We have seen increased synchronization in growth with the world’s top
economic areas (Europe, U.S., China, and Japan), and are all performing
well, which doesn’t often happen. That is why markets continue to trend
upwards and why most economic news is positive.
Canada, which had outperformed most world’s economies for a number of years
as oil prices rose to $100 a barrel, has recently been lagging, and this is
expected to continue going forward. Canadians are carrying too much debt
(much of it in their homes), and any upward movement of interest rates will
take away disposable income or income that would likely be spent elsewhere
in the economy.
Real estate prices in greater Vancouver and Toronto especially are a
concern for many reasons. Many economists think our dollar needs to trend
lower based on the economy’s performance today. U.S. President Donald
Trump’s protectionist threats also have many Canadian investors in a hold
mode, because it’s difficult to invest in an industry that may be hit with
punitive tariffs in the near future.
Uncertainty isn’t good for forecasting and business in general, and Canada
currently has too much uncertainty, ranging from low crude oil prices, to
renegotiating NAFTA, to record high real estate prices, to high consumer
debt, and to Trump protectionism.
For investors, the takeaway is to continue to diversify portfolios and be
careful of having too much Canada in your mix. Most growth right now is
elsewhere, and this may continue for a few years yet. Find a way to own
fixed income, even though the return isn’t sexy and won’t be going forward.
Moreover, having 100% equity in a market that is near the end of a mature
bull cycle is a very risky strategy. I like infrastructure and real estate
as good diversifiers because they aren’t highly correlated to the stock
markets. This is not the time to be too aggressive for the same reasons.
Watching a $500,000 portfolio shrink into $300,000 isn’t fun, but that can
happen with a 35%-40% correction.
As Warren Buffett, Chairman of Berkshire Hathaway Inc. (NYSE: BRK.A) and possibly the world’s most successful investor, famously said, “The
first rule is not to lose. The second rule is not to forget the first rule.”
And as for his investment strategy, he put it in a nutshell: “We simply
attempt to be fearful when others are greedy and to be greedy when other
Words to the wise indeed.
Bruce Loeppky is based in Surrey, B.C. and is registered with
Portfolio Strategies Corporation as a mutual funds person. He is a regular contributor to the Fund
Library. He can be reached at firstname.lastname@example.org.
Notes and Disclaimers
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