By: Jeff Pollock
April 6, 2017

Financier J.P. Morgan was once asked by a liftboy to forecast the stock market’s behaviour while he was away overseas. “It will fluctuate,” Morgan replied.

Timing the market over the short-term is a favourite past time for speculators. Individuals that make these guesses (using other people’s money) always have a story to justify their actions. In recent memory, short-term market bears have cited several reasons to sell, including: a Trump presidency, Brexit, the effect of falling oil prices on Canadian bank earnings, terrorist attacks throughout Europe, a slowdown in China, and political gridlock in Washington. In each of these instances, however, the market continued along the same upward trajectory that it has for the past century.

In fact, while the inclination is to press “sell” amid a news cycle of distressed headlines, buying into a pessimistic market has historically returned quite favourable results. In the table below, two notable events from each decade dating back to the 1950’s were selected. Two years later, the market traded at higher levels in all but two of the examples cited.

Extrapolating the market’s direction over the long-term is a much easier, not to mention more logical, strategy to pursue. Warren Buffett wrote that “if you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.” Going all the way back to 1928, the year before the infamous 1929 market crash, the S&P 500 has posted positive returns in 65 of those 89 years since. In other words, the market has historically appreciated 73% of the time (almost three years out of four).

Vestcap’s Investment Committee pursues a long-term horizon when making investments for clients. As contrarians, we look for businesses that not only have solid, blue chip fundamentals, but have also fallen in price to the point where the risk-reward trade-off weighs favourably in our direction. Over time, because of the results that this approach has yielded, our clients sit contented with our style and are more than satisfied with our performance.


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