“If you’re Googling ‘Should I sell my stocks?’ it’s usually too late.”
That’s the central point of a piece written on Feb. 29 by Ritholtz Wealth Management’s Director of Research Michael Batnick.
Mr. Batnick goes on to describe a positive story for buy-and-hold investors in equity markets. He points out that equities represent shares in businesses with management teams constantly striving to improve efficiency and tap new markets, and that corporate America is “an irrepressible engine of progress.” For this reason, stock prices generally rise over time.
It’s investor fear and greed that cause market volatility despite the steady consistency of economic growth, in Mr. Batnick’s view. Equities remain the best way for the average investor to build wealth over time but “discomfort, anxiety, and a whole lot of pain” is the price to be paid.
The piece goes on to remind readers of Warren Buffett’s adage, “buy when others are fearful” because expected returns rise as the market falls, “ The average return on a 1-year basis for the S&P 500 is 8.8% going back to 1950. After a 15% decline, that number jumps to 10.4%. After a 20% decline, it goes up to 11.9%”
Reading Mr. Batnick’s column, I was thinking about another Warren Buffett comment, that his investing style is “simple, but not easy.” Most investors have heard the advice above before – the benefits of not panicking during periods of market volatility, the advantages of buying instead of selling when stocks fall sharply, all of it.
The thing is, the rules are a lot harder to follow when we’re scared of permanent loss of capital. That’s what Mr. Buffett means by “not easy,” and why objectivity – cancelling out emotion before making portfolio decisions – is among the most important attributes of successful investors.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Open Text Corp. The stock is in correction territory with the share price plunging 11 per cent over the past nine trading days. It has an attractive business model with high recurring revenue, high margins, and strong cash flow generation. Given the pullback in the share price, it’s now trading relatively in-line with its historical averages. Jennifer Dowty takes a look
The Rundown
As the coronavirus outbreak infects global stock markets, investors should favour caution over panic
Many investors are running for cover. A better plan, though, might be to assume that the stock market is doing what it usually does – adjusting prices, more or less rationally, to reflect a surge of new information. Given the prevailing level of uncertainty, sitting tight and doing nothing should be your default strategy, according to Ian McGugan.
As the search for a coronavirus vaccine intensifies, these 5 stocks are worth a look
The race is on to develop a vaccine against the coronavirus. The prize could be countless lives saved and perhaps billions of dollars in revenue. But there are a lot of ifs involved. Gordon Pape seeks out some investing opportunities.
Who are the big users of RRSPs? Not surprisingly, mostly men and older people
A declining percentage of taxpayers are contributing to registered retirement savings plans and those who do skew to an older, male-dominated demographic. Rob Carrick looks at some insights on RRSPs that come out of the 2018 contribution data released recently by Statistics Canada.
Others (for subscribers)
The highest yielding stocks on the TSX, plus risk data
Monday’s analyst upgrades and downgrades
Monday’s Insider Report: CFO buys this Big 5 bank stock on the dip
Others (for everyone)
Wall Street has lost its nerve. What will it take to get it back?
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Ask Globe Investor
Question: What do you recommend investors do in light of the market volatility caused by the COVID-19 virus?
Answer: We’ve seen this movie before. Last time, in 2008-09, it was a subprime mortgage virus affecting the global financial system. This time around, it’s a virus infecting people.
The market recovered from the credit crisis; it will recover from the coronavirus, too.
You’ve heard it before, but it bears repeating: Selling into a market panic is almost always a bad idea. Sure, you might avoid further losses if the virus spreads widely and stock prices continue to fall. But it’s also possible that the market could stabilize or even rebound if the worst-case scenarios don’t materialize.
Regardless of how markets behave over the next several weeks or months, if you sell now – after the S&P/TSX Composite Index has already plunged about 10 per cent from its high – you will be sitting in cash and wondering when it’s safe to get back in. By the time you work up the courage to buy again, you may have missed the recovery.
Let’s be clear: Nobody knows the extent to which the virus will disrupt global economic activity and dent the profits of companies. But COVID-19 will eventually be controlled, likely with the help of vaccines and anti-viral drugs, and the world will get back to normal. If you have faith that your companies will survive the crisis, then hanging on to your stocks – as unpleasant as it may be at times such as this – is probably the best strategy.
As I’ve often said, focusing on dividend income instead of stock prices is a great way to cope with market turbulence. Amid all the carnage this week, there was actually some good news for dividend investors: Toronto-Dominion Bank (TD) and Canadian Imperial Bank of Commerce (CM) both hiked their dividends, by 6.8 per cent and 1.4 per cent, respectively. This followed a 2.9-per-cent dividend increase from Royal Bank of Canada (RY) the week before. Yes, their share prices plunged, but our banks – like most companies – will survive this.
It may also help to remind yourself that stocks aren’t just pieces of paper to be flipped; they represent part ownership of a business. If you owned a small business such as a store or a rental apartment building, would you be picking up the phone and trying frantically to sell it right now because people are anxious and prices of other businesses are falling? Of course not. Yet that’s essentially what you’re doing if you sell your stocks during a market panic.
As a shareholder, you are still a business owner. It’s just that the business is larger and run by professional managers. If you believe in the long-term outlook for the business, then selling to avoid what will almost certainly turn out to be a temporary drop in its value is precisely the wrong thing to do.
-- John Heinzl
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Compiled by Globe Investor Staff