By Scott Ronalds

Confusing. Frustrating. Ugly. These were the words we used in our Quarterly Report to describe global stock markets in the summer of 2011. It was a challenging time for investors, as the World Index declined 16% in Q3/2011 and the U.S. market dropped 14% (both in U.S. dollars). Headlines were grim, doomsday forecasts were plentiful and mutual fund redemptions were significant (investors were piling into bonds). European stocks in particular were hurting as sovereign debt issues and political uncertainty plagued the region and investor sentiment was dire. There was also much talk about Standard and Poor’s downgrade of the U.S. government’s credit rating. And to top it off, we were still stinging from a lost Stanley Cup here in Vancouver.

Yet, stocks were cheap. We noted in our Report that almost every European market had a P/E (price-to-earnings multiple) below 10X and many stocks had dividend yields close to 5%. German, Dutch, French and British companies with broad revenue bases were being undeservedly punished due to their head office address. Many U.S. stocks also looked inexpensive, especially within the technology sector.

In retrospect, it was a good time to be buying these stocks, or at least not selling them. As a group, European stocks are up roughly 30% and U.S. stocks over 40% since the summer of 2011. There are many examples of multinational companies that have risen substantially more. While not every global stock has been a success story, there have been more winners than losers and investors who considered valuations in their decisions, didn’t let their emotions get in the way and sat tight through the turmoil have been rewarded.

A key element to being a successful investor is being prepared for extremes. The summer of 2011 was an extreme. Your actions (or inactions) during this period may be a good indicator of how emotionally prepared you are for the next market shock. As for getting over that lost Cup, there’s no preparing for that. It still stings.