A Message from ZLC Wealth: Don’t Panic.

A Message from ZLC Wealth: Don’t Panic.

The following article has been reposted from ZLC Financial affiliate ZLC Wealth Inc. ZLC Wealth’s Portfolio Managers’ are here to serve our clients and provide guidance and peace of mind as we navigate these trying times. If there ever was a time to reflect on risk, and financial impact of risk, our ZLC team is here to help. Please stay healthy, safe and reach out to your ZLC Advisor, or any member of our team, should you need anything at all.

DON’T PANIC!

With the investment world experiencing a period of unusual volatility and the greater world dealing with a significant viral threat, we understand that many of our clients are looking for guidance.  Please know that ZLC Wealth is closely monitoring all developments, but, like everyone else in this business, we can’t tell you where the market will be tomorrow or the next day.  And we don’t think this should be a concern. What we can do is what we have always done – take a long-term view, have reasonable diversification across strategies and holdings, pick and monitor good managers, oversee and rebalance portfoliosand stay rational not emotional.  In the long term, we think these principles drive the best returns.

Over the last 50 years, we’ve seen Black Monday when the US markets crashed by 20% in a single day, the collapse of the tech bubble in 2000, and the Great Financial crisis of 2008. During each of these time periods, it was important for investors to stick with their plan, not react to the news or short-term market moves.

The Dow Jones Industrial Average hit an all-time high of 29,551 on February 12, 2020. On March 9, it was down to 23,851, a drop of 19.3%.  What happened?  There are two key causes.

COVID-19

First, markets began to fear the corona virus could do real harm to the North American economy.  The disease started in late 2019  in the city of Wuhan, where people were originally treated for pneumonia from an unknown source.  On January 11, the first death was attributed to the new disease and on January 23; China imposes aggressive containment measures in Wuhan. To this point, the market was able to downplay the potential effect on the North American economy.

On February 11, the disease was officially named COVID-19 and on February 26 we saw the first case of transmission in North America. The daily updates pointed to more and more concern for the North American economy.  Italy is now on lockdown and on Sunday the BNP Paribas Open in Indian Wells, California was cancelled.  Is a postponement of the Olympics next?  Be ready for more initiatives that will hinder commerce, but also look for signs that the virus begins to taper. The self-imposed quarantine that China has implemented has been working, and we’ve seen new cases of the virus retreat. Tapering, when it does happen, will lead to growth.

OPEC +

The second issue was that Russia decided not to support Saudi Arabia in controlling oil exports causing the price of oil to drop 30% on March 9.  Russia is unhappy that OPEC plus Russia, often called OPEC +, were restricting their oil exports while US shale producers kept increasing production.  The price of oil had already been dropping based on fears of a slowing Chinese economy, but with Russia and Saudi Arabia flooding the market, prices crashed.  In our view, these oil prices are not sustainable as much of the world’s production costs more than the current price.  The best solution for low oil prices is low oil prices.  Production will eventually be cut in high-cost areas and output will decline resulting in a stabilization of prices.

The spread of COVID-19 and crashing oil prices caused traders to sell off equities.  Money moved to government bonds, especially US treasuries. The US 10-year treasuries that had yielded 3.24% in late 2018, dropped to a record low 0.50%.

HISTORY RHYMES

We’ve been through this before, and it won’t be the last time. To put this in perspective, on October 16, 2008, in the heart of the great recession and one month after Lehman Brothers filed for bankruptcy protection, Warren Buffet wrote an opinion piece in the New York Times titled “Buy American. I am.”  Markets at the time were in a tailspin and the economy was faltering when Buffet wrote:

“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month or a year from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”

Buffet’s message was early – the market dropped significantly after he wrote this piece, bottoming out on March 9, 2009 – but the message was right.  Stay invested.  Keep to your plan.  Markets are up significantly since 2009 however; we can all remember how scary things were during that time. You may think that we in the investment world reference Buffet too often, but keep in mind he has proven over many years to be one of the best long-term investors and his approach is similar to ours – long-term value investing.  We can’t think of a better inspiration.

DON’T PANIC.  STAY WITH YOUR PLAN.

Kind regards,

The ZLC Wealth Team

Article reposted from ZLC Wealth’s March 13th, 2020 Special President’s Letter.

DISCLAIMER: This newsletter is solely the work of the author for the purpose to provide information only. Although the author is a registered Investment as a Portfolio Manager at ZLC Wealth Inc. (ZLCWI), this is not an official publication of ZLCWI. The views (including any recommendations) expressed in this newsletter are those of the author alone, and are not necessarily those of ZLC Wealth Inc.  The information contained in this newsletter is drawn from sources believed to be reliable, but the accuracy and completeness of the information is not guaranteed, nor in providing it does the author or ZLCWI assume any liability. This information is not to be construed as investment advice. Your own circumstances have been considered properly and that action is taken on the latest available information. This newsletter is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This information is given as of the date appearing on this newsletter, and neither the author nor ZLCWI assume any obligation to update the information or advise on further developments relating to information provided herein. This newsletter is intended for distribution in those jurisdictions where both the author and ZLCWI are registered to do business. Any distribution or dissemination of this newsletter in any other jurisdictions is prohibited.  The rate of return shown is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of the Fund or returns on investment in the Fund. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the offering memorandum or prospectus of the Fund before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all dividends and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Performance results are not guaranteed, values may change frequently and past performance may not be repeated. IMPORTANT INFORMATION: The above commentary may contain an update on certain funds offered through ZLC Wealth Inc. Returns are net of fees and include reinvested dividends.  The performance of the fund presented in this document may be for a different series of fund than the series that you hold in your account.  The performance of the series that you hold may be different than what is shown.  This information does not constitute an offer or solicitation to anyone in any jurisdiction in which such an offer or solicitation is not authorized, or to any person to whom it is unlawful to make such an offer or solicitation.  These products may not be appropriate for all investors.  Important information about the funds is contained in the offering documents which should be read carefully before investing. You can obtain these documents from ZLC Wealth Inc. Please speak to a ZLC Wealth Portfolio Manager or Representative to determine if these products are right for you.

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