May SWM Letter — Getting Past the Storm

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May SWM Letter — Getting Past the Storm

Thank you for your comments on April’s letter, Riders On The Storm.  We’ve had considerable recovery these weeks so let’s look further here.  Pandemic markets dropped broadly 35% in four weeks as all non-essential workers entered home-isolation, inducing economic “coma” to reduce Covid-19 infections and deaths.  April dawned with brighter hopes as China and then Europe slowed rates of infection.  Markets have risen a third or more as we prepare to gradually re-open workplaces.  Bond and credit markets, usually safer havens, shared in the panic and reprieve, and continue to stabilize.  Such events will fade soon enough (as did major disruptions of May-June 2013 and 2018).

We can suggest valuable insights now from this season.  For instance, how and when will we see recovery?  Where does this take us over the coming year, three years, and beyond?   What is risk and how do you feel about it?   Have we experienced the comparative safety and value of the investment process we call LIM+ (life income mandates plus high-conviction growth)?   We’ll touch briefly on such themes here — and reach me please with any questions or areas to discuss on your own financial plan and personal goals.


In a brief picture, here is a glimpse of what recovery looks like as of yesterday May 4th, 8 a.m. over China.  I cannot count how many planes this represents but clearly things are moving, people are traveling for personal and business reasons along with mandatory masks and sanitizer.  Less visible are regions where lock-down remains in force, yet most areas now report as much as 80% of workers back on the job.

Europe is now tentatively testing a return to workplaces with reduced staffing.  France is marking safe-distance guides on its train platforms.  Sweden has shown a full shutdown may have been unnecessary; Italy indicates the opposite.  Several U.S. states suggest the shutdown should have been sooner and tighter.  Next door to us, Quebec is opening areas outside of the hard-hit Montreal.  Ontario is urging people to get outside with proper cautions, and clarifying dates we will be reopening certain businesses.  What this means is we cannot know what next stages the virus may follow, but step by step our world is opening again for life and for business.

Assuming a vaccine is proven effective there will be great exuberance.  If a vaccine were never to arise, natural immunity should increase amid some loss of life (possibly no more than average annual deaths of other viruses).  Safe distancing and other protective measures can allow considerable resumption of economic activity – yet the degree and the timeline are still being tested.

I am 100% confident we are far more prepared than the world of 1918-1920 when fifty million died of Spanish Flu.  Despite disease and other calamities that arise over time, labour, service, productivity and trade are at the heart of humanity and society and this explains how economic growth can pause but soon, inevitably resumes.

(An interesting tidbit in conference with portfolio managers is that while the price of oil last month reached minus $37 per barrel – deeply negative value – the futures price three years forward has been unchanged.  In other words, expectation of economic growth and energy demand in 2023 and onward remain as strong as ever.  Included of course is continued acceleration of renewable energies and battery storage technologies.)


Risk is generally something we think about when values go down.  Behavioural psychologists tell us people mind losses twice as much as they enjoy gains, so while investment markets continue rising to new peaks they may do so without those who had sold off in a panic.

Growth isn’t a straight-up phenomenon … it’s more of a zigzag.  When values rise people may feel the good news will last forever.  On the downswing however, we find three groups:  some feel particularly vulnerable, the majority hold firm, and a few become opportunistic.  We need to know this in terms of managing your portfolio:  where are you in the range from ultra-conservative to super-aggressive?   There is no growth without risk.  There are no dividends without risk.  Even worse, sitting flat at 1% or 2% presents a terrible risk of soon outliving your money.  Achieving the right balance is essential for financial wealth and personal health.

A fairly common position is someone who says their maximum risk is 10% to 15% drop for a year to eighteen months, so long as recovery and growth are evident by then.  If that person saw their portfolio down 15% in March but it has already recovered by half or so, there should be no problem.  The account receiving near 4% dividends at the start of this year may be getting closer to 5% now – a nice way to get paid as the months move forward.

Further on investment behaviour, many of our clients have made extra deposits while investments are “on sale” … and many drawing monthly income have reduced withdrawals to keep their accounts more strongly for them.  Despite news clippings that banks dropped 30%, pension funds lost 15 to 20%, and some hedge managers went out of business, we have no panic.  Our diversification and our “income reservoir” smoothed those events for us, and the world’s temporary loss lets us invest a bit more or simply enjoy the stronger portfolio yield.

A picture we’ve seen at times ponders the choice of selling everything when markets are falling — pull the money out until it feels safer to invest — which requires a later hazard of deciding when or how soon that might be!  (If the picture appears fuzzy I can resend in a personal email.)  With the right crystal ball this could be brilliant!  But 80% of the time such a sale would be just before markets start rebounding, causing an unrecoverable loss.  In the graph here we see what happens over a longer period.  In the full twenty years from 2000 to end of 2019 the U.S. market including dividends offered raw growth of 6.1%.  Missing the best 20 days dropped the return to 0%.  Missing 50 best days resulted in 5.5% loss.  Trying to capture good days without the bad days isn’t real, isn’t possible, isn’t life.  Life has ups and downs – we get them together – and sacrificing one part means losing the other as well.  We can chat personally how this relates to Canadian and world markets, and indeed your own portfolio.


