• Adam Schacter

Market Declines 2: Your Portfolio is still down (even more so) in 2022

Dear Reader


,


In early March, I wrote about the stock market declines of the first 60 days of 2022. You can access the article at https://www.adamschacter.com/post/market-declines-your-portfolio-is-down-in-2022.


The article referenced above outlined the backdrop we were dealing with at the time, and now your portfolio has fallen further.


I have included some more graphs below for each of the most followed indices in this part of the world. The numbers represented below are since the beginning of 2022 (year-to-date, or YTD). If you have not been following this on your own, please make sure you are sitting down before reading further.

All graphs below are source: Google

The S&P 500 Index is down -18.14% YTD

The S&P500 Index is a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices.




The DOW Jones Industrial Average is down -13.35% YTD

The Dow Jones Industrial Average is a price-weighted measurement stock market index of 30 prominent companies listed on stock exchanges in the United States.


The Nasdaq Composite Index is down -27.74% YTD

The Nasdaq Composite Index is a stock market index that includes almost all stocks listed on the Nasdaq stock exchange. Along with the Dow Jones Industrial Average and S&P 500, it is one of the three most-followed stock market indices in the United States. The composition of the NASDAQ Composite is heavily weighted towards companies in the information technology sector.

The Toronto Stock Exchange Composite Index is down -7.43% YTD

The Toronto Stock Exchange Composite Index is the benchmark Canadian index, representing roughly 70% of the total market capitalization on the Toronto Stock Exchange (TSX) with about 250 companies included in it.


Google and the Google logo are registered trademarks of Google LLC. Used with permission.

Wow. With a backdrop like this, you would think the genre of this article was a Tragedy.

What to do............

Should you abandon the strategy in place and move into cash until this downturn is over?

Does this downturn represent an incredible buying opportunity to move into equities now that they’re all selling at a discount?

If you can time the market, then you already know that Armageddon is on the horizon. The writing has been on the wall for several years (decades, actually). You knew this was going to happen and you’re kicking yourself you didn’t sell everything sooner. At this point, a cash/gold/bitcoin/other strategy is apt for this moment in financial history. The markets are going to go lower and lower and you need to sell now before any further decreases cost you your wealth and retirement (!).

If you can time the market, then you already know that downturns like these should be seen as opportunities! Stocks have fallen enough to finally reach this new low you have been waiting for! It’s not uncommon for markets to drop like this, and when they do, it’s time to go bargain shopping – this is how money is made! Scoop up equities now while they’re selling for discount prices (!).

If you cannot accurately time the market (ie. you do not have a crystal ball; I happen to be in this group), then what are you supposed to do? Sell? Buy? Do nothing and wait it out?

Here are a few pointers for those of you who have zero intuition into short-term market fluctuations, just like me.

1) Admit to yourself that you do not know how markets will react over short-term time periods. Admit that you don’t know if the markets will go lower from here, and you don’t know if this current market is near its low point. Don’t just admit it to yourself – embody it. The only absolutely true words you can irrefutably utter are: “I don’t know”.

2) Once you believe wholeheartedly that you don’t know, ask yourself what you do know:

Here's what I know:

  • Markets trend upward over time.

  • Market declines are normal.

  • Markets always reach a new high in time.

Here are some things you can do:

1) Check in on your goals and objectives

  • Are you still on track?


2) Own quality

  • Is the core of your portfolio composed of a few quality business domiciled in long-term growth industries, operated by management with skin in the game?


3) Hold some assets that are not correlated to public markets:

  • This includes real estate, infrastructure, private equity, mortgages, private credit, direct investment, resources, real assets, and more.

  • Note: this is how Billion Dollar portfolios are constructed, like the Canada Pension Plan, Ontario Teacher’s Pension Plan, Harvard Endowment Fund, and ultra-wealthy individuals'.

  • If you don’t have access to these types of assets for your portfolio, please reach out – there is a mathematical advantage to owning these kinds of investment assets where appropriate.


4) Diversify

  • Chances are your portfolio is not all invested in technology stocks, emerging market stocks, and long-duration bonds... If so, you’ve had the worst 2022 of all.

  • Holding varying kinds of assets in varying parts of the world in different structures with different managerial styles with varying liquidities in different sectors should help to ensure that no single “bet” is too large and too risky to your portfolio

5) Strategically rebalance

  • If you own different kinds of assets (see Diversify above), and you still believe in the assets that have gone down in value, then you can sell/trim some of the positions that have increased or held steady (or have not fallen by as much) and use the proceeds to increase your position in those that have gone down the most.

  • If you undertake this strategy, it is recommended to use a very defined framework which removes intuition, insight, and timing.

  • If you don’t have astrategy like this in place, please reach out and we can show you how to implement one.

6) Stick to your framework

  • Abandoning a strategy typically always comes at the worst possible time. If you have a proven and effective framework – stick to it.

I hope this helps ease your nerves and calms your mind if you're feeling useasy.

If you want to review the strategy we have in place for you for times like these, or if you want a second opinion on your current strategy, please reach out. We are available and would be happy to discuss/review.

The take-home here is to ensure you have a framework for long-term investing, and to ensure your emotions (excitement when markets are up, fear when markets are down) don’t cloud your judgment in sticking to that framework.

If you have any questions about your financial plan, would like our opinion on what this current financial landscape means for long-term investors, or would like a refresh on the framework we have in place for times like these, please never hesitate to reach out.

We are available and accessible to you any time through email, phone, and video.

Be well and be safe,

Adam

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