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Our Thoughts on the Recent Volatility in the Canadian Market
Posted on January 22, 2008 at 1:29 pm
Filed Under Financial Markets, Financial Planning, Investment Planning, Retirement Planning
With the very real losses the Canadian market saw on Monday, many investors are looking for answers.
Rob Carrick wrote an amazing article on the volatility of the Canadian market, and I truly believe it is a “must read”. He comments on the response that most investors are taking and how that could severly effect the value of their future portfolio.
Your Take-Away: Although it is impossible to know the outcome and length of this current downward slide, it is possible to look at the history of the market to help us determine what our response should be. In fact, when writing this post alone, the TSX has already bounced back by 351 points over yesterday’s losses.
Below are seven points that will help you further undertand both the market, and our current perspective of what is and has been happening.
1. Corrections are a normal part of a healthy market and they present opportunities for long-term Investors.
2. A lot of Portfolio Managers are using market weakness to add to their portfolio holdings. After all, stocks are clearly on sale.
3. The Global Economy is still in pretty decent shape. This is going to be good for the earnings of Large Cap, Global Multi National Companies.
4. Bear Markets start with excessive equity valuations, with Central Banks increasing Interest Rates and investor sentiment being unrealistically optimistic. We are in the opposite scenario currently. Central Banks are cutting rates, investor sentiment is bearish and valuations are compelling.
5. This is not the time to be buying Government Bonds. The Asset Class is likely to under perform over the coming years relative to other Asset Classes. It also offers no inflation protection.
6. Currency has been a major issue. The move in the CDN dollar against the Euro and the US Greenback is unprecedented. That is rear view however and C$ movements are unlikely to have such a big impact going forward.
7. Every single time an index has hit its peak and fallen back, investors who stuck with their knitting experienced a breakthrough beyond that peak down the road.
The long and short, read Carrick’s article and don’t forget about the retirement plan you put in place. After all, that alone is a long term plan and moving your money from equities to cash is probably not what you originally decided on.
Until next time, have a Terrific Tuesday.
Chris
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