August Strategy Notes

“You get recessions, you get stock market declines. If you don’t understand that’s going to happen, then you are not ready and you will not do well in the markets.” – Peter Lynch

Aloni Goh Wealth Strategy Notes: 

Equity markets edged generally higher in August. Market action was similar to what we have been seeing all summer with attempts at corrections finding strong buying interest on the dips, while the upside was capped by nervous profit taking. Canadian banks reported stellar earnings with all six major banks beating earnings expectations. Their stock prices remain at or near all-time highs. We continue to have them as the mainstay of our Canadian equity portfolios.

We are approaching a potentially volatile period and we expect some sharp dips in the markets in the next two months. However, they are unlikely to lead to anything too substantial on the bear side. Hence, we plan to hold our core positions through any short-term downdrafts that may occur while looking for opportunities to finetune our equity portfolios.

Extra Reading: 

Past research shows that holding investments and sticking to your investment plan through periods of volatility is a smart decision. Fidelity Investments, one of the biggest fund companies and best analysts in the world, concluded:

“… The financial crisis of late 2008 and early 2009 when stocks dropped nearly 50% might have seemed a good time to run for safety in cash. But a Fidelity study of 1.5 million workplace savers found that those who stayed invested in the stock market during that time were far better off than those who headed for the sidelines.

From June of 2008 through the end of 2017, those who stayed invested saw their account balances—which reflected the impact of their investment choices and contributions—grow 147%. That’s twice the average 74% return for those who fled stocks during the fourth quarter of 2008 or first quarter of 2009… More than 25% of those who sold out of stocks never got back into the market and missed the gains that followed.

If you get anxious when the stock market drops, remember that’s a normal response to volatility.”

Read more about Fidelity’s “Six habits of successful investors” by clicking here.