April Commentary

Happy April!

We’re officially through winter and into the spring, although I think the spring season in Vancouver has different connotations than in the rest of the country. Birds, butterflies, tulips, renewal, hope, and promise are typically symbolic of springtime. It seems to be just another few months of our 8-month rainy season here in BC! This year we won’t even get tulips. Despite Kristy’s best efforts to keep them away, (I want to post the video of her full-on sprint to chase them off – never seen her move that fast or so angry in my life, but I don’t want her chasing me like that!), our local deer family ate most of our spring flowers. We did manage to get down to Arizona over spring break, though. First time since COVID that we have managed to break up the Vancouver winter, and I can’t tell you how happy I am that travel is a thing again! I try to be an adherent of an “abundance” philosophy. I have my own blessings, really happy when you get yours, but something makes it especially delicious when you are soaking in the sun on holiday, and you know that back home, people have started building an ark. I will also admit to being that guy who delights in taking selfies of himself at the pool and sending the pics to friends and family back home with that ever disingenuous “wish you were here” caption!

Sadly, when we did return home, the rain was still here. Equally disappointing is that markets haven’t magically fixed themselves either. It is good that we Vancouverites have become accustomed to “hunkering” down through a long rainy season as markets are drowning a bit right now too! So far this year, Nasdaq is down 10%, MSCI EAFE down 7%, and S&P down 5%. The IT, healthcare, and consumer discretionary sectors have dropped 20%, 7%, and 8%, respectively. No shock to anyone who drives that the one bright spot has been energy, up 38%. None of this is surprising given the global macro picture. Last month I wrote about the fear and uncertainty that markets are grappling with as they try and digest the impact of the Russia/Ukraine war, ongoing supply chain issues, and a tightening monetary policy as governments try to rein in inflation. Surprisingly enough, none of those went away over my holiday! These are not quick fixes. All of them are complicated issues. Go ahead and give your best guess as to how much of the inflation problem is pandemic related, supply chain issue-driven, or a result of the near-term upwards pressure on energy and food from the invasion of Ukraine. And then go ahead and draft an economic policy that will fix it. It’s a bit like attempting to thread a needle in a storm. Trying to get the balance right between easing inflationary pressures and not killing the economy is always tricky; it is impossible in the middle of a war and pandemic.

We somehow went from inflation being a short-term transitory problem a few months ago, to elevated last month, to too high today. Forecasts in North America are calling for rates to jump to over 3% in the next year as government bias is towards tighter monetary policy settings in their efforts to curtail inflation. That view could shift quickly, though, and is not necessarily being viewed the same worldwide. Japan, China, and Indonesia are already easing their policy settings, saying they don’t want to respond to external inflationary pressures (war and pandemic impact on food and energy) and are more concerned about their domestic economies than global issues. So, prepare for rate hikes but be ready for the outlook and economic strategy to be ever-evolving! There is no real precedent for how a global economy looks coming out of a pandemic in the middle of a war.

Canada’s response has been interesting. Amid all the supply chain issues, global conflict, energy crisis, and inflation worries, Trudeau came to Vancouver with Jagmeet Singh as part of their newly formed Liberal/NDP alliance to announce a new climate plan. I was initially hopeful that he had figured out a way to fix the Vancouver weather, but sadly that was not the case. Since we can’t do anything about the Ukraine war, inflation, supply chain, or, apparently, the deficit, Canada is focused on being a “leader” in the climate change war with more carbon taxes and emission reduction targets announced. Pretty sure that someone needs to be following you to be considered a leader, but maybe politicians have a different definition? The federal budget comes out this month, and I am very interested in seeing if there is any plan to eventually balance our budget and pay for all the delightful programs and promises to which we have committed. Sorry about the bitterness leaking through, but I spend so much of my time ensuring that my client’s savings will keep pace with inflation; it offends my fiscal sense of responsibility when the government only seems concerned about one side of the balance sheet. Government spending sure doesn’t have any problems keeping pace with inflation!

The good news in all of this is that none of it is in our control. That means that it isn’t something we worry about. There is a reason none of us became economists or politicians – not everyone is cut out to be a masochist! We don’t need to make sense of the world to be good investors. Ambiguity in markets is normal; we build the portfolios knowing that we will never understand the short term. We don’t panic about short-term headlines. We don’t chase trendy stocks. We don’t buy a company just because it is cheap. We diversify our investments, so we are never “fully” right, but we don’t blow up the portfolio by being over-committed to one idea or theme. 

Please forgive the repetition. The coach in me knows that the more often I can preach the same message in as many different ways as possible, the more likely it will stick. We need to be consistent in looking through the day’s headlines and sticking to our investment discipline. Good ideas and companies don’t care about interest rates, inflation, or politics. They will identify needs and opportunities and innovate and provide quality products and services regardless of market conditions.   We want a portfolio that will grow faster than inflation over the long run. Our energy needs to focus on identifying durable businesses with bright futures rather than being distracted by things outside our control. 

I get asked a lot about timing for investing, especially when fear dominates markets and the volatility numbers go up. I have written extensively on why timing the market is so difficult. Waiting for the next pullback to invest erodes the impact of compounding and can have a lasting effect on terminal wealth. I am going to leave you with a simple Chinese proverb. “The best time to plant a tree is 25 years ago. The next best time is today”. Remember that the long Vancouver rainy season is what provides us with the fantastic forests, flowers, and outdoor playground that is our home!

Jeremy

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