You can read Part I of our Coronavirus coverage here
You can read Part II of our Coronavirus coverage here
What Happened Today?
The Toronto Stock Exchange Composite Index (TSX), Canada’s main stock index fell on Monday by the most since the 2008 global financial crisis and the loonie hit a near-three-year low caused by a large drop in oil prices.
The TSX unofficially closed down 1660 points, or 10.27 per cent, at 14,514, its biggest drop since December 2008, as Saudi Arabia and Russia signaled they would compete on price rather cut output further.
The energy sector, which accounts for 15% of the TSX, fell as much as 34% to its lowest level since February 2016, at $27.34 a barrel.
Across the border, U.S. markets did not fare much better. The S&P 500 and DOW closed down almost 8% for the day.
The drop for both Canadian and U.S. markets since their February 20th peaks stands at around 19%. The TSX has pulled back to its January 2019 valuation and the U.S. markets have pulled back to their June 2019 levels.
Parts I and II provide additional historical perspective on epidemics and market declines in general.
The Key Message
The key message we want to make to all households is we do not have to be reactive to this issue because we proactively construct diversified portfolios and we favour higher-quality investments to limit downside in these moments.
If you have come for an annual review at any point during the past 2-3 years, we have warned against rising market valuations and the need for caution.
The biggest market casualties of the coronavirus have been tourist sensitive industries like airlines (some of which are down 40% since January) or cyclical industries like energy (many oil stocks are down over 50% since the start of the year). In contrast, a typical diversified growth-oriented portfolio is down around 11-12% since the values peaked last month, and portfolio balances are back to where they were in the spring of 2019.
Quotes from Around the Industry
The situation with the Coronavirus is evolving quickly and there is little use trying to make any market projection related to this. For now, we’ll leave you with some relevant quotes from around the industry.
Please don’t hesitate to contact us regarding your portfolio.
Humble Dollar
“Trust me: No matter how much you fret over [coronavirus] issues, you will not come up with answers that will help you make more sensible investment decisions. So what should you do? … First, if history teaches us anything, it’s that great investment gains go to those who are diversified, optimistic and patient… the only folks who should feel any pressure to sell are those who have money in the stock market that they’ll need to spend in the next five years.”
Periods of extreme market volatility are a severe test of investors’ emotional equilibrium and the potential for emotional mistakes climbs significantly. Many times, the best thing to do is nothing, as hard as that may be.
Edgepoint
Rest easy – you own great businesses
The bottom line is that we aren’t losing sleep at night over headlines related to the virus, the Fed cutting interest rates or what GDP growth will be next quarter. Our focus is firmly on the long-term fundamentals of the businesses that we own. In our opinion, the long-term fundamentals of your businesses remain strong. As many of you know, we invest behind our convictions. The internal partners at EdgePoint collectively hold $322 million in company-related Portfolios – the same Portfolios you own. These attractive fundamentals help us sleep well at night and they should help you, too.
Link to full article:
https://edgepointwealth.com/en/Insights/Simply%20Put/What%20helps%20us%20sleep%20at%20night#
Nick Murray (Fidelity)
Today – March 9 – is the eleventh anniversary of the crescendo of global panic that marked the bottom of the bear market of 2007-09.
It is to me a thing of the most wonderful irony that the world has elected to celebrate this iconic anniversary with – you guessed it – another epic global panic attack.
At this morning’s opening level of 2,764, the S&P 500 is down over 18% from its all-time high, recorded on February 19. Declines of that magnitude are fairly common occurrences – indeed the average annual drawdown from a peak to a trough since 1980 is close to 14%.* But such a decline in barely a month is noteworthy, not for its depth but for its suddenness.
As we all know by now, the precipitants of this decline have been (a) the outbreak of a new strain of virus, the extent of which can’t be predicted, (b) the economic impact of that outbreak, which is equally unknown, and (c) most recently, the onset of a price war in oil. (That last one is surely a problem for everyone involved in the production of oil, but it’s a boon to those of us who consume it.)
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 putting cash to work along in here.
On March 3, the erudite billionaire investor Howard Marks wrote, “It would be a lot to accept that the US business world – and the cash flows it will produce in the future – are worth 13% less today than they were on February 19.” How much more true this observation must be a week later, when they’re down 18%.
Be of good cheer. This too shall pass.
Mackenzie Bluewater Team
The market is creating dislocations and we are taking advantage of them. We always have an ongoing wish list of businesses we would love to own, and most often the reason we do not is valuation. In the last few weeks we have been able to add two new names to the funds with superior growth trading at a greater than a 10% discount to fair value. This is always a good starting point for initiating a new name. We acknowledge that the market could still decline which is why we are building these positions daily whenever we get further downdrafts. We think dollar cost averaging is a good strategy at times like these.
We invest in companies that are less cyclical, have strong balance sheets, generate significant excess cash flow, meaning dividends are secure. We refer to these as strong, steady compounders. These are the kinds of businesses whose operating performance should hold up well through this kind of event, as they are less dependent on the overall economy to grow. We cannot point to a time when a market downturn did not give investors an opportunity to generate good mid to long term returns.
Sources: Financial Post, Edgepoint, Fidelity, Mackenzie, Humble Dollar