Mississippi-based independent investment firm Movement Capital published a useful article warning about how not to invest during crisis periods. The column “Three crisis strategies to avoid” cautions investors not to think only of extreme scenarios, to never underestimate risk, and to maintain a disciplined investment process.
In the first section, author (and founder of the firm) Adam Collins notes that extreme scenarios get more traction because business media “makes a living out of freaking us out.” He also points out that investors are psychologically anchored to the financial crisis because that was the most recent recession. But that crisis was extreme relative to average downturns, in both degree and time, and future recessions are unlikely to be as punishing.
Many investors are reassessing their risk tolerances, and Mr. Collins sees this as a positive. He recommends that investors first calculate the total dollar amount of their equity positions. Then, ask themselves if they could tolerate a 50-per-cent decline without giving up and going to cash. If the answer is no, they need to reduce their equity allocation, in his opinion.
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Abandoning discipline is the third counterproductive investment strategy for investors to avoid in the current crisis. The author quotes Ritholtz Wealth Management’s Ben Carlson, who stated “anyone can build a portfolio. Not everyone can stick to it.”
Mr. Collins used the metaphor of a hotel owner before a storm to underscore the importance of holding a diversified portfolio through periods of volatility, “Imagine you owned a hotel near the beach and a bad storm is coming. Business will slow down. Are you going to sell the hotel before the storm? No. You know the long-term value of the business isn’t impacted by a short-term event.”
Periods of fear and anxiety are the price investors pay for the long term wealth available in the stock market simply by buying and holding. The trick for most investors is to avoid getting in their own way – by panic selling quality stocks, for instance – when things get difficult.
— Scott Barlow, Globe and Mail market strategist
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The Rundown
Buy stocks at the start of a bear market? History suggests that’s not such a bad idea
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Canadian stocks, as represented by the S&P/TSX Composite Index, fell into bear-market territory earlier this month. What happened historically after the Canadian market fell 20 per cent from its former highs in the past? Norman Rothery researched this and has some surprising findings.
Rosenberg: Odds of a depression have decreased. This is the ‘no-brainer’ investment to buy now
David Rosenberg sees some silver linings thanks to quick government action in response to the coronavirus crisis, including a decreased risk of a serious recession or even depression. And he’s got some investment advice to go along with it.
Is the worst of the global market selloff over? Here’s an unlikely source for optimism
The idea that the worst of the global selloff may be over has support from an unlikely source: Italy. Italy’s benchmark, the FTSE MIB, touched its lowest point in the current selloff nearly two weeks ago – an eternity given the furious pace of the downturn. David Berman explores this.
Investors look to 2008 for guidance on when to jump back in
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Investment banks are dusting off models from the 2008 financial crisis to gauge the right time to buy back into stock markets that have plunged 30% from their February record highs because of the coronavirus crisis. That inflection point is not easy to model when the virus is still spreading rapidly across Europe and the United States. But, for some, the signals for a reversal are in place. Read more from Reuters.
Canadian corporate bonds battered amid market carnage
The mad scramble for cash amid the coronavirus panic is putting enormous strain on the Canadian corporate bond market, which the country’s largest companies rely on for a steady source of financing. While high-quality credit typically serves as a safe haven in the midst of an economic shock, corporate bonds have plummeted alongside stocks over the past few bewildering weeks. Tim Shufelt reports
Crashing stock markets remind us that this is the No. 1 rule of retirement planning
A year ago, the idea of retirees keeping two or three years’ worth of expenses in cash seemed like the biggest waste of time ever. Stocks were soaring, and interest rates on high interest accounts and guaranteed investment certificates you could integrate into your investment account were in the range of 1 to 2 per cent. It seemed almost negligent to forgo double-digit stock market returns in favour of interest paid at a rate that barely kept pace with inflation. But after the stock market plunge that began in late February, it’s now clear that maintaining a cash cushion should be Rule No. 1 in building a retirement portfolio. Rob Carrick explains.
Goldman: These 26 stocks are well-positioned to get through a devastating economic downturn
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It’s awful out there. But some observers believe that there are opportunities among the stock market wreckage, and you don’t need to embrace a lot of risk to find them. David Kostin, a strategist at Goldman Sachs, identified 26 U.S. stocks in the S&P 500 that look well-positioned to get through a devastating economic downturn – yet, on average, these stocks are trading at valuations that are lower than they were at the depths of the financial crisis in 2009. David Berman reports
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Ask Globe Investor
Question: Do you believe companies will cut their dividends in the current crisis?
Answer: Some already have. On Thursday, Ford Motor Co. (F) suspended its dividend to provide “near-term financial flexibility.” Analysts and investors speculate that aerospace company Boeing Co. (BA) and energy giant Exxon Mobil Corp. (XOM) could be next. Given how the pandemic is disrupting virtually every sector of the economy, I expect that we will see plenty of dividend reductions over the next few months.
That said, some dividend-paying sectors are in a better position to ride out the crisis than others. Utilities, power producers, pipelines and telecommunications companies, for example, provide essential services and benefit from contracted or regulated cash flows that insulate them, to an extent, from the economic shocks of the coronavirus.
“Despite their defensive characteristics, the utility, pipeline and telecom sectors have been hit as indiscriminate selling of all stocks grips the market. We believe this is a buying opportunity,” Odlum Brown analyst Cory O’Krainetz said in a note this week.
“It is certainly possible that growth could slow as businesses operate at reduced capacity, but that will likely be temporary and does not diminish the long-term value of the businesses. The businesses are also well capitalized and the names we favour have sustainable dividend payouts.”
Companies that Odlum Brown considers attractive, ranked in descending order of risk, include Enbridge Inc. (ENB), TC Energy Corp. (TRP), Telus Corp. (T), Rogers Communications Inc. (RCI.B), BCE Inc. (BCE), Canadian Utilities Ltd. (CU), Emera Inc. (EMA) and Fortis Inc. (FTS).
–John Heinzl
Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.
What’s up in the days ahead
John Heinzl will explore the topic of looming dividend cuts further, and Brenda Bouw looks at how to use the Volatility Indicator as a signal for when to get back into the market.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
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