Disclosure: The following represents my opinions only. I am long AAV, ASCU, AYA, BIR, CAPT, CDR, EQX, FM, FOM, GOT, HSLV, KNT, LBC, MMA, MMET, NDM, NSE, NXE, PNE, PTK/POET, TAO, TKO, TNZ, TUK, VIO and VLE (image credit to dharmendra sahu on Unsplash)
Unless you’ve been asleep, you’ve likely felt some market turbulence lately. From February 20th to March 13th, the S&P dropped about ten percent as the market worried about recessionary fears and Trump tariffs. The TSX Venture exchange also dropped about ten percent in an even shorter period, while the TSX big board fared a little better and only shed about 5 percent. Meanwhile, copper and gold have both outperformed the broader tapes as the DXY (i.e., the U.S. dollar) took it on the chin. With recessionary fears and a market that is indifferent to oil, WTI crude is currently trying to hang on to support in the $65-67/barrel range — but I never worry too much about oil prices… because the cure to low oil prices is low oil prices.
Markets like these tend to give people a reality check in terms of what they’re willing to hold and how much of it they really want to own. Having some dry powder if things get really squirrelly is never a bad idea, so those who may have raised cash on the dip may think a little harder about where and when they want to deploy it. There’s nothing like that feeling of looking down the dark hole of market despair to make a person focus a more sharply on what they’re holding and their overall exposure. Everyone will have their own reaction in the face of market volatility, but I was sent a quote from the late Charlie Munger the other day that said, “If you can’t stomach 50% declines in your investment, you will get the mediocre returns you deserve.” So I guess the question that everyone needs to ask themselves on dips like the one we just had (are having?) is whether or not general market malaise really changes your view on any given company. If it does, you’re likely looking at a speculation, not an investment… and telling the difference isn’t always that easy. Broadly speaking, for me, an investment implies 1) a knowledge of the business plan of a company and how it will create shareholder value, 2) faith in management to execute that plan, 3) a belief that the company has enough capital/cash flow to continue its business as usual regardless of what “the market” is doing short term (I’d define short term as less than a year in this context), and 4) a hopefully well-founded view that the shares of the company are undervalued if the company succeeds (or continues to succeed) in its endeavours.