MAY 18, 2022

Time for a little context


It seems to me that the primary function of financial journalism is to scare us out of ever achieving our financial goals by focusing on the market’s daily volatility. More specifically, volatility on the negative side …. of course we’re all fans of volatility when our portfolio goes up! Recently we’ve been reminded of this, almost hourly, when the S&P 500 approached “official bear market territory” which is defined as closing 20% below its January all-time high. 


Here’s one of my all time favourite financial comic strips!​


Every market decline of this magnitude has its own set of unique precipitating causes. I think it’s fair to say that the current decline is a response to two issues: severe inflation, and the extent to which the economy might be driven into recession by the Federal Reserve and our Bank of Canada’s somewhat belated efforts to root out that inflation. (Russia’s war on Ukraine, supply chain issues and the like are surely also contributing to the angst, but recession vs. inflation is the main event, in my opinion.)
I look at it this way:
From March 2009 (when the equity market bottomed at the end of the Global Financial Crisis) through to the end of 2021, the S&P 500 produced an average annual compound return of 17.5%. Indeed, over those last three calendar years (2019 – 2021), despite a hundred-year global health crisis that affected millions of people worldwide, the Index compounded at 24% per year. This was truly one of the greatest runs of all time.*
It’s evident that some part of that extraordinary accretion in equity values was due to excessive monetary stimulation by central banks around the world. And, to that extent, we are having to give some of that gain back as these same central banks move to bring the resulting inflation under control. We should, I believe, want them to do this, even if it means the economy slows. In the long run, the cure (possible recession) is not more painful than the disease (inflation).
For long-term investors, capitulation to a bear market by fleeing equities has often proven to be a tragedy, from which their retirement plans may never recover. Our investment policy is founded on acceptance of the idea that the only way to be reasonably assured of capturing equities’ premium returns is by riding out their occasional declines.
My mission therefore continues: not to insulate you from short to intermediate-term volatility, but to minimize your long-term regret – the regret that has always followed a fear-driven exit when equities resume their long-term advance. As they always do and have.
As always, I continue to counsel staying the course. I’m always here to talk this through with you. Thank you for being my client. It is a privilege to serve you.


About once a decade people forget that bubbles
form and burst about once a decade.

Morgan Housel



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MAR 7, 2022

Time to feed the goose


Please find below two CI Private Wealth tax resources which may assist you in dealing with your 2021 and 2022 tax reporting.

CIPW 2022 Personal Tax Calendar

CIPW 2021 Personal Income Tax Organizer

As we prepare for this year’s “plucking” perhaps the article below will help minimize the “hissing”. The article, written by Ryan Holiday, is directed towards an American audience (with a Stoic bent). However, if you change the date to April 30th, the message is no different for us Canadians.​


The Taxes of Life

Daily Stoic - Ryan Holiday

April 17th is the day that Americans pay their taxes. It’s a day of mixed reactions depending on your outlook and politics. Some choose to focus on the good things their taxes pay for and have paid for since Roman times—the roads, the armies, services for the poor. Others focus on the waste (tax corruption and waste is also as old as Rome) or question the morality of the system altogether. Last year when we posted a note about taxes, a number of comments wrote angrily that “taxation is theft!” while others angrily responded to those commenters with defenses of their own. (All this anger being somewhat ironic for Stoics.)​

In a way, this misses the point. What we should be doing is zooming out and looking at the larger picture: People have been complaining about their taxes since the beginning of civilization. And what has become of it? Taxes are higher than ever and they’re dead. Death and taxes. There is no escape. So let us waste no time and create no misery kicking and screaming about it. Let us not add to our tax bracket the cost of frustration and resentment.

Taxes are an inevitable part of life. There is a cost to everything we do. As Seneca wrote to Lucilius, “All the things which cause complaint or dread are like the taxes of life—things from which, my dear Lucilius, you should never hope for exemption or seek escape.” Income taxes are not the only taxes you pay in life. They are just the financial form. Everything we do has a toll attached to it. Waiting around is a tax on traveling. Rumors and gossip are the taxes that come from acquiring a public persona. Disagreements and occasional frustration are taxes placed on even the happiest of relationships. Theft is a tax on abundance and having things that other people want. Stress and problems are tariffs that come attached to success. And on and on and on.

There’s no reason or time to be angry about any of this. Instead, we should be grateful. Because taxes—literal or figurative—are impossible without wealth. So what are you going to focus on? That you owe something, or that you are lucky enough to own something that can be taxed.


Taxes are our way of feeding the goose that lays the golden eggs of freedom, democracy and enterprise. Someone says, 'Well, the goose eats too much!’. That’s probably true. But better a fat goose than no goose at all.
Jim Rohn


FEB 23, 2022

Reflections on the last 24 months


The last 24 months saw the advent of the worst global public health crisis in a century —since the 1918 influenza pandemic. In response, the world locked down, putting its economy into a kind of medically induced coma.

In this country, the immediate effects were (1) a savage and nearly instantaneous economic recession, accompanied by record unemployment, and (2) the fastest, deepest collapse in stock prices in living memory, if not ever.

This missive follows the format of my annual reports to you. It’s divided into two parts, the first a statement of general principles, especially those most relevant in the current crisis, with a restatement of how I practice my stewardship of your invested wealth. The second is a review of what little can be known at this point, and of how I propose we continue to deal with the pervasive uncertainties of the moment.

General Principles

  • You and I are long-term, goal-focused, plan-driven equity investors. We believe that the key to lifetime success in equity investing is to act continuously on a specific, written plan. Likewise, we believe substandard returns and even investment failure proceed inevitably from reacting to (let alone trying to anticipate) current economic/market events.

