Sage advice for investing in turbulent times

 

Ten years ago, the world was in the midst of a financial panic. Rooted in the bursting of the U.S. housing bubble, the crisis saw equity markets plummet and economies contract sharply. There were widespread fears that things could get much worse. The fall of 2008 was arguably one of the most difficult times to be in the business of giving investment advice.

Amidst the chaos, a concerned client had asked T.E. Wealth consultant Robert Bentley (since retired) whether the firm was staying the course with its strategy. His response, which was turned into a blog post in October of that year, makes for a worthwhile read a decade later.

Bentley reminds us in that all-knowing, fatherly way that we can never control the markets – but guess what? We don’t need to. We just need to control how we respond to them and we’ll be okay. This encapsulates the firm’s long-term approach to investing that’s as effective today as it was back then.

At the outset of his October 2008 letter, Bentley clarifies that his thoughts are not “market-focused,” but rather personal in nature. The reason for this, as he freely admits, is that he doesn’t really spend much time following short-term movements in the markets. Nevertheless, with much of his own wealth tied up in equities and real estate, he acknowledges being directly affected.

“And yet,” he said, “none of this worries me in the least.” “I have no fear,” he continues, “that my paper losses will become permanent as long as I hold on to the well-diversified funds that make up my portfolio.” Sure, there’s bound to be some exposure to the investment banks and mortgage lenders that recently failed. “But,” he reasons, “this is all part of the push and pull of equity investing, which means that I also hold many other companies that are not going to go bankrupt and, in fact, will continue to grow quite nicely after we pass through the current rough times.”

At the heart of Bentley’s resolve lies a belief in the capitalist system. “Is the worldwide system of making goods and trading back and forth at a profit really failing now?” he asks rhetorically. “I don’t think so. Not with a world population that is expanding and generally experiencing unprecedented levels of wealth.”

The letter has aged admirably. Equity markets bottomed in the first quarter of 2009 and have, with stumbles along the way, performed very well. Major economies have also recovered.
The panic of 2008 offers some important lessons, many of which are outlined in Bentley’s comforting words in the eye of the storm.

For one thing, discipline is an essential part of investing, particularly when our emotions threaten to overcome a carefully constructed plan. When asked today if he had any doubts during the financial crisis, Bentley says that, in a sense, he did. “Humans are built to doubt,” he reasons. “As these market cycles go, prices go up and up and up, and you start thinking: maybe we should do a bit of timing here, maybe we should sell everything off and wait for the crash.”

Natural as those thoughts may be, Bentley believes focusing on the long term is what’s important. This is true even in our later years. “You can look beyond your own life with your assets and think about where they go after you go.”

There’s another reason, addressed in the October 2008 letter, why trying to outsmart the market can be a fool’s errand. As Bentley explains, it’s impossible to reliably time the market and history shows that equities eventually go on to make new highs.

The financial crisis reinforced the idea that for patient investors, large market corrections can actually be a wonderful buying opportunity. Looking back, Bentley says it was nice to see how it all worked out. “Clients [who bought at depressed prices] ended up with a lower cost position. Then, as so often happens, things rocketed back,” he observes.

The meltdown of a decade ago was a reminder that the only variable we do have a say over is our own behaviour. Reflecting on T.E. Wealth’s philosophy, Bentley emphasizes that, “Everything we built on, our whole investment style and approach, was long term,” with the recognition that they couldn’t control markets – only exposure.

Bentley is quick to share the credit for the firm’s steady approach during the crisis with his colleagues. “There was no panicking at T.E. Wealth…the whole company felt like that,” he points out. “Any of my colleagues could’ve written that letter in the sense that it would’ve reflected their feelings as well.”

Andrew Hepburn is a freelance financial writer and journalist based in Toronto. He has written for the Globe and Mail, Maclean’s and Morningstar.

This article was published in T.E. Wealth’s Strategies newsletter, December 2018 edition. Read the full edition here.

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