Are We In Control?
The markets have experienced quite a roiling in the last six months. Some people are wondering if they’re invested correctly. They are asking, “What is going on out there? Are we doing the right thing?”
The answer is, of course, yes. We have been proactive on the things we can control in the investment world. We have done the analyses, made the appropriate recommendations, and we’ve discussed and implemented them.
We’re concerned that, as we see volatility time and again, people will forget about how we built their Investment Plan and how much control we had building it.
What Do We Control?
We’ve talked about this for years in our review meetings and in conversation – and I felt it would be a good time to revisit what it is we do control, and what we don’t control.
Here’s What We Control:
- Private vs Public market securities – This is key to the TCIC Portfolios. We have the flexibility to source and/or create investments that are not correlated to the roller coaster of the public markets. Adding private investments allows your portfolio to side step the vagaries of fear and greed that drives volatility of the public markets.
- Creating Custom Principal Notes – These Notes are created by CIBC and the TCIC Investment Committee. They are a structured investment product that holds our equity allocations. Our concept thesis is this: if we are to hold equities in your portfolios, why not hold those equities in a structure that gives you enhanced return vs just holding the stocks, and /or cash flow, as well as greater capital protection. We create our custom Principal Notes through a tier one Canadian bank.
- Asset Allocation – According to the type of investor you are. Your portfolio is built to suit you, whether you are aggressive, conservative, or somewhere in between. This is the simple allocation between stocks, bonds, cash, and public vs private issued investments. You and I have reviewed this and it is in place.
- Geography – Within each Asset Class, we’ve determined the amount of Canadian, U.S., International, or Emerging Markets countries in which to diversify.
- Investment Manager/Firm – We will use an outside management firm for access to sophisticated investment opportunities we cannot create or manage directly. If so, we will have picked the most appropriate Manager/Firm to fill that particular allocation/sector. We are constantly analyzing the investment manager/firm data screens to make sure our chosen manager is doing the job. We talk about this in our reviews.
- Investment Manager Style – Growth vs. Value vs. Core. Within those decisions we want to mesh the complementary investing styles of Growth to Value. This is also in place. Alternative investments that are not correlated to the public markets are key drivers of cash yields and portfolio pricing stability during times of public market volatility.
- Timing – Although you can never get the timing of the markets right all the time, we look for advantageous entry points when we have capital to add to your overall plan. We know we should “Buy low and Sell high”. It sounds cliché, but it is part of the discipline of rebalancing the Asset Allocation portfolio you have. Ideally, we should all be buying into any declines in the market with any available cash…buy low, right?
What We Don’t Control:
- The World Economies – In spite of “Globalization” and the merging of world economies, we see leading and lagging economies. We can’t do a thing about them except manage around them. If you want to be there when they’re UP, you’ll be there when they’re down. But, that’s where our private market investments can take advantage – avoiding large positions in down economies, but making money in the strong economic cycles around the world.
- International Stock and Bond Markets – Contrary to popular belief, I do not control them. Fortunately, they don’t all move in concert, and this is where our Asset Allocation and Style diversification take advantage. We can never guess the next big market move correctly. So, by strategically taking positions across the Stock and Bond markets, carefully choosing the geography as well as the manager and their style, we’ll avoid full exposure to declining markets and yet make money in the positive markets.
Taking control of these things is the recipe to “minimizing volatility and maximizing returns”. We just happen to be in the “minimizing risk” phase.
So, ask yourself, “Have we dealt with all the things we CAN control? If not, call me immediately and we’ll address whatever it is you’d like to take a look at.
Finally, ask yourself, “Is this current market situation permanent or just temporary?”
I hope you had a great summer.
Bruce