My experience of almost 40 years (July 5^th 1982) as an investment advisor suggests that investment market disruption from geopolitical events does not last long and it is better to focus on companies rather than politics or economics.

 

I don’t think I could express this any better than the internal memo below from Tye Bousada at EdgePoint. With his permission I will share his memo

 

Hi Team,

 

Richard, Ben, Liz, and Grant all mentioned that you were getting a few questions on the market today given the Ukraine situation so I thought I would give you a quick update. Obviously it is a terrible situation. I don’t think any of you have family or friends that are impacted by what’s happening in Ukraine. But if I’m wrong, please let me know.

 

I will focus on the Global side because it seemed a lot more volatile than the Canadian one. Bottom line is we were very active. The volatility presented many opportunities. We entered the day with approximately 5% cash, so we were in a position of strength to take advantage of the fear. By noon, we had added to over 10 of our names in EdgePoint Global Portfolio (between 25% and 30% of our positions). As for how inefficient markets can be, at some point today:

 

• Approximately 90% of our Portfolio saw at least a 3% share price move
• 24 names moved more than 3% off their daily low
• Some saw intra-day swings upwards of 10%.

 

Volatility is the friend of the investor who knows the value of a business and the enemy of the investor who doesn’t.

 

As for our view on what’s happening in Ukraine, the answer is we’re not smart enough to have one. There are a lot of talking heads on TV or online that would like you to think they know, but they really don’t have a clue either. In the face of this uncertainty, what matters is what’s always mattered – buying growth for free.

 

Take Restaurant Brands International for example. It opened down 2% from yesterday’s close. Are fewer people going to go to Tim Hortons today in Edmonton because of what’s happening in Ukraine? How about a Burger King in Miami or a Popeyes in Shanghai? You get the point. RBI closed up about 1% on the day.

 

What about TE Connectivity which fell around 3% out of the gates today? Are fewer connectors going to be needed in electric vehicles because of what Russia did? TE finished up 2.2%.

 

How about PG&E? Will there be less demand for electricity in California tomorrow because of hostilities overseas? It opened down about 3.5% and closed up around 2%.

 

Will there be less catering at NHL games tonight because of Ukraine? Aramark shed 3.9% of its value at the open. It closed up 0.5% by the end of the day.

 

You’ve heard us say this for years on Monday morning calls, but what matters is the consistent application of our approach. We wake up every day and try to buy growth without paying for it. Days like today are helpful in our efforts and should sow the seeds for pleasing future performance.

 

Tye

 

Many of my clients have bond investments with Lysander/Canso. The founder is a good friend of mine since we were together getting our degrees at the Royal Military College of Canada. I’m with him working remotely for a couple of days at his cottage. We haven’t spoken about Russia at all despite our military experience. We know we don’t know what the outcome of this war so we talk about investments. He manages almost 40 Billion dollars of bonds for individuals, pensions, universities and foundations. Yesterday he made a succinct statement. “I can’t predict the north American economy but I know when bonds are cheap and I know when they are expensive.” By focusing on what he knows he has built a great track record.

 

You may be interested to know that well prior to the eruption of war he positioned his bond holdings very conservatively because he felt that bonds are expensive not because he can predict the future. He did the same thing for the same reason prior to the pandemic and then exploited the buying opportunity that ensued.

 

 

Sometimes you may feel that actions should be taken on your portfolio. Often actions are being taken behind the scenes and aggressively. I own the same investments my clients own to the greatest extent possible and I take comfort from knowing that

Well measured actions are being taken within portfolios.