Context is Everything

“Wisdom is intelligence in context.“
– Raheem Faroog

It seems like a lifetime ago (COVID time?) when on March 13th I last sent out this newsletter. Back then my family and I were on March Break having breakfast with the local wildlife at Giraffe Manor.

Although the “shut in” world we are now experiencing has changed, one thing should not … thoughtful context. Whether it was the 2008/2009 financial crisis, 9/11, the tech bubble, or the crash of ‘87, one thing we do know is, as Mark Twain is reputed (probably falsely) to have said, ”although history does not exactly repeat, it often rhymes.” And so it is with the stock market.

It is easy to get caught up in the short term gyrations of the market and forget that over the years the stock market declines on average about 30% once every five years. So far this year, at its temporary worst, the market was down approximately 34%*. At the risk of being blunt, as long-term investors in quality companies from around the world, this is the price you must pay in order to secure returns at significant multiples to GIC’s. The good news regarding this temporary, albeit severe decline, is that “this too shall pass”.

As you can see here, since the Second World War it has taken a surprisingly short time (see far right column) to recover all the losses from previous bear markets. This most definitely is not a crystal ball prediction of the immediate future, but history does indeed tend to rhyme.

The number one determinant of investor success is behaviour. Fortunately, this is 100% within your control! And, as the illustration below highlights, your context determines whether you choose to focus on the next five days … or five years.

Keith N. Thomson

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