{"id":774,"date":"2018-07-27T12:09:42","date_gmt":"2018-07-27T19:09:42","guid":{"rendered":"https:\/\/chaltenadvisors.com\/blog\/?p=774"},"modified":"2018-07-27T12:09:42","modified_gmt":"2018-07-27T19:09:42","slug":"chalten-investment-review-q2-2018","status":"publish","type":"post","link":"https:\/\/chaltenadvisors.ca\/blog\/chalten-investment-review-q2-2018\/","title":{"rendered":"Chalten Investment Review – Q2 2018"},"content":{"rendered":"

Welcome to the Chalten Investment Review for Q2 2018.\u00a0\u00a0 In last quarter\u2019s review we dedicated some space to reminding investors that the best way to deal with market volatility is to be prepared.\u00a0 Being prepared means an appropriately targeted asset allocation, broad diversification and disciplined rebalancing.\u00a0 When we\u2019re prepared we can watch the oft peculiar gyrations of the market with interest and curiosity rather than angst over what action to take.\u00a0 <\/em><\/p>\n

Stock market performance in Q2 was very different to that of Q1, in particular the relative performance of Canadian stocks versus International stocks in Q2.\u00a0 After being down nearly 5% in Q1 and with economic clouds looming around trade, real estate and consumer debt levels, who would have predicted\u00a0 a near 7% turnaround in Canadian stocks over the next three months of the year? \u00a0While we\u2019re sure some people indeed got that call right the evidence shows that most market timing calls are ill-fated and being successful over longer periods of time by trying to time markets is near impossible.<\/em><\/p>\n

\u201cTime in\u201d the markets, not \u201ctiming\u201d the market!<\/em><\/strong><\/p>\n

We\u2019ve seen the above adage attributed to almost every investment guru there is but have never been able to identify the original source \u2013 nonetheless, we like it.\u00a0 Even some of the most legendary active stock pickers shy away from trying to time markets.\u00a0 Benjamin Graham in his classic \u201cThe Intelligent Investor\u201d wrote:<\/em><\/p>\n

\u201cIn the financial markets, hindsight is forever 20\/20, but foresight is legally blind. And thus, for most investors, market timing is a practical and emotional impossibility.\u201d<\/em><\/p>\n

We encourage investors to heed this wise advice.\u00a0 We received a lot of questions at the beginning of Q2 not only about what direction we thought the market would take for the rest of the year but also a lot of concern about Canada.\u00a0 In Q1 \u201cMr. Market\u201d (another Graham allegory \u2013 Benjamin Graham that is, not our Graham!) \u00a0had continued its relative attack on Canada and the outlook from many commentators wasn\u2019t exactly rosy\u2026.but the Canadian market performed very strongly in Q2, even in June after friction with trading partners at the G7 summit.\u00a0 How is this possible?<\/em><\/p>\n

While markets sometimes react concurrently to news events in a direction that seems intuitive, they just as often confound our expectations.\u00a0 Markets reflect new information in real time but it\u2019s very difficult to determine how new information will impact the complex and dynamic world economy and in turn how that will be reflected in securities markets.\u00a0 \u00a0\u00a0<\/em><\/p>\n

And remember, timing the markets successfully doesn\u2019t just involve one decision.\u00a0 Playing this out a bit, what if you were to sell now and you were right or lucky and the market dropped 20% next week.\u00a0 What would you do?\u00a0 Being right not only involves getting the sell decision right but you have to buy back in at the right time too.\u00a0 If the news flow and market commentary is making you think you\u2019d like to sell now, we will guess that after a 20% drop the market commentary and sentiment will make you never want to buy again. \u00a0You will be paralyzed and will likely watch the market drift back up while you wait for the even bigger crash being predicted by market commentators.\u00a0 Or let\u2019s say you were to sell now but were wrong or unlucky and watched the market drift 10% higher \u2013 when would you buy back in \u2013 never?\u00a0\u00a0\u00a0 <\/em><\/p>\n

It\u2019s just not worth putting yourself through the agony.\u00a0 The market crashing is not an \u201cif\u201d \u2013 it is a certainty, it\u2019s just that nobody knows when it\u2019s going to happen and attempts to time it are more likely to hurt you than help you.\u00a0\u00a0 Legendary investor Peter Lynch said it well:<\/em><\/p>\n

\u00a0\u201cFar more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.\u201d\u00a0\u00a0 <\/em><\/p>\n

The secret again is therefore not getting the timing right but picking the right level of risk (via the balance between stocks and bonds) that you can live with through crashes and booms alike.\u00a0 It\u2019s the only way to be sure that you can achieve those great long term market average returns.<\/em><\/p>\n

Q2 Market Review <\/u><\/em><\/p>\n

Global equity markets were mixed over the quarter as a whole.\u00a0 While economic indicators in many developed countries remained benign to positive, the price of oil spiked up and the international trade situation became increasingly combative.\u00a0 If you\u2019re using Mr. Market to help gauge potential winners and losers from all this, North American, European and Japanese markets increased over the quarter to varying degrees while stock and bond markets in Asia outside Japan and Emerging Markets generally declined precipitously during Q2. Is this a foretelling of the outcome of a trade war?\u00a0 Can Mr. Market help us write the Wall Street Journal in advance?\u00a0 We\u2019ll see.\u00a0 <\/em><\/p>\n