Portfolio Corner: Patient And Opportunistic

Navigating Through 2022 PART II

By Steven Mayo

Do you have to sell? his wife asked. “NO”. Do you leverage or buy on margin? “NO”. Are you invested in good companies? “YES”. Then go back to sleep!

In my May article I wrote that the first six months of 2022 were likely to be volatile and the markets were dealing with a lot of negative headlines: Russia-Ukraine, interest rates hikes, rising inflation, the sixth-wave, China lockdowns, higher oil and commodity prices etc.

At the end of the article the main message was to not be scared out of the market, but to look at the sectors that provided buying opportunities, such as financials, transportation, healthcare, industrials and manufacturing.

As I write this article (mid-May), these are the current headlines (please keep in mind that “talking heads” have to be dramatic and provide shock and awe). . .

-Nasdaq on track for worst month since

October 2008. This only matters if you only own technology stocks. -Worst bond market in 40 years. Of course . . . bond prices go down when interest rates increase (from historically low levels).

-S&P 500 on track for worst month

since 2020. Makes sense since a pandemic was declared in March 2020.

We must always keep perspective. Stock indices are always fluctuating because of the way they are constructed. It is rather a stock’s price that is most important in determining if it is a timely buying opportunity.

In reality, and especially in times like this (rising interest rate environment), I primarily concentrate on businesses that have a strong cash flow story.

The stock market is a collection of good businesses, mediocre businesses, and speculative/unproven businesses.

If an investor chooses the third and/ or fourth group, then they should expect casino-like returns.

Investing within the first two groups, over time, will see reduced volatility, dividend growth, and risk appropriate returns.

In the short-run the market can be volatile, but in the long-run it is a wealth creator. One of my colleagues expressed it best: “Buy best of breed, buy good . . . getting better.”

There was actually positive news in April that was almost forgotten by the end of the month. Earnings reported were good, and many companies announced dividend increases and stock buy-backs. This is what investors should focus on.

As we now approach the second half of 2022, an investor has time to be patient and opportunistic. Remember, stocks bottom out on bad news, not good news.

In closing, consider this quote from Grit Capital: “Remember, owning stocks is risky in the short run. But not owning stocks is risky in the long run.” 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.

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