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Stressed by headlines? Here’s how investors should manage their portfolios and their emotions in response to wars and other non-economic events.
The world is in crisis—again. At the time of writing, Israel is planning its ground invasion of Gaza after an attack by Hamas, and Ukraine and Russia remain at war almost two years after their conflict began in February 2022. Sadly, these are not the only wars happening. Regions around the world are in conflict. Afghanistan, Central African Republic, Ethiopia, Somalia, Libya and Syria, among others, are dealing with civil war and/or surges in violence. In this article, I will share my best insights to help Canadian investors navigate these uncertain times.
The humanitarian crises taking lives and garnering headlines are heart-wrenching—particularly for Canadians who have family and friends in the affected regions. More broadly, no one knows for sure how these crises will affect global economies, access to resources and financial markets. It’s understandable that investors are scared and making investment decisions based on their fear. Some people are selling their equities and leaving the markets. As an advisor, it’s my job to help take the emotion out of investing.
We know from previous wars, terrorist attacks, pandemics and other terrible events that people, governments and markets are resilient, and can even become stronger than they were before. This happened after 9/11, the global financial crisis and the global COVID-19 pandemic. The historical evidence suggests that the best thing investors can do when the world experiences a crisis is to separate feelings about the tragedy from the facts about the businesses you’re invested in and look for buying opportunities.
The impact of wars and other traumatic events on the markets tend to be relatively short-lived. That’s because unlike fiscal policy—such as raising interest rates—the events themselves are not “economic” in nature.
For example, if war breaks out in an oil-producing country, will that affect the price of oil? Theoretically, it shouldn’t, because other, larger producers can offset any lost supply from the war-torn country.
But, as we know, perception can be more powerful than reality when it comes to the stock market. The initial, automatic reaction could be a spike in oil prices—and then prices should adjust with time.
So, what do you do as an investor in Canada? Not an awful lot. As investment advisors, we get paid to grow people’s wealth. When markets sell off for reasons that are more temporary than related to economics and performance, it’s important to take emotion out of decision-making and not go into panic mode about your investments.
Markets may dip, but they don’t usually collapse. It’s possible your portfolio’s value may drop for a period of time. In the past, after a crisis has ended—and regardless of the outcome—the markets have regained stability, and investment returns have bounced back.
My best advice in the face of a world crisis: Stay calm, take a deep breath and focus on the fundamentals. Keep your risk profile front and centre, and think about where you want to put your money. My approach is to be sector agnostic and look for good value wherever I can find it.
As we all know, technology has made up the majority of the markets’ gains and driven the bus for most of the year. But even in this sector, there are stocks that have not seen their shares rise and represent good value. It’s not just technology. I think you can find value anywhere.
When a crisis has captured the world’s attention—as is the case today—anxiety, fear and negative thinking tend to take over, and the entire market sells off. There is no place to hide in the face of group fear. That doesn’t always mean the sell-off was warranted. Most of the stocks have little to no connection to what’s happening anywhere there is unrest.
When the market trades “normally,” some stocks go up, others fall down, based on company performance or information and news. When the world is in chaos, every sector takes a hit—and that’s when buying opportunities become available. I mean buying a good company—one with strong revenues, profitability and growth potential—not just cheap ones. It might have been sold because the seller was nervous or scared.
When a market sell-off happens, make sure you understand what’s behind it. Talk to your advisor. Seek out good value stocks. Separate emotion and fear from the facts, and remember what history has taught us: The timelines for catastrophic events can be temporary. Even though they can cause markets to fall, this too is short-term. Markets can rebound—often much more quickly than you might think.
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