TheAnswerIs.ca
Model Portfolio
TheAnswerIs.ca Inc. Model Portfolio Performance Update (Q1 2020)
Wow, what a ride!
TheAnswerIs.ca Inc. announces a total return for the Model Portfolio from inception October 26, 2016 to March 31, 2020 of positive 7.51%. The corresponding total return for the Toronto Stock Exchange (TSX), as represented by the ETF XIC, was negative 1.12%. The Model Portfolio return is higher than the TSX due to broader economic sector diversification.
The annualized return for the TheAnswerIs.ca model portfolio for the 3.43 years since inception was positive 2.15%.
The trailing 3-month total return for TheAnswerIs.ca model portfolio was 4.21%. The trailing 12-month total return for TheAnswerIs.ca model portfolio was 23.7%.
Past returns are not indicative of future returns.
Remember last quarter when I said:
"Global stock markets are at, or very near their all-time highs. From here, stock markets may climb higher or they might correct downwards, I really don’t know."
Well the stock market (TSX) did in fact initially go higher, rising a whopping 5% in the 7 weeks between the last quarterly report dated December 31, 2019, and the recent TSX peak Feb 20, 2020.
In the last quarterly report, I also said:
“Although not a specific prediction, all investors should fully expect that at some point over a thirty-to-forty-year investment career, the stock market will drop at least 20% to 50%, and probably on several occasions! A Bear Market, when it comes, and it ALWAYS comes, should surprise NO ONE!”
No one really knows which direction the stock market is going in the short-term. But in the long-term, global stock markets are likely to be much higher than they are today. In fact, it may be a little safer to invest cash that can be put away for a minimum of 10 years and preferably longer, today, than when global stock markets were at their all-time highs back in December.
I can fully appreciate, from firsthand experience, that reading investment statements during a Bear Market can be difficult. It can actually cause emotional stress and even some nausea, but that discomfort is the ”price” one pays to benefit from the higher long-term returns associated with owning equities, (important - see last page of Future Expected Equity Returns )
Buffet goes on to illustrate this thinking with a very simple example:
For people embarking on an investing career, or with cash available to invest long-term today, a LARGE DROP in the stock market can be a GOOD thing!
Warren Buffett sums this seemingly illogical and contradictory behaviour up beautifully:
“If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during this period? Many investors get this one wrong. Even though they are going to be net buyers of stock for many years to come, they are elated when stock prices rise and depressed when they fall. This reaction makes no sense. Only those who will be net sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.“
Buffet goes on to illustrate this thinking with a very simple example:
“To refer to a personal taste of mine, I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up in price, we weep. For most people, it’s the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don’t like them anymore.“
Wise words that help crystalize the "head space" required to be a successful investor.
The key to investment success is to make sure any money invested in the stock market can be left untouched for a minimum of 10 years, and preferably much longer. Not selling into a stock market downturn will ensure time for a portfolio to recover and provide potentially attractive long-term average equity returns. Five years before one slows down working, and begins to draw money from their portfolio, one should move a significant portion of their portfolio into fixed income.
Here are a couple of other links to help you deal with a Bear Market:
Understanding the difference between Risk and Volatility
Invest long-term and prosper.
