Somewhere on the Internet – and you won’t have to search far, according to conversations I’ve had with investors – you will find stories predicting nuclear war, the next Great Depression, the collapse of the U.S. dollar and any number of reasons to want to stay in bed with the covers over your head. Of course, the headlines across traditional media aren’t exactly upbeat, with the Russia-Ukraine war, classified intelligence leaks, bank failures and extreme weather events top of mind for editors, reporters and readers.
It’s no wonder that investors are more fearful than I’ve experienced in more than 25 years as an investment advisor. Even the global financial collapse of 2008 didn’t inspire as much nervousness about the markets and serious consideration of selling and going to cash – and the economic forces at play then were much more problematic for investors than they are today. I’m not alone in this belief. Jamie Dimon, the CEO of JP Morgan, North America’s largest bank, says, the environment today is nothing like it was in 2008. He should know. His own bank alongside other major players in the finance space, including Wells Fargo, PNC Financial and Citigroup, are all reporting better than expected first-quarter profits.1
It wasn’t just the banks. The Toronto Stock Exchange (TSX) was up by 3.5% in the first three months of the year. If we average 3.5% each quarter of this year that will mean a 14% rate of return. The S&P 500, North America’s largest stock index, was up 7% for the first three months, on pace for 28% return this year. The Nasdaq, which is dominated by tech companies, the sector most negatively affected by higher interest rates last year, was up 16%, on pace for a 64% rate of return in 2023.
It’s far too easy to go down the rabbit hole of negativity online, especially when predictive AI is only showing you content based on your browsing history, and polarization and partisanship seems to be creating ever greater divides – even when it comes to news sources. But the gloominess that seems to have gripped investors is not warranted. Unemployment is low, inflation is falling and interest rates are stabilizing. As of the time of writing, the markets continue to rally.
To lift the veil on all the doom and gloom, seek out reputable sources to understand the big picture in terms of macro economic trends and then dig into the performance of individual companies to understand what they do, how they do it and opportunities for growth. In other words, focus on the facts and the numbers. Your investment advisor should be able to help. These are exactly the conversations I’m having with my own clients.
If you’re invested in the markets, there is always a reason to sell and on the flip side, there is always a reason to buy. Today, the facts tell us this is a time to buy.
My best advice: Be a contrarian. When other investors are fearful and selling their investments despite strong performance, be greedy. Purchase good value companies that have strong fundamentals and are on sale through no fault of their own. Don’t let emotion drive your investment decisions.
You’ll see that I also discussed this on my online digital show, the Allan Small Financial Show, in a segment called Gloomy investors might be surprised by markets’ performance.
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- Biggest U.S. Banks Report Bumper Profits Amid Industry Turmoil, The New York Times