We always have our eyes on a number of positions that we quite like, keeping tabs on them in case they come into our value strike zone.   Markets can change in a heartbeat as they did here in early April, with index levels in Canada and abroad falling over -10% in 2 trading days.   We have a couple of formerly expensive businesses that we are preparing to add to portfolios as a result of recent price movements.

 

Some might think a two day -10% drop is a scary sign that one should sit on the sidelines while things ‘settle down’ (aka get expensive).   Historically that hasn’t been the case for a long term investor.   Here are the ten largest two day declines in the S&P500 - interestingly last Thursday-Friday, April 4-5 rank as the 5^th worse double of the last 75 years.   Take note of the ensuing 1, 3 and 5 year total returns earned by those bold enough to step in and buy the market after those other 2 day stumbles.

 

   

 

Even those with ‘terrible timing’ were well rewarded.   Had you bought after the -9.4% decline in the market in early October 2008, then watched your purchase fall by -25% to the bottom of the financial crisis in March 9, 2009 you might have thought there was no hope.  Yet by late 2009 your position had recovered and you were up +9%...up 88% by October 2013, a 13% compounded annual return.

 

Notably, since April 8th when the S&P500 bottomed at just below 5000 points, the index has risen back to just below 6000 points as of June 4th, producing a return of 19.8% providing a great example of market irrationality and a good buying opportunity for those paying attention. 

 

The moral of the story is that our portfolio positioning and preparation is constantly evolving, guided by rebalancing to our target asset allocation and  the understanding that if our portfolios are full of quality, value and are well diversified, we can confidently navigate even the most difficult markets. 

 

Brady Clark Advisory Group