The events and images of the last few days are horrific, difficult to accept and continue to upset many of us.
Over the weekend, Western nations agreed on new sanctions to further isolate Russia, by seeking to prevent its central bank from using foreign reserves to blunt sanctions and excluding some Russian lenders from the SWIFT messaging system that underpins trillions of dollars’ worth of transactions.
Our job as investors of your capital in situations like this is to remain in a narrow emotional band. We must assess each twist and turn of the markets path using facts, probabilities and what we have learned from the past. History shows that the impact of geopolitical military activities on markets are short. Looking back at the past 38 major geopolitical events, the S&P 500 sold off approximately 5% on average over a few weeks. However, the average to recover that drop was approximately 40 days. Markets take geopolitical events in stride and investors are rewarded for ignoring the short-term noise.
Stocks usually take geopolitical events in stride
S&P 500 Price Index vs major global events (2009 – current)
We have been in contact with most of our investment management groups in the last 2 weeks and have confirmed that we have no direct exposure to Russia or Ukraine at this time.
Within our investment strategy framework, we will look for the opportunities that exist due to these corrections, as long as the signs of recession are not present. Currently, we only have one of the typical signs of recession and as such, we continue to believe recessionary risks in 2022 remain low.
We have always said that one of our core strengths as a team is surrounding ourselves with like-minded people who are smarter than we are. The following is taken from an e-mail that was sent to us last week from one of our investment partners and is one of the many examples of staying focused during the market noise.
Volatility is the friend of the investor who knows the value of a business and the enemy of the investor who doesn’t.
As for our view on what’s happening in Ukraine, the answer is we’re not smart enough to have one. There are a lot of talking heads on TV or online that would like you to think they know, but they really don’t have a clue either. In the face of this uncertainty, what matters is what’s always mattered – buying growth for free.
Take Restaurant Brands International for example. It opened down 2% from yesterday’s close. Are fewer people going to go to Tim Hortons today in Edmonton because of what’s happening in Ukraine? How about a Burger King in Miami or a Popeyes in Shanghai? You get the point. RBI closed up about 1% on the day.
What about TE Connectivity which fell around 3% out of the gates today? Are fewer connectors going to be needed in electric vehicles because of what Russia did? TE finished up 2.2%. How about PG&E? Will there be less demand for electricity in California tomorrow because of hostilities overseas? It opened down about 3.5% and closed up around 2%.
Will there be less catering at NHL games tonight because of Ukraine? Aramark shed 3.9% of its value at the open. It closed up 0.5% by the end of the day.
You’ve heard us say this for years on Monday morning calls, but what matters is the consistent application of our approach. We wake up every day and try to buy growth without paying for it. Days like today are helpful in our efforts and should sow the seeds for pleasing future performance
If you are concerned or curious to know a bit more about how we are navigating this tough start to 2022, please reach out!