Never Retire Profile of the Week
John Lewis
Born in Alabama during segregation, John Lewis’s parents were sharecroppers. As a young boy, Lewis chafed against the racist laws that kept him from good schools and the full run of the town library—with some family living in the north, he was aware that other parts of his country were integrated. In 1955, Lewis heard Martin Luther King Jr. on the radio, and thus began his life as an activist dedicated to the civil rights movement who, only in his teens, met Rosa Parks and then King himself. A Freedom Rider, one of the organizers of the 1964 March on Washington, and a leader of the 1965 march from Selma to Montgomery—known later as Bloody Sunday when the marchers were beaten by State Troopers—Lewis dedicated his entire life to non-violent civil action. A Democrat, he was elected to Congress in 1986 and served for 17 terms until his death in July, 2020. Among his many recognitions and honours, Lewis was awarded the Presidential Medal of Freedom by Barack Obama in 2011. Because he never retired and continually advocated for getting in “good trouble, necessary trouble,” John Lewis helped move his country toward greater racial justice and equality for over 65 years.
It’s an understatement to state that these have been tumultuous times, so let me say here that I and the entire Dri Team hopes that you, your loved ones and your friends are safe and healthy.
What do you see when you look back over the past six months? Personally, I have found this period of time both frustrating and rewarding. Like everyone else, I have been frustrated by the necessary restrictions on my daily routines, especially the little things like meeting clients and friends for coffee or just a chat.
At the same time, I have been impressed and humbled by our frontline workers who unselfishly risk their lives to treat the sick, serve customers, deliver goods or help the infirm. They have forever earned our respect and gratitude.
I know this has also been a difficult and emotional time for staying invested and remaining calm and committed to your financial plan while, at times, our situation seems hopeless.
Each week, the Dri Group has released a blog and a podcast aimed at helping you, our clients, stay the course and counter your feelings of panic.
I am reminded of a Podcast and conference call in March when I discussed the pandemic. I stated, “I have lived through several difficult markets… Somehow, the human spirit found the solution and life got better.”
Let’s remember humans are very resilient and adaptable. Eventually, we will find a vaccine for COVID-19 and life will slowly return to “normal.”
Throughout the quarantine, we kept the office open and serviced. I am proud to say we made hundreds of telephone and video calls and answered numerous email questions all while maintaining safe protocol procedures.
As I write this blog in mid-July 2020, the Canadian and US equity markets have nearly completed a full recovery of the losses experienced in February and March. As well, most client portfolios are down slightly for the year (approximately 3-5%) and, if the vaccine trials continue to show promise, it’s possible we may show a profit for 2020 (but no guarantees).
Without repeating topics, I have covered in my weekly blogs regarding the model portfolio and the economic scenario, I would like to add a few additional comments I think you will find enlightening.
1) During the last three months, many so-called “experts” publicly forecasted that dividends would be reduced or eliminated because of the economic impact of the pandemic and that, consequently, dividend growth stocks should be avoided.
We took this kind of commentary very seriously and reviewed the companies in our model portfolio. As a result, we believed—and still believe—our model companies have the ability to continue paying a dividend and, periodically, increase their dividends (perhaps not this year or next).
During the release of the first quarter statements, only two companies in the Canadian dividend model cut their dividends (CAE and NFI) and were promptly replaced with more promising companies (CNE and CAS).
Of course, no one knows if additional companies will cut or suspend their dividends, but we are prepared to find replacements if that occurs. But so far, dividend cuts have not been a problem for our model portfolios.
2) During the last few months, many Canadian and US investors have entered the stock market for the first time in hopes of making a quick profit. This group tended to speculate with down-and-out companies or momentum names with the intention of buying and selling very quickly for a tidy profit.
Fortunately, they have been successful…. So far….
However, we have seen this movie (remember the day traders of dot com or the cannabis craze?), and it doesn’t end well for inexperienced speculators like this.
Please try not to compare the returns of historically tested strategies against short-term outcomes of speculators. Investing is a marathon, not a sprint.
3) During the last four months, Canada and most other countries have flooded their economies with emergency money. In fact, the Canadian Government announced last week that Canada’s 2020 deficit would be approximately $340 billion as a result of our increased spending during the pandemic.
The US, Europe, Japan and China have cumulatively spent approximately $10 trillion USD to keep citizens financially stable and companies afloat.
Central banks have also helped with the recovery by lowering interest rates (again), bond purchases and increased printing of their local currency.
This reminds me of the stimulus provided after the great recession of 2008. However, this time, the stimulus has been provided earlier and in a much greater quantity.
Of course, I don’t know what will happen. But if the years after 2008 are an example, then we may see the economy recover quicker with a lower unemployment level than anticipated.
Before stepping down as the Governor of the Bank of Canada, Stephen Poloz indicated that the Canadian economy is NOT tracking the bank’s worst-case models. He believes that the economy has growth potential which is underappreciated by many. Personally, I am in this camp.
4) Despite the partial reopening of the Canadian economy, we must be aware and conscious of the black clouds overhead.
In November, the United States will conduct a general election, and a new group of politicians with new policies may be elected—including, possibly, a new President. Any change or uncertainty may lead to a heightened level of volatility in the markets.
In addition, I’m concerned that a COVID vaccine may take longer to develop than anticipated or, worse, never be developed. This may cause a second or third wave of cases and a weakened economy for the foreseeable future.
I have other concerns that keep me up at night, but I will keep the list to the above as I believe they are the biggest risk.
5) Here’s our plan for the fall (or until something substantially changes):
- Remain committed to our strategy of investing in dividend paying stocks
- Create a barbell approach with our bond portfolio (50% short term and 50% long term)
- Maintain a conservative asset allocation
- Maintain a three-to-five-year GIC ladder for clients withdrawing savings
- Maintain a healthy portion of funds in our tactical model
- Continue reinvesting all dividends into the stock that paid the dividend (DRIP)
I hope this blog was useful in explaining our past and present thinking.
If you have any concerns or questions, please contact our office and we’ll arrange a video or telephone meeting.
Enjoy the rest of the summer and stay healthy and safe.
Did this article resonate with you? What did I miss? Send me a note and let’s start the conversation.
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Call me if you in want to map out how you can Never Retire. You can also subscribe to our Never Retire Newsletter, contact us to order a complimentary book, register for one of our events, and call us to meet with a Certified Financial Planner. We offer you a range of services from a financial plan to investment advice or helping you take advantage of our investment models. Call me at 416.355.6370 or email me at richard.dri@scotiawealth.com.
source https://richarddri.ca/lessons-of-the-last-six-months-and-a-look-ahead/
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