Among the noise surrounding the controversies of President Trump and Prime Minister Trudeau, the Canadian and American stock markets have done incredibly well to start the year. So much so that the main Canadian stock market indicator, the TSX, closed at an all time high just before the Easter holiday weekend.
This is surprising for what’s considered a “dead” economy. Let’s face it. Alberta’s in a crisis mode as the oil patch has struggled to regain any ground and the Prime Minister’s added carbon tax and cancellation of the pipeline didn’t help anything. British Columbia’s once burgeoning real estate driven economy is on the verge of collapse with prices starting to fall. Gasp!
So why are stock prices at all time highs? It just doesn’t make sense. Everyone thought in December that the markets were going to crash 50% like 2008. We all remember that year don’t we?
After the steep 17% correction, stocks have rallied and far surpassed the previous highs. Does this sound familiar? Seems like history does like to repeat itself when it comes to stocks. Severe, corrections are generally followed by a slowly rising market that eventually surpasses previous highs. This was no different in 2008.
This is why this blog preaches to always stay invested. Don’t try to time the market and just re-balance. Even in a flat market like the TSX, re-balancing a portfolio will ultimately lead to gains. Exiting the market completely at the bottom is always a losing game.
The Economy Is Global
Perhaps the hardest thing for many Canadians to understand just how global the economy is now. As the diagram above shows, Canada is but a drop in the bucket in a $80 trillion dollar global economy.
That’s why even if the Canadian economy sucks, somewhere else in the rest of the world, some country is doing well. This in turns drives the Canadian economy as well. That’s because the goods and services that we produce in Canada are not necessarily consumed within our borders. With the high educational level of Canadians, more and more of our services are sold to other countries, not just manufactured goods.
Despite the protectionist measures that governments like the Trump administration and other alt-right groups are trying to impose, it’s not going to stop the global economy from expanding. And let’s face it. Even though Trump wants to close his borders, he doesn’t want others to do the same to him. Money and greed still plays a factor. Corporate America still wants a piece of the pie from other countries.
As I have said time and time again. It’s never a good idea to abandon the thesis of investing in a balanced investment portfolio. Knowing that the global economy is continually expanding is all you need. As long as Earth’s population continues to grow and expand we can almost guarantee economies will continue to grow.
Even large drops shouldn’t discourage us from investing. As the above graphs show, each and every time there is a crash, the markets seem to find legs to crawl its way back up again. That’s how resilient our economies are.
Just remember to re-balance and keep investing. Don’t get discouraged when stock prices drop. Treat 10% drops as on sale prices. Treat 50% drops as fire sale prices and a once in a lifetime opportunity to buy. With that kind of mentality, it’s what makes a successful investor.
No News Is Good News
The surprising thing with record setting stock markets is that there is very little news talking about it. That’s because good news is boring. No one wants to read about good news. It’s bad news that catches the eye of the reader.
This means the lack of news is good for the stock market. No one is paying attention, even ourselves. When we let our investments just sit and do their thing good things happen.
With everyone focused on elections this year and the falling housing market (more to come on that) no one is paying attention to Canadian stock market. Neither should you. With warmer weather coming up, enjoy what a balanced investment portfolio provides, so go out and have a drink on the patio.