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March 21, 2019 | Barbarians

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Poor Jake. He sees barbarians at the gate. For him, they’re already in the White House and Queen’s Park. They’re grasping for the levers of power in Alberta and Ottawa, where yesterday Conservatives were on the attack. “The CPC actions yesterday (drowning out the finance minister in the house) are the actions of barbarians uninterested in the proper functioning of parliament,” he scowls. “Scheer’s racist hate-speech is directly lifted from the Republican/Bannon cheat sheet; how are these not the words of a barbarian?”

Yup, it’s a good example of the emotional polarization which has gripped society. Americans are already cleaved. Canadians are drifting towards the same result. To both the lefties and their barbarians, the world seems under attack. Risks are mounting that the other guys might take over and wreck everything. Progressives would destroy capitalism and traditional values. Conservatives would extend the wealth gap, coddle the rich and rip the social fabric. Fuelling it all  has been the breakdown of common media (newspapers, TV news) and the inexorable rise of online communities where people listen only to those who think like them. We get tribal. Real fast.

But Jake has a decent query for me: “How does the small investor survive the coming decade with the combined effects of incredibly incompetent governance in the US, UK, and possibly soon here too; and climate change? This is not a frivolous question.”

No, it’s not. Populist politics is spreading. Trump. Brazil. Brexit. Italy. Walls. Trade wars. The idea of open borders is a flashpoint. And yet it’s likely millions of people will be on the move as the climate does alter. (Lefties say it’s anthropogenic. Cons say that’s crap.)

First, Jake, let’s acknowledge humans love to think they live in unique times. At heart we’re drama queens. We believe current forces are overwhelming and the outcome will be epic. Therefore we must take extraordinary action. In fact, every time stock markets correct folks panic and think they’re going to zero. They rush into cash, often triggering losses on assets that soon rise again. Fools. But that’s us. We never learn.

Second, none of this is new. People have coalesced into tribes throughout history. Globalism, free trade, economic interdependence, international banks, courts and rules – all this stuff is new, the product of a post-WW2 world. Yes, it’s brought great wealth, but with it a forced integration and perceived inequality. American rust belt jobs going to China, for example. Britons railing against immigration. The belief foreign money pumps Vancouver real estate. The meme’s spread that middle class folks are the new downtrodden. Victimized. Astute politicians like Trump have brilliantly tapped into a deep vein of resentment.

So, third, change is normal. Focus on two things when deciding how to invest. What do you need accomplished to live a contented life? And what are the principles of investing that don’t change, to get you there? Despite barbarians. The climate. Or conflict.

For most people hiding in cash because they fear loss is an awful strategy. Over the sweep of time, it’s failed. Only those with big pots of money can afford to forego growth. So one principle that needs to be embraced is that markets always rise in the long run.  Over 70% of the time, for example, equities grow in value as the economy expands. Periods of contraction are short. Periods of expansion are long.

Also, this: trying to time markets is another fail. Especially now, in an era of rapid technological change, social media and high-frequency trading. By the time you learn important news, markets have already reacted. The best strategy if you have a proper portfolio is to do absolutely nothing. The three most volatile years of our lifetimes – 2008 through 2010 – proved that. Those who bailed in the middle of a storm took heavy losses. Those who ignored the noise lost nothing. And did the same thing not occur at the end of 2018 – the market massacre last Christmas?

Look at what an investor with a balanced and diversified portfolio (60/40) has experienced:  so far in 2019 the US market is up 12% and the Canadian one almost 13%. The 12-month gain (which embraces the big sell-off last year) is more than 6% for both. Even bond prices have popped higher. Yes, some assets are flat (emerging markets) and some have dropped (preferreds) but the dividends keep roiling in. So embrace another principal: never exit an asset class. You have absolutely no idea what’s coming.

So what about barbarians? Recession? A real estate plop? Regime change? The polar vortex? Bernie Sanders, AOC and Jason Kenney?

The overriding defence is simple. Be balanced, with safe assets and growth assets in the same portfolio. And be diversified, with ETFs rather than stocks, exposure to Canada the US and international markets, and multiple asset classes. This blog recently gave you an indication of how to construct such a portfolio – one which has delivered nicely over the past eight years despite days of honey and times of vinegar.

Your enemy, Jake, is your own insecurity. Paralysis by analysis. Every day you spend worried about your future is one day less you have of it. Like barbarians, paper losses and gains come and go.

Time just goes.

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March 21st, 2019

Posted In: The Greater Fool

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