Portfolio Corner: Managing Emotions

Heart Versus Brain

By Steven Mayo

As I write in mid March, my main concern is for the people of the Ukraine. Unfortunately, an unnecessary crisis and invasion has occurred.

My heart goes out to these great people. We are now seeing the world rally behind them.

My brain also realizes that the day of the Russian invasion may also have been the bottom of the market for many stocks, as we have seen in the last five wars. Markets always factor in the worst outcomes to begin and adjust “risk” as news flows on a daily basis.

With this crisis also come supply disruptions, higher oil and commodity prices, and escalated inflation concerns.

However, as investors we also have to keep in mind that North American corporate earnings remain good, consumer spending numbers continue to strengthen, and the pandemic story is slowly becoming an endemic story.

Clearly, the crisis in Ukraine has pushed good investment stories to the back page. Over time the good corporate stories will come back into focus, especially in April when the quarterly earnings reports begin. In the meantime huge amounts of money remain on the sidelines to see how this global story plays out. There are many value stocks that are already in buying territory.

The current headlines surrounding the invasion of Ukraine, and the World’s reaction, are a serious business. In reality we always have the following core investment decisions to make, in both stressful times, and “normal” times . . . 1. Do I need to buy or sell anything today? 2. If I add a company to the portfolio, does it have a history of paying/increasing dividends? Do your homework! 3. Is this company suitable for my portfolio? Or are you experiencing FOMO (Fear Of Missing Out)? 4. Do I currently have exposure to that sector, and how much? Is the sector over or under-valued in the last six months? 5. What percentage of the portfolio is supposed to be in stocks/managed money?

The first question is critical as it alludes to one of the most important qualities of any successful investor: patience.

Having the patience to wait with cash for a great opportunity to arise can make all the difference.

In the first half of 2022, I believe value stocks will be important to portfolio performance, more so than growth stocks.

The rotation of money from one group/sector to another is constant; however, it’s likely now that it is too late to add oil and hard commodity stocks to a portfolio. That was my recommendation in 2020 and 2021. I now suggest looking towards health care, manufacturing, and transportation companies in North America.

I will continue to preach patience and recommend particular attention be given to companies that grow their dividends. This is still the right recipe for today’s investment climate. Buy quality in times of uncertainty and stock market volatility. Keep in mind though that volatility does not always equate to more risk. It usually provides opportunity.

It is my hope that the crisis in the Ukraine has been resolved by the time you read this.

Quote of the month: “The stock market is a device for transferring money from the impatient to the patient.” ~ Warren Buffett Steven Mayo is a Senior Investment Advisor with RBC Dominion Securities Inc. (Member — Canadian Investor Protection Fund). This article is not intended as, nor does it constitute investment advice. Readers should consult a qualified professional before taking any action based on information in this article.