Goodbye 2020! Year-end Reflections & Lessons.

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Every year for the National Post we write an article with our upcoming predictions for the next year. That article is available here:

But we don’t really like predictions. They are usually wrong. Instead, at year end we prefer to review what the year brought, and see if we can learn anything from the past 12 months.

We think everyone will agree it was not a ‘normal’ year. The world has never been completely closed before. Even in the financial crisis of 2008, or in the Depression of the 1930s, one could still get a quick coffee or have dinner in a restaurant. In 2020, for part of the year, one could not even do this.

For the balance of this article we are going to focus on business and the market. Many lessons were learned—or could have been learned—in the pandemic in terms of managing a crisis, social responsibility and so on. But we are in the stock market business, and we will leave all of this for others to debate.  We will stick with what we know.  For us, two lessons stand out from the pandemic: First, if you thought you could predict, or time, the market, then forget about it. In March, as the world shut down, we could not find a single person who thought the year would end up OK. Investors everywhere sold as fast as they could. Even us, even having been through countless crises before, sold a few stocks ‘just in case’ things got out of control. But, EVERYONE WAS WRONG. Here we are, nine months later, and North American markets have had a fabulous year, for the most part. There are stocks up 400% this year, and lots of them. If you think anyone can predict the market, 2020 should, at the very least, finally convince you that you can’t.

Second, and this is perhaps less surprising, and is of course related to the rally markets have had: Business finds a way. In-store shopping is not allowed? Make sure your customers can pick up, or offer delivery. It was amazing watching companies adapt to the new, shutdown world. Let’s look at Lightspeed LSPD. Its main customers are restaurants and hotels. In March, the stock plunged to $10.50. Investors were worried that the company’s entire customer base was disappearing. But, then the company reported very strong growth in the second quarter. It helped its customers adapt and shift to online ordering and pick-ups. The third quarter saw more growth, and the stock as we write this is up 8-fold from its March low. Many companies simply adapted. Business continued, as it usually does, despite the horrible headlines.

Another lesson: Don’t fight the FED. This is an old rule, but there is a reason it is a rule. In 2008, in the financial crisis, the FED was a little slow to react. Letting Lehman Brothers collapse might have (and almost did) set off a domino effect of very large problems. In the pandemic crisis, the FED and other central banks quickly flooded the world with free money. Interest rates plunged. Credit—unlike in the financial crisis—stayed freely available. The FED learned some valuable lessons in the last crisis. Particularly, confidence is key. The FED made it clear they would do all they can to help businesses, renters, and consumers. Fast, decisive action can prevent more problems.

More lessons: Balance is key: In 2020, there were at least five or six market events where growth stocks plunged and value stocks soared. The 5i question desk was bombarded with questions along the lines of ‘should I sell all my tech stocks?’, and ‘what’s a good value stock?’.

The calmest investors, though, were those that owned both, with a portfolio well-diversified by sector. These investors always had something working for them, and had a good year.

Another: Corporations will pay up for stocks if investors don’t. Corporations—at least the good ones—are long-term thinkers. They know business ebbs and flows, and stock valuations do not always reflect long term prospects. Case in point: Apollo buying Great Canadian Gaming (GC), one of the stocks we covered at 5i Research. Apollo bought GC in the middle of the pandemic, when essentially the company had no businesses operating. But Apollo knows that Covid will end one day, and casinos will open again. It tried to ‘steal’ the company, and shareholders managed to squeeze out a higher bid from them. But Apollo is still getting GC cheaper than it was last year.

We would like to thank all of our customers at 5i. We had a solid year of business growth, and our three model portfolios had a very good year, with our Growth Model Portfolio up more than 33% with less than two weeks to go in the year.

We hope 2021 will be at least a ‘calmer’ year.

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