Even The Good Years Have Dark Days

With the market suffering large losses yesterday and Friday, it’s important to remember why its important to invest in financially sound companies, with good balance sheets, cash flows, and management teams in place. Mainly, it will allow us to have conviction in our investments during market corrections and resist the emotional urge to try and time the market – which history shows more often than not is a bad idea.

If you take a look at the slides below they show that even the strongest years go through corrections and the significant consequences for locking in losses and missing out on recovery periods. For example, even in a year like 2009 when the TSX ended up +35% for the year, the largest peak to trough decline for the year was -20%.

It's easy to become complacent in times of strong market performance, ETF's and Index funds are OK when the market is doing well, but will fall just as sharpky when the market falls. After all, indexes are essentially a collection of random stocks that are considered to be the most representative of a certain area of the market, they are not necessarily a well diversified portfolio, and neither are the ETF's and Funds that track them.

A well structured portfolio will give you upside capture when the market is up, and reduce downside capture when the market is down.

What does your portfolio look like? Get a complimentary second opinion.

Slides:

 1.    S&P/TSX Composite Index (TR) annual returns and largest peak to trough drawdown

2.    S&P 500 Index (TR) annual returns and largest peak to trough drawdown

3.    Slide demonstrating danger of trying to time the market and the cost to investor’s from missing out on recovery periods – it is from December 2016 however the message remains consistent

I hope this helps give some perspective, we are still bullish for 2018 and see this as a natural correction in the prevailing longer term uptrend. 

Best,

Emilio Nafarrate

www.nafarratewealthmanagement.com