Portfolio Corner: Autumn Leaves Bring Opportunity

A Strategy For The Fall

By Steven Mayo

As we approach the New Year, the stock markets will likely continue their tug of war, reacting between rising interest rates, inflation and recessionary concerns, versus stocks and sectors that are priced attractively for an investor to consider buying.

In many ways nothing has changed.

We have dealt with increased market volatility this year and this seems to be the new market normal.

As investors, we need to keep perspective. Prices and time frames will continue to be important considerations.

For example, the end of June this year proved to be an excellent buying opportunity. Many stocks had dropped 20%+ from their late March prices.

Having a buy list ready to go proved timely and opportunistic as we saw price improvements in July and early August. I expect this market behaviour to continue.

In addition to your buy list, investors also have to decide what sectors they wish to focus on when markets correct. For example, oil stocks, having record earnings, have provided excellent buying opportunities this year on their price pullbacks . . . twice!

In general, each of the major market sectors can be picked on at different times. Investors can simply choose to buy the top companies in any sector to add to their portfolio.

It’s important to remember that companies have their own stories: earnings, dividends, cash flows, overall business strength and growth rates.

Preparedness and patience is required.

This is how the serious money is made in the investment world. Being selective is a better wealth building strategy than just being fixated on the indexes.

After all, stock indexes are noisy and distracting, whereas companies and their stock prices can be simply a reflection of fear — and media hype — and not necessarily their value. Successful investors can distinguish between these forces.

To finish 2022, it’s possible the markets have a recessionary reset. Economic weakness could arrive more quickly than expected, however, and with that likely comes a peak in interest rate increases and the opportunity to allocate capital again to grow one’s portfolio.

In the long run the stock market remains a wonderful wealth creating machine.

In the short run, income and dividends get you through the tough times.

As Peter Lynch said years ago: “The real key to making money in stocks is not to get scared out of them.”

I will wrap up now with another relevant quote from Steve Jobs: “The only way to do great work is to love what you do.” 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.