  • We're convinced that the economy cannot be consistently forecast, nor the markets consistently timed. Therefore we believe that the only reliable way to capture the full long-term return of equities is to ride out their frequent but historically always temporary declines.

  • Just in the last four decades or so, the average annual price decline from a peak to a trough in the S&P 500 exceeded 14%. One year in five, the decline has averaged at least twice that. And on two occasions (in 2000-02 and 2007-09), the Index has actually halved. Yet the S&P 500 came into 1980 at 106, and went out of 2021 at 4,766.18 over those 42 years, its average annual compound rate of total return (that is, with dividends reinvested) was more than 12%.*

  • These data underscore my conviction that the essential challenge to long-term successful equity investing is neither intellectual nor financial, but temperamental: it is how one reacts, or chooses not to react, to market declines.

  • These principles will continue to govern the essentially behavioural nature of my advice to you in the coming year, and beyond.


Current Observations

  • It would seem to be counterproductive to look at these past 12 months in isolation. They were, rather, the second act of a drama that began early in 2020, the precipitant of which was the greatest global public health crisis in a hundred years.

  • The world elected to respond to the onset of the pandemic essentially by shutting down the global economy—placing it, if you will (and as mentioned above), in a kind of medically induced coma. In this country, we experienced the fastest economic recession ever, and a one-third decline in the S&P 500 in just 33 days.

  • The Bank of Canada, and the Federal Reserve in the U.S., responded all but immediately with a wave of fiscal and monetary stimulus which was and remains without historical precedent. This point cannot be overstressed: we are in the midst of a fiscal and particularly a monetary experiment which has no direct antecedents. This renders all economic forecasting—and all investment policy based on such forecasts—hugely speculative. I infer from this that if there were ever a time to just put our heads down and work our investment and financial plan—ignoring the noise—this is surely it.

  • If 2020 was the year of the virus, 2021 was the year of the vaccines. Vaccination as well as acquired natural immunity are in the ascendancy, regardless of how many more Greek-letter variants are discovered and trumpeted to the skies as the new apocalypse. This fact, it seems to me, is the key to a coherent view of 2022.

  • In general, I think it most likely that in the coming year (a) the lethality of the virus continues to wane, (b) the world economy continues to reopen, (c) corporate earnings continue to advance, (d) the Bank of Canada and the Federal Reserve begins draining excess liquidity from the banking system with the accompanying inevitable increase in interest rates, (e) inflation subsides somewhat, and (f) barring some other exogenous variable—which we can never really do—equity values continue to advance, though at something less (and probably a lot less) than the blazing pace at which they've been soaring since the market trough of March 2020.

  • Please don't mistake this for a forecast. All I said, and now say again, is that these outcomes seem to me more likely than not. I'm fully prepared to be wrong on any or all of the above points; if and when I am, my recommendations to you will be unaffected, since our investment policy is driven entirely by the plan we've made, and not at all by current events.

  • With that out of the way, allow me to offer a more personal observation. To wit: these have undoubtedly been the two most shocking and terrifying years for investors since the Global Financial Crisis of 2008-09—first the outbreak of the pandemic, next, divisive elections in both Canada and the U.S., then the pandemic's second major wave, and most recently a 40-year inflation spike. You might not be human if you haven't experienced serious volatility fatigue at some point. I know I have!

But like that earlier episode, what came to matter most was not what the economy or the markets did, but what the investor himself/herself did. If the investor fled the equity market during either crisis—or, heaven forbid, both—his/her investment results seem unlikely ever to have recovered. If on the other hand he/she kept acting on a long-term plan rather than reacting to current events, positive outcomes followed. It was ever thus. I expect it always will be.

I’m often asked by newer clients, “What do you think the market is going to do this year?” More often than not my response is, “You are definitely not paying me to predict the rain… no one can do that. What you are paying me is to build you a financial ark so that no matter what happens (when the storm inevitably but unpredictably comes) to the stock market or the economy, you and your family will secure a lifetime of financial security.” 


The ones who thrive long term are those who understand the real world is a never ending chain of absurdity, confusions, messy relationships, and imperfect people.“ 
Morgan Housel


JAN 19, 2022

It isn’t always going to be this easy


I believe 2021 will go down as one of the greatest years in stock market history. Including dividends, the S&P 500 was up 28.7%. Even better, the market achieved this return with a correction of only 5.2% during the entire year. And this is coming off a 31% return in 2019 and 18% in 2020*! Suffice it to say returns are not always going to be this accommodating. As Warren Buffet’s older and, many would suggest, wiser business partner, Charlie Munger, would say, “It’s not supposed to be easy (investing). Anyone who finds it easy is stupid”.

Please do not misunderstand me, I am decidedly not predicting that the U.S. market, the largest, most diversified market in the world, is is going to experience a significant correction in 2022. Long time readers of this newsletter know that I am completely agnostic to the unknowable short to medium term movements (either up or down) in the stock market. What I am suggesting is that you “vaccinate” (sorry, could not resist) your mindset in advance of a potential market decline. Just as the sun rises in the East and sets in the West a bear market, at some point in the future is absolutely inevitable. Referencing the quote that began this missive, psychological preparation in advance will allow you to pass through this decline with equanimity.


For more context regarding last year’s market return, I encourage you to click through to Ben Carlson’s excellent blog, “2021 Was One of the Best Years in Stock Market History”.


If you’re not willing to react with equanimity to a market price decline of 50% two or three times a century you’re not fit to be a common shareholder and you deserve the mediocre results you’re going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.
Charlie Munger