Maybe he had early January in mind when, amid tumbling markets, one expert was convinced a 55 cent dollar was around the corner. Oil would soon be below 10 dollars, a recession was imminent. Toronto share prices could end the year with a double-digit loss.
As we near the three-month mark in the year, the economy is picking up steam. Canadian manufacturing — specifically Ontario’s automotive sector — has roared back to life. Retail sales also surprised rising in nine provinces, after falling in every province in December.
The dollar, after having touched 68 cents (U.S.) in mid-January, closed at 75.68 cents Wednesday. Oil is at $ 40 (U.S.) a barrel. The main Toronto stock index is now up 3.6 per cent year to date, among the better global performers.
There are a few recurring lessons in this turn-around, but the biggest is that predictions are nothing more than guesses. We tend to treat them as facts, but they’re not. Economists, fund strategists and investment advisors read the same things and go to the same conferences, and so often form the same opinions.
But nobody can predict the future and what’s already happened isn’t always a good guide. The problem is that no matter how much you look at the past, it’s the rearview mirror. This is why mutual fund performance statistics aren’t much help if you’re thinking about buying a certain fund. The statistics measure what has happened, not what will happen.
Occasionally, somebody thinks way outside the box, but it doesn’t always help. My favourite so far in 2016: In January, Royal Bank of Scotland economists warned of a cataclysmic year, seeing share prices falling 20 per cent and oil dropping to $ 16. RBS urged clients to sell everything ahead of a crash.
Everything? Hopefully most of its clients ignored the advice and have found new advisors.
Canadians are among the biggest homebody investors, but they need to get out of town. Their holdings tend to be concentrated in Canadian companies and Canadian dollars. That has especially hurt with investments in energy and mining, a problem compounded by the dollar’s fall.
Things have improved, but the dollar is always moving, and you can’t predict which way it’s heading. Since hitting 68 cents (U.S.) in mid-January, the loonie has posted nine consecutive higher weekly closes against the U.S. currency. That wasn’t in the forecasting cards.
The CPPIB is the investment arm of the CPP and generates the cash that pays your government pension. Cass is responsible for the CPPIB’s overall investment strategy. The fund has $ 282.6 billion (Cdn.) in assets and is among the global pension giants.
It is also a master of diversification, with two-thirds of its investments outside of Canada. When it comes to the stock portion of its holdings, only 10 per cent is in Canadian equities.
The same theme emerged in a recent interview with Matthew Williams, a senior vice president with Franklin Templeton Investments. Williams said many of the firm’s clients are afraid of investing outside of Canada. Many are also keeping a lot of their holdings in cash.
Williams says that of every $ 1 invested under that plan, 30 cents would be in Canadian stocks, 15 cents in U.S. stocks and 15 cents in international stocks. Another 30 cents would be in Canadian bonds and fixed income, and 10 cents would be in global fixed income.
Like the federal budget’s investments in infrastructure, this isn’t sexy stuff. But investing success always comes back to basics: a tolerance for risk, patience, diversification and sticking to a plan. It’s how the big players do it, and we can always learn from how they behave.
That way you put predictions in their place.
More columns by Adam Mayers