. That investors must be vigilante and while they should not have to know all the details of global markets, they should understand how their portfolios seek downside protection. My advice, somewhat less shrill and brimstone-esque , is call your financial advisor, discuss your concerns and be clear on what worst case scenarios might mean to your portfolios and what options are available to you. If you don’t have a financial advisor, feel free to reach out to us too.

Concerned about the markets and need a second opinion? Please drop us a line and we will be in touch…