Market Commentary

April 2020 Update

We are more often frightened than hurt; and we suffer more from imagination than from reality. – Seneca

 Widespread fear is your friend as an investor because is serves up bargain purchases. – Warren Buffett


Markets
I am pleased to report each of the four portfolios outperformed their benchmarks again in March. As of the time of writing, Growth and Income outperformed the TSX Index by about 7% and 6% respectively, Small Cap outperformed by about 12%, and American Growth was flat on the month, outperforming by about 10%. We’re now back to outperforming the Canadian markets over the last year and since inception. Our systematic investment approach worked exactly as designed, first protecting capital as the market fell, then getting reinvested once signs of a bottom materialized in certain stocks. I took advantage of the volatility to buy high quality companies at a discount, and also re-position portfolios in the event there’s more volatility ahead.

I am optimistic on the rest of the year. In the short term, social distancing measures are working to contain covid in western countries. Data from North America and Europe show that while the absolute number of cases continues to increase, the rate of increase is slowing. Further, an unanticipated affect of lockdown is that overall mortality, including covid, has dropped in North America. There have been materially fewer car accidents, fewer workplace injuries and so on. The resulting saved lives, apart from being a good thing in its own right, is good for the economy too.

In the medium term, testing capacity is advancing rapidly, and treatment regimes are emerging, making a safe return to work foreseeable for those in lower risk categories in the not too distant future.

In the long term, central banks and world governments have never been so coordinated in responding to a crisis. Within a matter of two weeks, about $4trillion USD was committed to world economies, with additional resources still in the works today. For reference, during the Great Financial Crisis of 2008, it took almost two years before an $800billion stimulus was deployed. The world has never seen this much liquidity injected at once.

Taken together, if the current pace of containment can be sustained, and a back to work roll-out in North America follows from June forward, then the effects of the stimulus on a re-kindled economy will be significant. It is within the realm of possibility that, especially in an election year, we might see markets back at their highs, or possibly higher. Quantitively speaking, there is enough bearish market sentiment to fuel a rally of that proportion.

While optimistic, I also recognize many challenges ahead, including employment, small business closures, debt/rent service, and the possibility of a second wave of infection. While any one of these challenges could result in the market revisiting lows, there will be some stocks that brush off the gloom. Its important to remember that in every market correction and bear market there are always a select group of stocks that ignore the headlines and move higher. They tend to share a simple but powerful set of characteristics such as positive price trend, growing earnings, growing cashflow, and good balance sheets. That’s where we’re invested today to protect and grow.

Financial Planning

For this month’s financial planning idea please visit this link at my website reiterating the new government financial support programs available for Canadians.

Recommended reading
A thoughtful opinion on how covid accelerates our economy towards knowledge based, monopoly businesses https://onezero.medium.com/coronavirus-is-speeding-up-the-amazonification-of-the-planet-21cb20d16372

 A fund manager describes how covid exposed issues in the way markets operate (outside of fundamental factors), and how to take advantage of it https://www.logicafunds.com/policy-in-a-world-of-pandemics

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