Cautiously Optimistic

Happy December!

The days may feel long – especially right now, but the years are short and just like that we are weeks away from bringing a close to what has been a very eventful year! Lots of things to talk about since last month’s update. Markets had a great November with positive vaccine news overshadowing everything else and causing the major markets to rally over 10% for the month. This despite the US election remaining unresolved as Trump refuses to concede and it is going to take a January run off to decide the fate of the US Senate. COVID numbers are surging again, lockdowns are escalating, and Bonnie Henry has gone from hero to villain as the psychological toll of loss and isolation is really weighing on people. My wife did give me some good news though in that there are apparently over 100 Christmas Hallmark movies we can watch through December to cheer us up!

I am by nature a cautiously optimistic person that leans more towards the intellectual than the emotional. This is, by my own very biased viewpoint, the best type of temperament for an investor to have. You need the caution to make sure you aren’t taking too much risk in your portfolios, to have a disciplined approach to investing and make sure that preserving capital is always at the forefront of your mind. In coaching soccer, I am always telling my teams when we are going forward I want to see fast, free flowing offense but always keeping in mind “what happens if we lose the ball”. You don’t want to be so committed to offense that you leave yourself vulnerable to mistakes or hubris. You need the “optimistic” side because it is very easy to become bogged down by the fear of the unknown and get caught up in all the things that could go wrong, or lose yourself to “paralysis by analysis”, but ultimately you will never meet a rich pessimist. There are costs for making mistakes but there are costs to doing nothing as well and measured risk must be assumed to move forward.

There is a lot of teeth gnashing and angst going on in our household right now as my oldest son, Jacob, is getting married at the end of the month. We went from a 150-person wedding, down to 50 people, and as it stands right now, we are down to 10. Emotionally, my heart breaks a little bit for my soon to be daughter-in-law, Gabi, as I know how much work and effort she has put into the wedding. If anyone deserves a special day, it is her. Intellectually though I am looking at the positives of a COVID wedding. At this point in time Gabi is already family to us and I don’t really need a ceremony to formalize it. My old suits somehow shrunk over the year, so I inadvertently discovered that it is a fantastic time for buying new formal clothes when I had to go buy a new one, as everything is on sale. The money that my wife and I were going to put towards the wedding is now going to be invested into a TFSA for Jake and Gabi, giving them a bit of a nest egg to start their newly graduated, newly married journey. My wife lost 15 pounds for the wedding and looks terrific (not that she didn’t look great before!) and I am going to have a case of 50 or so pre-ordered bottles of my favourite wine and fruit juice that I now get to keep for myself! It’s not all bad!

There is a lot of teeth gnashing and angst going on around markets right now as well. Valuations are elevated even as economies are locking down again, US election uncertainty, higher tax rates, stimulus drying up, high unemployment are all factors weighing on markets and all have some validity as being legitimate concerns. There is a lot to be fearful about. However, when we look at the whole situation emotionlessly, we are just in the first few months of the economic expansion phase of a business cycle. Economics never really matches, but it usually rhymes. Economics 101 will tell you that recession (which we had in the spring) is followed by economic recovery (which we hit in the fall) which is followed by economic expansion (which we are in now). Emotionally it feels different as a global pandemic and the corresponding loss in lives, businesses and jobs were the catalyst, but intellectually we are still just following a cycle that has repeated many times in the past. The shortest expansion ever was 12 months. Maybe we break that record this time around, but there really isn’t any information currently that would make me think that we will experience anything other than a normal economic expansion. Rates are low, stimulus is flowing, industrial production is increasing and there is a lack of inventory and pent up demand in a lot of areas (great time to buy a suit but go ahead and try and order an appliance or a hot tub!). I think we are going to have heightened volatility right through January as we await the Senate race results but realistically, I don’t see the results having too much long term impact in the grand scheme of things (could even get a pop in markets if Republicans hold the Senate as it will water down Dems’ impact on economic policy). The unemployment rate is both a concern, as lost jobs in service sectors will be slow to come back, but also a positive in that it is a pool of untapped labour that will return to the workforce as the expansion continues.

Bottom line is that I continue to be optimistic and believe it to be a good time to invest. I also continue to be cautious and believe that we need to be investing with balance and discipline and an awareness that we might need to switch from offense to defense quickly!

Hopefully, everyone is adapting to the new platform and website. Please let me know if you have any questions or concerns on it, your portfolio or anything else on your mind. Bit of a change of direction for us this year in that in lieu of gifts and holiday events we will be making a donation to the Greater Vancouver Foodbank. I feel pretty fortunate in my own circumstances, especially given the tremendous loss around us, and I feel equally blessed in that in my dealings with you, the overwhelming feedback I get from my clients is that you would rather give than receive. I feel good about this change in the “new normal” to our business practices.

Stay positive, stay safe, stay disciplined and have a great holiday season!

Jeremy