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Summer 2019

Equity markets were relatively uneventful in the second quarter, compared to the dramatic gyrations of the preceding two quarters. There were no changes to our portfolios other than some rebalancing.

I’ve been observing a perverse dynamic in the markets – prospects of an economic slowdown have been having a positive effect on markets. You would think that news of strong economic prospects is what the markets are looking for, but there have been a number of times that equity markets have gone up on the news of less than positive outlooks.

I’m specifically referring to the way markets have reacted to comments by federal reserve officials that suggest the possibility of cutting interest rates. For example, the chairman of the US Federal Reserve, Jerome Powell, recently made statements indicating concerns about the strength of the global economy. You would think that the markets would react negatively to such a statement but the opposite happened – markets reacted positively.

Why would this happen? In a scenario of a weakening economy the Fed might cut interest rates, and market sentiment is that this would encourage investors to invest in stocks as opposed to low yielding bonds. Therefore, on the speculation that stocks will become more attractive, stocks react positively.

This is short-termism in action, where markets are less concerned with long term fundamentals of the underlying companies whose stocks are traded and more focused on speculation as to how their prices might move in the short term (due to a large degree to the foibles of human emotions). I’m already of the view that low interest rates have caused asset values to over-inflate, and that’s why I’m finding it difficult to find attractively valued opportunities in the stock market.

“I’ve been observing a perverse dynamic in the markets…”

One of the luxuries I have of running an independent firm is the ability to resist such short term pressures. I believe that the ability to remain focused on the long term provides a major advantage in achieving my goals of both growing your capital and protecting your capital. No speculating, no attempts to chase short term gains. “Rational, Disciplined Investing” is more than a mere tagline, it describes the bedrock foundation of every investment decision I make.

At your service,
Hardev Bains, LLB, MBA, CFA
President and Portfolio Manager

The content of this report is intended for information purposes only and does not constitute an offer to buy or sell our products or services nor is it intended as investment and/or financial advice on any subject matter. The opinions, estimates and projections contained in this document are those of the author as of the dates indicated and are subject to change. Every effort has been made to ensure the accuracy of the contents of this report. Performance reports may be compiled utilizing information provided by third party sources. Every effort has been made to ensure the accuracy of such third party information but such information cannot be guaranteed to be accurate. The performance returns are before the deduction of any fees and are not guaranteed; values change frequently and past performance may not be repeated.