From 1998 to 2009 I clarified an approach to safer investing we call life income mandates.  In my 2013 book A Lifetime Of Wealth I outlined results seen in the 2008-2009 global financial collapse.  Equal portions to five specific mandates saw roughly 15% drop when the world dropped 60%, and recovery in 18 months when the world took five years or more.  The mandates focused on Canadian and Global Income from dividends, real estate, infrastructure, and strategic fixed-income (including bonds, commercial credit, and at some point also life pay-out annuities).

By 2018 it was clear that such “safer” modes of investing may sometimes lag the fads or popular leaders such as FAANGs (Facebook, Amazon, Apple, Netflix, Google) and BATs (Baidu, Alibaba, Tencent) whose stocks shot for the stars leaving “value” stocks somewhat earthbound.  Including certain growth funds, especially smaller and mid-cap firms in Canada and abroad which could not only boost portfolio return but also ease statistical risk, we added a “+” sign which I have called LIM+.

Such an example is the Mackenzie U.S. Mid Cap Growth with Phil Taller.  While his “benchmark index” dropped 44% from Feb. 20th to March 23rd his results were far safer and year-to-date May 1st was down only 11%.  The team remains best-among-peers, with double-digit compound annual returns over 5, 10, 15 year periods.  With a target wish-list in the hundreds they own less than forty choicest holdings at any time, all selected for optimal business and management, social responsibility, strength of cash flows and balance sheet, demand and supply chains, across several industry sectors.  The largest holding currently is Progressive Property and Casualty:  while Covid19 hit the stock it rebounded immediately because people keeping their cars and homes will pay their insurances, claim fewer accidents, and be faithful while enjoying rebates, such that the firm’s earnings and share value remain on a vigorous uptrend.  Another key holding is Xilinx on the theme of communications infrastructure supporting wired and wireless networks (benefiting from major positive news with Samsung on April 15th)Premier Inc. is a third in this high-conviction portfolio specializing in medical supply-chains (equipment and other) for acute care providers throughout the U.S., always vital but even more during a pandemic.  From mid-February Taller’s team completely exited a few holdings where C19 would reduce cash flows, shifting to more opportune assets at deep firesale discounts.

Covid-19 hit all markets and most sectors indiscriminately as I shared last month.  Before governments stepped in, banks were at risk that borrowers wouldn’t repay loans.  Real Estate firms worried their commercial and other tenants would miss rents or be forced into closure.  Infrastructure would see airports idle for an unknown periods, toll highways and bridges would see less traffic, and all transportation and port systems would carry less traffic.  Unprecedented government support worldwide – $6 Trillion in a report I saw – is keeping the doors and wheels in place so after some trial openings and progress we’ll get this economy humming again.

LIM+ keeps a perpetual focus on domestic and global dividends, real estate, infrastructure, and strategic income, along with the “+” of particular growth positions.  LIM+ has reduced risks even in these recent weeks, and enhances our recovery.  We are not all the way back yet.  We cannot say whether full recovery is measured in weeks or months, nor whether recovery may “zag” again before we reach full steam ahead.

Our best insights suggest continuing recovery as 2020 moves forward.  A vaccine would assure this.  Other therapies will assist this.  New work patterns will accommodate this.  New infections could delay this.  But the end is in sight … especially as we focus on “mandates” of lifelong income and growth for our financial plans and personal goals.

Reach me with any questions, and connect us with anyone who needs help to secure financial goals, lifelong comfort, and a rewarding retirement.  Share this letter with anyone who can benefit.

Yours in Financial Security for LIFE!

Certified Retirement Coach

Brian Weatherdon, MA, CFP, CLU, CPCA. 905-637-3500

627 Guelph Line, Burlington, Ont. L7R 3M7.  1-877-937-3500

Author:  A Lifetime Of Wealth — And How Not To Lose It  (2013). Protecting Life, Loved Ones, and Future Dreams  (2013). Your Business, Your Retirement: Halton Retirement Study (2015).

** This monthly letter touches on key strategies in Canadian and global investing and financial planning. This letter is not an offer to sell any kind of security, insurance, or program. Historical returns and risk measures are not a valid guide to future performance. Returns are from publicly available sources and research from a variety of firms including but not limited to GLC, RBC, CIBC, Mackenzie, Dynamic, Franklin Templeton.  Opinions reflected in this letter belong solely to the author and no other body is responsible for the content expressed here. We value opportunity to consult alongside your legal and accounting firms to advance your financial security and unique goals. We are grateful always to receive your comments and questions.

2020-05-05T15:45:40-04:00May 5th, 2020|

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