We would like to provide you with a second overview of investment market developments with regards to the recent coronavirus news.
Since our letter to investors dated January 31, 2020, the novel coronavirus has introduced a new level of uncertainty into the market just as the global economy began showing signs of a recovery.
Last week, at our investment committee meeting, we discussed the US and Canadian markets having continually advanced without a 10% correction for over 14 months; the markets were overdue for some sort of weakness as upside momentum was just unsustainable.
We started aggressively raising cash at the height of the market and have been actively managing through the volatility this week.
In our last letter, we wrote:
Ultimately, the big question that needs to be answered is whether the virus could graduate to a pandemic (very serious for the global economy) or remain fairly small and regional (limited impact to economies outside main affected areas) like previous viral outbreaks (e.g. SARS (2003), H1N1 (2010), MERS (2017)).
We now seem to have our answer and are positioned proactively for this pullback.
We will reiterate that areas of the market most impacted by the coronavirus are the oil, materials and transportation sectors (particularly airlines and cruise lines), as travel restrictions are going to happen whether or not the virus spreads. We have very little to no exposure to these markets in portfolios. Likewise, Chinese and other Asian stock markets will feel increased pressure as trade and commerce are curtailed for a period of time. Similar challenges are now presenting themselves on a more global level.
We also hold within our portfolios many positions that potentially reduce volatility during these periods of heightened uncertainty. Areas of the market like defensive and interest-sensitive sectors such as utilities, consumer staples and real estate, can certainly provide protection during these crises.
We have raised cash and rebalanced portfolios to navigate the volatility and are well positioned in the portfolio to have the ability to (re) purchase some of our favorite companies at a significant discount. Those currently accumulating for retirement and with the ability to add cash that they have been saving, should consider doing so as they have a, potentially, once-in-a-decade opportunity to embrace the volatility and add to their portfolio. A deep opportunity to purchase great companies at a significant discount is presenting itself.
We would like to thank to you for your continued trust in us and for giving us the opportunity to assist you in working towards your financial goals.
We know these can be trying times and we welcome conversations! Please do not hesitate to contact us to discuss your specific portfolios or situation as we are just a phone call away.