This article has been adapted from a profile piece originally published by Wealth Professional Canada1.
By James Burton
I was too busy partying at university to understand the dot-com bubble. If any of my buddies had told me about it back then – they didn’t, I assure you – I’d have probably mistaken it for a dirt cheap, yet highly effective cocktail.
The financial crisis of 2008-09, therefore, is my only real point of comparison to the ongoing COVID-19 crisis in terms of market crashes. Back then, unless you were on the trading floor or in the finance industry, life on the surface at least went on as normal. We still went to the office, chatted around the coffee machine, ducked out at lunch for a cheeky beer.
Economic structures had failed in 2008 and institutions were at fault. This time it’s an unforeseen health scare that has brought the markets to their knees. It’s a virus, not a bubble, that has us all running, literally, for cover. Social distancing and isolation are the watchwords in 2020, not credit swaps and sub-prime mortgages.
Like everyone else, the WP team have been holed up in their respective homes, setting up makeshift offices and holding virtual meetings. It’s meant news of market plunges and circuit-breakers have cut a little deeper because, as we live through it, there are fewer people physically around to share it with.
Advisors know this only too well. Most of you will have fielded calls from stressed clients this week or at the very least, reached out to people to reiterate your process, strategy and long-term plan for their portfolio.
What has been noticeable is that, while extremely busy, most also see the downturn as a chance to prove their value in one way or another – be that with extra communication, resilient financial planning or active management. Here’s a taste of what advisors have been saying …
Nader Hamid, of Total Wealth Management Group, Hollis Wealth, told WP that there is no getting away from the fact we are in a “grim” period for investors. The fact various governments’ stimulus packages failed to stop the slide showed that the main driver of the sell-off has been our inability to control the virus, not the inability of central banks to control the economy.
Nader believes that once we get the outbreak under control, the markets will recover fairly quickly, although the economy will take more time. The long-term outlook in 12-18 months’ time “remains positive”, in his opinion. He has been busy seizing opportunity via his practice’s dollar-cost-averaging strategy.
He told WP: “Our clients are sophisticated and understand this is a buying opportunity. Some good companies are at a discount and the market has inefficiencies right now.”
He added: “The most important thing is communicating well [with clients], keeping a cool head and not letting yourself get swallowed up by it all.”
One piece of advice true in any crash, be it dot com, housing or the Great Depression, is to stay invested. Sell at the bottom and it may mean a lifetime spent trying to recoup realised losses.
Jason Pereira, of Woodgate Financial, told WP that the first issue for clients is always the dollar sign; they look at how much they’ve lost. It’s natural – “where’s all my hard-earned money gone?” After breaking it down into percentages and reminding them how much they’ve actually gained in the past few years, it’s then about making sure they don’t panic and start moving money to the sidelines.
“That’s just wrong”, Pereira said. “We’ve all seen the charts. If you miss just one of the top trading days out of a 10-year period, your portfolio is cut almost in half. Playing it safe is not getting out of the market, unfortunately. That’s just something clients have to wrap their head around.”
If you missed last Friday, for example, then “God have mercy on your soul”. A period of isolation is probably needed for investors who did that regardless of whether they have coronavirus symptoms.
What about the rebound? It’s going to happen right? The consensus is that the market will recover but what no-one knows is the timeline. The money doesn’t just go “poof” and vanish, said Pereira. There will be damage but if people need to feed their families and buy products, there will be a reverse.
There will even be winners. Greg Taylor, chief investment officer at Purpose Investments, sees technology companies coming out the other side of this smelling of roses. From social media, to video streaming, to home offices, work has continued in a virtual format. Many firms may, therefore, look at this and realise they could save a ton of money on real estate fees and send everyone remote permanently.
Good companies will always remain good companies, he added, and the meltdown has also provided him with opportunities to search for high yielding companies with low cash flow that can weather the storm. It’s something that has reinforced the allure of active management, which had undoubtedly faded during this record bull market.
Taylor believes complacency was rife, with the VIX typically around 12 for a whole year and 1% moves a rarity, investors could pick momentum stocks and kick back with a cold one.
“That environment has changed,” he told WP. “And I think it’s changed a lot faster and more severe than ever expected. But this is the time when people can make a lot of important moves in their portfolios and make some allocations to areas that have been oversold and should rebound. This is when active investing proves its value.”