Happy May!
I read an article this month on “languishing” that sort of hit home with me. Psychologists define it as “characterized by lack of positive emotions and reduced interest in life along with suboptimal psychological and social functioning.” Or, from a layman’s perspective, it’s a feeling that while things are “fine”, they’re not necessarily good. That sort of “blah” feeling resonated with me! COVID numbers are at all-time highs, and restrictions abound right when people are starting to chafe from the psychological weight of limited choices and isolating policies. The good news is that just recognizing that I was leaning towards that state of mind was enough for me to step back and take a look at where those feelings are coming from and be grateful for where I am. Or, it may have been my wife cuffing me across the head and telling me to snap out of it! I may not be able to travel or go out to restaurants, but I did get into the mountains this week with my wife, out to the golf course with my kids, and enjoyed an excellent barbequed steak on our patio. My American friends’ and relatives’ posts from Hawaii are a bit annoying to take, but the state of India right now is heartbreaking and forces me to acknowledge that the risks are real, and Canada is trying their best to keep us safe. Not perfect, but really difficult to improve something without understanding it, and global pandemic protocols are new to everyone. Making it through this period needs to be the priority, even if it takes a few months longer than expected. And at least in BC, we haven’t yet tried to close the outdoors as Ontario has!
Lots of significant happenings this month. Markets were good in April, with major indexes up across the board and the Canadian dollar appreciating against the greenback. Most of the indices and loads of individual stocks are trading in record territory. This at a time when alarm bells are ringing at stretched valuations, imminent increases to corporate tax rates, and inflationary pressure are on the horizon. Mixed signals there, to be sure. The Canadian budget was tabled at a $354 Billion deficit, with no plans forthcoming on exactly how they plan to address it other than a luxury tax on cars over $100k and boats over $250k. I thought of doing a more in-depth analysis, but Andrew Coyne’s synopsis in the Globe and Mail tells you all you need to know. He notes that the words “support” and “benefits” appear over 1,000 times each compared to “productivity” at 39 times and “competitiveness” at 13. Governments are pretty happily drinking the Kool-Aide of Modern Monetary Theory, which allows for more lavish fiscal spending with less regard for budget deficits. If you want what I consider a far more realistic view of economics, then look no further than Warren Buffet. In his Berkshire Hathaway shareholder meeting this month, he predicted that unchecked federal spending would end in disaster. He also had comments on “SPACs” and the rise of what he called the casino culture surrounding investing that is so prevalent right now. This is the area of the market that is both super fascinating and super dangerous. Cryptocurrencies, Nifties, celebrity SPACs (blank cheque companies) have all brought more people to the investing table than ever before, with stock market household participation at an all-time high right now. The question is whether that money is invested in the right areas! Special purpose acquisition companies (SPACs or blank cheque companies) are going to be the topic of my next video presentation this month.
I had a lot of fun doing last month’s video on raising money-wise kids (Here’s the video link in case you missed it – https://jeremylow.ca/2021/04/21/raising-money-wise-kids/). I got to do an in-depth profile on my own family to see if my pouring of financial teachings into their lives over the years has resulted in any semblance of financial nous. It is pretty obviously still a work in progress! Given my daughter’s absolute lack of interest in finance, I was pleasantly surprised at how much “stuck” with her. She rolled her eyes when I commented on that and reminded me of all the video/culture/ tactics sessions I did for her soccer team while coaching. So many of them ended up with me going off on the application to life and finances (not to mention the times I just literally gave them lectures on investing!).
I believe that truisms/maxims/cliches are only valuable when they apply to more than situational specifics and can affect life in general. I always tell the teams I coach that if all they get out of 10 hours a week of my coaching were to be a better soccer player, I would have failed them. My real goal was always to teach them how to be excellent at something, and the blueprint for excellence is a process that will transfer over to pretty much anything. Because of that, I feel pretty free to bounce between sports platitudes and business adages that I consider to be universal wisdom. As a soccer coach, I always tell my teams the importance of finding that sweet spot with your emotions. Not get too high off a win, not too low from a loss. Do not let your emotions control your play, but ensure that you are committed to the process first, and results will follow. You want to find that balance between passion and intellect to be effective. Finding that balance as an investor is equally essential. Preparation and anticipation are more important than simply reacting.
The Financial Planning Standards Council of Canada just released its broad-based projections for financial planning recommendations. Forecasting is just a more technical term for guessing, but an educated estimate can be beneficial. FP Canada calls for returns in the 6-7% range for developed market equities and a 2% range for fixed income. I think it is important to remember that we need to temper return expectations when things are going well. Winning the first game of the season doesn’t mean we are going to win every game. As much as I would love to use it as a guide, we can’t simply take last year’s return and multiply it out for your lifetime and think that will be a realistic expectation.
Likewise, amid crisis or on the verge of a pullback, we don’t want to be making knee-jerk reactions to market uncertainties or breakdowns. Speculating is a sprint, but it is a race in which the finish line can move on you at any time. When you are speculating, you must pay really close attention to market indicators to try and time your entry and exit points. When you invest, you partner with durable companies with moats around their business, actual revenues, and solid long-term plans, so the short-term noise becomes far less critical. I still monitor that data and will opportunistically tweak portfolios to take advantage of extreme conditions. Still, for the most part, we are steadily looking to increase wealth with a well-diversified portfolio of companies and sectors that I believe have duration. I have always thought of it more like a marathon, but one of my friends sent me an article this week that likened investing to the bike race “Tour de France.” It noted that the tour has never been won by a cyclist who won every stage of the race. I like that analogy. There is no investment strategy out there that will perform well in all markets. Buffet reminded people in his shareholder meeting this month that expecting perfection in your investments or stocks was like expecting flawlessness in your friends or spouse. You are simply never going to find it and constantly searching for perfection was a recipe for failure or loneliness. That doesn’t mean we can just pick our stocks and close our eyes, though. We don’t want to settle at “languishing” with our investment portfolio. New ideas, trends, and companies need to be looked at constantly as potential ways to freshen up our investment approach and potentially bump up our average. There is no single company in the top twenty biggest stocks today that was in that same list 30 years ago. Capitalism means that things can and do change dramatically over time. It is vital to monitor and keep the portfolio relevant, but to really “win” the race we must always keep in mind that it is a test of endurance.
Discipline, self-awareness, adaptability, resiliency, emotional toughness, and commitment to a process are the keys to many things in life. Incorporate them into your investment habits, and you will be well on your way to financial freedom!
Stay positive, stay safe, stay disciplined!
Jeremy
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