Dave’s fall 2020 update

First I want to give you an update about my business meeting processes. After 27 years and three office locations I was already thinking about shifting to a flexible office model when the pandemic came along and forced my hand. As of now and until the pandemic is over I will be doing meetings by video conferencing applications including Zoom, Microsoft Teams, Skype, Duo or WhatsApp and my backup will be a traditional phone call. My lease at the office on Lancaster Road is up at the end of this year but I have already started packing it up. Related to this, over the last year Carole and I built what we believe to be our forever house on the same lake as our long-time family cottage just over 100km north of Ottawa and we will be spending much of our time there year-round including much work time. It is truly amazing what can be done thanks to the innovation of the internet! Hopefully some clients will one day take a day trip into the countryside and enjoy a visit with us combined with a business meeting.

On December 1 Carole and I will be moving our city home to the Frontier apartments at Blair Road and the 174, close to where our office has been since 1993. Not only will I have a room in the lovely apartment that will be my fixed office and where I can meet clients but the building has a meeting space I can book that includes a board room table and lounge, so I expect to hold many client meetings and future modest-sized client education events there. The building is brand new and we will have a 15th floor view of the west and south portion of eastern Ottawa. Some future client meetings will of course take place at your home, work or another convenient location but I expect a permanent shift to holding a portion of meetings online, saving your precious time and mine.

Second, I want to address the state of the world and your investments. In late March 2020 as the pandemic set in I said: “The common thread here is unknowability: we simply don’t know where, when or how these phenomena will play out. And in my experience, the thing in this world that markets hate and fear the most is uncertainty. We have no control over the uncertainty; we can and should have perfect control over how we respond to it. Or, ideally, how we don’t respond. Because the last thing in the world that long-term, goal-focused investors like us do when the whole world is selling is – you guessed it again – sell. Indeed, I welcome your inquiries around the issue of adding to your investments if possible.”

I am pleased and proud to report that even though vast sums of money were withdrawn from the equity market around the world during a period of depressed prices in March and April, not a single client of mine withdrew one dollar other than as a part of normal spending plans and thus not one client experienced a loss – any loss. A price fluctuation only becomes a loss when a sell transaction is placed. A number of clients were able to add to their investments in March and April and their rate of return for this year has seen a boost. Many clients have monthly investment plans and so were able to buy at low prices. Many accounts were auto-rebalanced in March, June or September and this will also have improved returns as rebalancing sells a little of what has done the best and adds to what is presently weakest.

Now here we are six months later and the coronavirus is still very much with us, as is much of the economic dislocation occasioned by the resulting lockdowns and restrictions on freedom. Granted, we are seeing a number of vaccines developed and some already awaiting regulatory approval but it may be quite some time before most of us will get access to a vaccine and frustration with delays of all sorts will continue. Moreover, in the coming weeks we will have to go through a hyperpartisan U.S. presidential election that will certainly be touted as the newest apocalypse in a never-ending series.

I may have told you before that I never watch the news (especially investment market news) and feel this results in a vastly improved state of mind and objectivity. If I happen across the news I view it like a sitcom, seeing how utterly ignorant the political and media classes are about basic economic and financial principles and marveling at how challenging it is for my clients to overcome the great miasma of harmful misinformation they are bombarded with daily. Rather, I read some news with a variety of perspectives and take all of it with a big dose of skepticism. I do read many books that condense the life’s work of good thinkers and find these to be of inestimable value when compared to the absolute junk that passes for most news and journalism these days.

So before we’re further engulfed by these multiple unknowns, I want to take a moment to review what we as investors should have learned—or relearned—since the onset of the great market panic that began in February/March and that ended when the S&P 500 Index in the U.S. regained its pre-crisis highs in mid-August.

The lessons, it seems to me, are:

• No amount of study of economic commentary and market forecasting can prepare us for really dramatic events, which always seem to come at us out of deep left field. Thus, trying to make investment strategy out of “expert” prognostication—much less financial journalism—always sets investors up to fail. Instead, being guided by a caring advisor based on a long-term plan and working that plan through all the fears and fads of an investing lifetime keeps us on the straight and narrow and helps us to avoid sudden emotional decisions.
• The U.S. equity market went down 34% in 33 days. None of us have ever seen that precipitous a decline before—but with respect to its depth, it was just about average. That is, the S&P Index has declined by about a third on an average of every five years or so since the end of WWII. But in those 75 years, the S&P Index has gone from about 15 to where it is now, above 3,000. The lesson is that, at least historically, the declines haven’t lasted and long-term progress has always reasserted itself.
• Almost as suddenly as the U.S. market crashed, it completely recovered, surmounting its February 19 all-time high on August 18. Note that the news concerning the virus and the economy continued and continue to be dreadful, even as the market came all the way back. I think there are actually two great lessons here. (1) The speed and trajectory of a major market recovery very often mirror the violence and depth of the preceding decline. (2) The equity market most usually resumes its advance, and may even go into new high ground, considerably before the economic picture clears. If we wait to invest before we see unambiguously favorable economic trends, history tells us that we missed a very significant part of the market advance.
• The overarching lesson of this year’s swift decline and rapid recovery is, of course, that the market can’t be timed—that the long-term, goal-focused equity investor is best advised to just ride it out.
• These are the investment policies you and I have been following all along, and if anything, our experience this year has validated this approach even further.

As always, I’m here to talk any and all of these issues through with you; that’s my job.

Thank you, as always, for being my clients. It is a privilege to serve you.