We hope this finds you well and in great spirits. The past few months have been challenging by virtually every measure, emotionally, financially and for some even medically. We trust that you have been taking appropriate precautions and that you and your family are staying safe and healthy.

 

The human toll of the COVID-19 disease has wreaked havoc on hundreds of thousands of lives while the economic toll has done so on hundreds of millions. My heart goes out to all those who have lost loved ones due to this disease.

 

We wanted to provide you with an update on the markets and our strategies for dealing with it.

 

Market Update:

 

After many difficult trading sessions in March, equity markets have and continue to recover, albeit partially. The markets have inched forward as investors seem to be looking forward to gradual reductions in the pandemic lockdown. The reopening of some businesses and organizations in Canada and other countries offered some relief to investors after weeks of uncertainty.

 

Although the economic data being released will likely continue to be disappointing, given the massive shutdowns to economic activity worldwide, we are seeing the light at the end of the tunnel, as economic activity is beginning to expand. To give you a few examples, during the week ending Saturday May 2, almost a million passengers went through TSA checkpoints at airports in the U.S. That's up 26% from the prior week and up 40% from two weeks ago. The amount of motor gasoline supplied has grown three weeks in a row, and is up a total of 16%. Hotel occupancy and railcar traffic are both up from a month ago*. Yes, activity is still down substantially from year-ago levels, but we are beginning to see signs of life.

 

Strategy:

 

The adage “keep calm and carry on”, in the end, is the best advice to follow during times of extreme market volatility such as the present. But this doesn’t mean doing nothing. This is a time to get busy behind the scene, reviewing, assessing, and analysing the businesses one owns to ensure they remain of high calibre, and making the necessary adjustments. Despite expecting their earnings to temporary suffer in the short term, we see a bright future for high quality companies over the long term. A good strategy is to seek high quality businesses with strong balance sheets, sustainable earnings, robust and growing dividends, as well as improving growth potential. We maintain our bias towards companies on firm financial footings and ones that are better positioned to weather future uncertainties.

 

Summary:

 

The current recession will be difficult and may very well be one of the worst of our lifetimes. But it is not a normal recession, and it is expected to be short. The global economy and financial markets should transition from intense near-term pain to gradual healing over the next six to 12 months, despite the possibility for an uneven recovery, with potential setbacks along the way.

 

We continue to advocate spending time focusing on things within our control. Given that we are long-term investors, we will ignore the short term gyrations of the markets and keep our attention focused on prudently protecting the capital we have been intrusted with, while not attempting to follow the unproven and risky strategies of trying to time the short term.

 

Although the weeks ahead will be tough, there are better days beyond them.

 

As always, we are here to help, so please don’t hesitate to contact us if you need anything.

 

Best regards and stay safe.

 

Khaled Sultan, P.Eng, MBA, CFA