Opportunities knock if fear is overcome

“You do not need to know precisely what is happening, or exactly where it is all going. What you need is to recognize the possibilities and challenges offered by the present moment, and to embrace them with courage, faith and hope.” — Thomas Merton

The year 2020 has been a challenging one for many people, but I strongly believe there are positive lessons to be learned, if you look in the right place. As we enter the home stretch, here are three take- aways that we can put to use both in our daily lives and our portfolios.

Expect the unexpected

Almost everyone misjudged the virus, including governments, health officials, economists, market strategists and portfolio managers. This was evident from the pace of the record- setting sell- off this March as investors hit the panic button. Governments reacted in kind, choosing to shut down economies in order to prevent the spread and then responding with monetary and fiscal stimulus programs the likes of which the world has never seen before — including during the Financial Crisis of 2008.

For those who were unable to quickly adapt, the damage was tremendous. Among the worst hit were companies that could not easily shift to work- from- home technology, restaurants that didn’t have access to patio space and schools that struggled to get up to speed with online teaching.

For investors, the correction provided a high-stakes stress-test: those whose money was invested in a manner that didn’t match their tolerance for risk may have panicked and sold at exactly the wrong time, causing catastrophic damage.

We don’t live in a binary world

Outcomes are often perceived to be dualistic, binary or black and white when in reality, they are most often different shades of grey. Take a look at how the markets have not only recovered over the past few months but continue to hold their own despite a second wave of COVID-19 that is hitting many countries.

Perhaps this is because people have come to the realization that the economic cost of another lockdown is simply too high and we will have to find other ways of adapting. This is quite a change from the spring, when investors sent oil prices negative and punished bricks- and- mortar retailers amid a wave of bankruptcies.

Bet on humanity in the long term

It’s important to always play the long game and that means betting that humanity’s good side will eventually win out. In shorter time frames, however, the story can be different. Most people assume they are right, and if they find out that isn’t the case they often overreact out of fear, needing to regain the appearance of control. This behavioural trait in turn creates opportunities for those brave enough to be near- term contrarians, even if they are longterm investor.

For example, fiscal programs are being ramped up while from a monetary perspective central bank printing presses are in overdrive. Governments are also using this crisis as a means to implement programs that in many cases have nothing to do with the virus.

But few observers are asking what the impact will be in a postCOVID-19 world if these fiscal and monetary programs are left in place for too long. I believe such a scenario would be a very positive development to the worst performing sector this year, energy, which is still down over 50 per cent. There surely must be other undervalued sectors to benefit from the theme.

With the year winding down, maybe now is the right time to assess whether you portfolio is driven by fear or the opportunities that are presenting themselves. Martin Pelletier, CFA, is a portfolio manager at Wellington- Altus Private Counsel Inc. ( formerly Trivest Wealth Counsel Ltd.), a private client and institutional investment firm specializing in discretionary risk- managed portfolios, investment audit/oversight and advanced tax and estate planning.