by Salman Ahmed
Global supply chains were already tight last year, but a combination of Russia’s invasion of Ukraine and covid lockdowns in China’s largest cities have acted as a vice grip. This situation is converging with North American businesses trying to hire in a strained labour market where skilled workers are in high demand. The result? Some of the highest inflation we’ve seen in years. And markets hate unexpected inflation.
The result is that both bonds and stocks are experiencing bouts of volatility. While there are no clear answers to the global challenges driving stocks lower, the breadth of price declines has brought opportunities. Our equity managers have been buying new companies and topping up existing holdings. We’ve taken our queue from them with respect to the positioning of the Founders Fund. The cash allocation has fallen from 14% at the end of 2021 to 8% today. We’ve added to both stocks (63%) and bonds (29%), but in recent weeks we’ve been adding more to stocks. In the Builders Fund, we’ve made sure the fund is close to fully invested.
Now, some of you might think we’re crazy for adding to stocks and bonds given all the uncertainty. Fair enough. There are more unknowns today. But there are always periods of distress. Think back just two years when we were learning about COVID; or the European debt crisis before that; and of course, the 2007-08 financial crisis. In these periods we ask ourselves a few questions, in addition to the analysis we continually do.
- Are our equity managers buying businesses that sell key products or services needed for years to come?
- Are our equity managers investing with a long-term horizon (4+ years)?
- Are stocks and/or bonds cheaper than they were?
- In general, are investors acting out of fear?
When all four answers are yes, as they are today, we feel confident putting money to work (ours and yours).
Similarly, we suggest you ask yourself three questions:
- Is your investment objective the same as it was a few months ago?
- Is your investing horizon still what it was before these challenges appeared?
- Are you still able to get a good night’s sleep?
If you answer no to any of these questions, it’s possible your portfolio mix needs an adjustment. That’s where we step in—to provide a steady hand.
But if you’ve answered yes to all, we encourage you to start deploying any cash you might be sitting on and ensure your mix of stocks and bonds is on target. How you do so will depend on your unique circumstances and we’re happy to work with you on a strategy. Our Investor Specialists are highly accessible; you can book an appointment with them here.
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