'It will take two to three years before you get money back in the markets': U.S. equity strategist
The steep losses and stomach-churning swings in the equity markets might be jarring to watch for many Canadians but experienced Bay Streeters are seeing ample buying opportunities, especially for young investors.
Young investors typically have longer investment horizons, so the market rout is allowing them to scoop up good-quality companies at stock prices not seen in over a decade.
“There’s no arguing with historical stats that when you get large corrections like this in the market - or 2008, 2001 or 1987 – when there are significant corrections in the magnitude of 25 per cent or more, over a long period they turn out ultimately to be good buying opportunities,” Colin Stewart, chief executive officer of JC Clark, told BNN Bloomberg in a phone interview.
The double whammy of the COVID-19 outbreak and the plunge in oil prices drove the TSX Composite down nearly 30 per cent since its all-time high last month. However, there’s still lots of uncertainty about how long the pandemic will last as well as the breadth of the economic recovery.
Stewart believes there’s still more bad news to come, but suggests young investors take a gradual approach over the next three to nine months to buy stocks.
He said when the correction began, companies and industries directly impacted by the virus sold off immediately but in the days and weeks after, share prices of very stable businesses such as REITs, renewable power companies and consumer staples also fell.
“Even with this virus, industries have revenue, contracts and demand for their products, so when you start seeing those more stable businesses being sold off really hard, I think for us that was more interesting. But for companies more directly impacted, it’s a bit harder to know how things progress,” he said.
Starlight Capital associate portfolio manager Michelle Wearing also believes more downside could be in store for markets. She warns against going all in right now, but suggests young investors do their homework and start chipping away.
“I can’t caution this enough, do your due diligence! Potential investors should look at things like the quality of the balance sheet, cash flow growth, management team and the overall valuation, before investing,” she said. “I would recommend young individuals start with a small position in a few names and add to those positions as we get more comfortable with the impacts of COVID-19 on the economy.”
Two big issues for young investors to consider are if they have near-term needs for the cash and their job security during the pandemic.
“If your job is secure, then saving is still the modus operandi and the stock market is the best place to be. If not, don’t even think about investing in the market," David Driscoll, chief executive officer of Liberty International Investment Management, said. "You have more important things to think about, such as getting firm employment when this is over. The stock market will always be there when you’re ready to invest."
“Never give me money to invest that you’re going to want back in the near future. Do not treat your investment account as your chequing account. Only put away money that you don’t plan to touch until retirement.”
Driscoll suggested that young investors automatically transfer money into an investment account and avoid investing money aimed for a down payment on a house, as well as prioritizing paying down their mortgage over investing.