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M&A Investor Insights (Winter 2022): Prudent Investors are Rewarded by Time-Honored Principles Thumbnail

M&A Investor Insights (Winter 2022): Prudent Investors are Rewarded by Time-Honored Principles

Dear Clients and Friends;

I hope each of you had a nice Family Day Long Weekend with your loved ones!  Such special time together is a blessing these days, and we are grateful to be able to share it with those closest to us.  Today I’m sending you a letter to remind us about how our emotions interact with all aspects of our lives, including our financial affairs. Globally speaking, it’s a highly consequential time in our lives and it’s important to be mindful of how markets tend to react during such uncertainties.

The World Continues to be Unsettled: 

There is a lot going on in our world these days and we would be wise to recognize that much of it has been quite unnerving.  We are witnessing the Russian destabilization and invasion of Ukraine, high inflation numbers, a Canadian population which is burned-out from government restrictions, an investment market correction, etc etc.  As I’ve mentioned countless times during our in-person meetings, phone calls, Zoom calls, and newsletters over nearly three decades, markets tend to become quite volatile during times of uncertainty. Our emotional response to such matters tends to limit our ability to make good decisions. It’s also important to realize one’s limitations in terms of understanding all the complexities of investment markets and why some investments are wise and some are not. It’s for these reasons (and many others) that our clients hire professional portfolio management companies and teams to make these consequential investment decisions on their behalf.  When times are uncertain, their expertise is even more valuable and necessary.

Award Winning Portfolio Management: 

It's important to remember that we have developed relationships with some of North America’s finest investment management companies over the past few decades. Companies such as Manulife, MAWER, John Hancock, Fidelity, and Mackenzie are a few of these great firms which have navigated complex markets for Canadians amidst the best and worst times.  These firms represent some of North Americas most awarded and widely recognized investment management teams, which is why we have gravitated to their expertise.  These firms have prudently managed investment assets for pensions, corporations, sovereign wealth funds, charities, and countless other segments of our society.  It’s important to remember that their tremendous professional acumen developed through many decades of experience is what gives us confidence during uncertain times.  While we all agree that there are no guarantees in the markets, we do have confidence that the firms described above are prudent custodians of our money during good and bad times.  It’s during tough times that we see the real value in these wonderful management companies, as they work hard to safeguard our capital.

Historical Perspective:  

History gives us many lessons from which to draw understanding if we take a moment to reflect upon the past.  We recently saw what can happen to markets when the entire world nearly shut down from a global pandemic.  Markets severely corrected downwards before they stabilized and returned to normalized values. Not too long ago we saw the global banking crisis which also caused a sharp downturn in market valuations (including the real estate market). Markets rebounded not too long after that to enter a period of growth once again.  In the early 2000’s we witnessed market downturns resulting from the “technology bubble”.  Prior to that we saw market turmoil during the fall of the old Soviet Union, the 1987 market downturn, the extremely high interest rates from the early 1980’s, the Vietnam war, the Korean War, and the Second World War.  Times of strife have always been part of our world.

Foundational Principles:  

The point in reminding you about our past struggles is that markets often move around in a very volatile manner when things are uncertain, but then they stabilize and return to normal after a period of time. That is what history tells us.  How long do good markets and bad markets last?  This we don’t know.  Broadly speaking, the past repeats itself time and again and we are wise to remember that we cannot foretell, with any reliability, the beginning or the end of “good” or “bad” market cycles.  If there’s one thing history has shown us, it’s that trying to “time” the markets is extremely risky and difficult, but it’s one of the most tempting things to do when we are emotionally engaged with our surroundings!  During scary times we must dig deep within ourselves and remember the foundation of strength which has brought us to where we are today! Your select portfolio management teams are experienced navigators of these tricky waters and they hold a steady helm on your behalf.  

A Down-Payment for The Future:  

As you know, we have experienced no less than 3 straight years of exceptionally strong investment growth.  In fact, numerous moderate risk portfolios have posted three-year cumulative returns in the 30% to 40% range, which is well above expectations (we see these numbers when adding annual returns from 2019, 2020, and 2021).  I have often referred to these very strong returns as being a “down-payment for the future”.  By that, I have meant that those excessively high returns have built-up an extra layer of growth upon which we’ll be well-positioned to handle market downturns when they invariably do come (as we see happening today).  Market downturns will always be a part of investing, and they are a necessary part of the investment journey as history has repeatedly shown.  That extra layer of investment growth which has built up over the past three years provides some additional peace-of-mind.  

Our Years of Experience and Conservative Style:

I’m not too many years away from completing my third decade in my financial advisory vocation which I believe to be one of my most important “life-callings”.  In that experience, I can confidently say that one of the best decisions we’ve made together has been to trust in the professional acumen of the exceptional firms who custodian our money.  We employ them with trust and confidence.  While it’s difficult to remain positive during uncertain times, it’s something we must choose within our hearts.  Attitude is what makes the measure of who we are. Our firm specializes in utilizing low-to moderate risk portfolios and management firms which are broadly diversified amongst many different factors including (geography, asset class, currency, management style, and business type).  Our conservative approach to investment management has rewarded our clients extremely well in good times and in bad.  Protecting our clients on the downside of markets and rewarding them on the upside has been our experience.

Hold the Line:

There is long-standing wisdom in the financial services industry which encourages broadly diversified investors to “hold the line” when times are challenging. We have always encouraged this approach with our clients over the decades and we continue to maintain this wise approach today. It’s important to note that our investment team follows this wisdom with our own personal money as well. We do for ourselves what we do for our clients.  

In closing, I would like to remind you that our doors are always open and we’re here for you.  Although our phone lines have been very quiet as it relates to this recent market volatility, it doesn’t mean that folks aren’t feeling a bit uneasy. That’s why we reached out to you today.  It’s natural to have feelings of uneasiness when the world is troubled, but if you are unable to sleep at night then we should review your risk profile to ascertain if anything needs adjustment.  Again, we thank-you for your trust and confidence and we remain optimistic that the world will return to a much happier place before too long. The future will be what we choose together.

Yours truly,

Maurice Matte