Much of nature is designed in threes. You can survive three days without drinkable water, three minutes without breathable air and three minutes in icy water. Triangles have three sides and make up the foundation of much of of the math we use for building (or at least that’s what I remember). We only need three colours to be combined in a variety of ways to make up all other colours. We like to reflect nature in society. We award first, second and third place medals. We have rule of three, three-fold law, 3 goals in a Hat Trick, 3 strikes and you’re out and of course, the Holy Trinity.
Because of this we are taught to write in threes. Three points to support a thesis. Our mind grasps these arguments and can hold on, feeling convinced but not overwhelmed. It is summer now, it’s hot, and we have just taken some time off (three weeks to be exact). Because of this we are going to keep things light and easy and lean on the rule of three to drive home some key points as we make it through this heat. We have gone over three major points since we have started and below is a summary of those points and three key items to drive each point home.
Point 1: Investing is a good idea – But in times of high uncertainty, tread carefully.
Know your environment. Trading groups called “retail bros” are outperforming hedge funds. Apple is worth 20% more than it was before COVID-19 (doesn’t a pandemic make you want to go buy new iPhone?!) and despite record job losses (STILL), each week, we see ‘the market’ perform well. Something seems very off - but at the same time, there are arguments to be made that the market is actually not that far off due to all the global stimulus. Jamie Dimon, CEO of JP Morgan, has saved $17.5 billion to either pay for record defaults or to give to its shareholders… that is a big contingency plan.
““The word unprecedented is rarely used properly… This time, it’s being used properly. It’s unprecedented what’s going on around the world, and obviously COVID itself is a main attribute.””
In times of uncertainty we turn to history. We turn to probabilities. And we trust a little bit of common sense. From this we get three rules:
You 100% cannot accurately time the market
You most likely cannot beat the market
Over the long run the market will go up so you should probably own the market
If we revisit our first investing article, since then we would have made 8% on the 20-30% we had invested. We still have money on the sidelines but we have also made money. We are secure and confident and will soon look at investing our next tranche.
We would have made 8% on the 20-30% we had invested.
Point 3: Real estate is a good thing to own.
If you live in Toronto and are trying to buy a house…wow, what a roller coaster ride this last 12 weeks has been. In April there was no inventory and prices dropped 12%. In May, we wrote about how its key to be prepared, make offers at or under asking as you never know and we saw more inventory hit the market, and some mixed sales numbers. In June, the market leaped and houses listed at $1.4 million were going for $2.1 million. Yet, there are still examples of houses going for asking – it all depends where you look. Real estate is a good thing to own going forward but not at the cost of becoming ‘house poor’. We need to remember three things when looking for real estate.
1. Know what you can afford. We developed a small affordability chart and we encourage you to revisit it (read here)
2. Know your market. The market in Toronto, in some places (Leslieville, Roncesvalles), is very hot right now. It seems our entire generation is looking to buy a house in the same neighbourhood. Don’t stretch yourself during this buying craze and keep an understanding of relative value. Get comparable pricing for houses from before COVID-19 and during to understand if something is properly priced. Demand booms come and go, this recession is not going anywhere.
3. Look for your ‘Brooklyn’ – even a ‘Brooklyn’ within a neighbourhood. Over this next 12 or so months, it will be a good thing to, if you can, own a home. Inflation will lead to skyrocketing real estate prices so it is important, if you are looking to buy, to try and do so during this time (read here). In percentage terms, Brooklyn went up far more than Manhattan – be aware of this. Buy now, get your gains, and move in the future if you want.
Point 3: We are living in a brave new world.
We are in the heart of a generational transformation of perspective and three primary causes are from the mass movement to thwart racial inequality, a global pandemic, and a bipolar political movement that seems to be leading us to a new ‘Cold War’.
COVID-19
After short lived ‘victories’ against the virus, cases are once again skyrocketing across the world, specifically in countries like the UK and the US, where 41 of 50 states are seeing an increase in daily cases (praise to New Zealand). COVID-19 presents us with an economic battle pitting unemployment and a full economic shutdown versus the power of government stimulus. Our next decade may depend on which wins. If the stimulus can continue to support the population’s income while the effects of COVID-19 are felt, we may avoid a total collapse (for many Americans who have lost their job, their income is actually up - as it is for some Canadians too). If it cannot support the economy, we could see massive food bank lines, drops in spending, far more layoffs, and a path towards depression. Until we have a widely available vaccine, we are left with a very blurry picture of the future.
We could see massive food bank lines, drops in spending, far more layoffs, and a path towards depression.
Racial inequality
A 15 year old African American girl in Michigan didn’t do her homework and was sent to a juvenile detention center (read article) while Roger Stone’s sentence was commuted by the President after he was found guilty of clearly tampering with a witness and lying to cover up for the President (read article). Protests, police violence, federal interference with untrained riot police – the awareness (positive and negative) seems more wide spread than ever before. The opportunity gap and wealth gap has never been so clear as it has been during COVID-19 and perhaps it took this global pandemic AND the horrific video taped murder of George Floyd to bring this awareness. With this momentum comes an opportunity for change but also uncertainty over the future. Change will make us better both from an economic perspective (diversity is a powerful profit center) and because without long-term change in this dramatic a situation, history tells us the result… the French Revolution was not that long ago.
The Next Cold War?
Behind the veil of racial inequality and COVID-19 we have started to see the emergence of some very scary political trends in the two global super powers: China and the US. The 50-year amalgamation plan put in place in 1997 when Hong Kong was released from British rule has been accelerate by President Xi and the Chinese government with the introduction of a new National Security Law. This has sent a panic through the rest of Asia as China looks to expand its footprint. The next battle could be for Taiwan which holds the semiconductor market in its pocket as the largest producer in the world. The previous Cold War led to a space race and the internet (developed to ensure communications continued without phone lines due to a nuclear blast) but we also saw the lost financial decade of the 70’s, hyperinflation, and some countries of the world left in the winds not knowing who to support (or used as battle grounds). The world is now far more interconnected than it was back then and we will closely watch this as it unfolds.
The previous Cold War led to a space race and the internet.
If we can take anything from this all, the world is flooded with uncertainty (we haven’t even talked about the US Election!). For our portfolios, this means focusing on long-term goals rather than short term gains. Have 6 months savings. Invest in tranches.
Moving forward, we will look to release an article every two weeks going forward until after Labour Day when we will begin a regular Sunday article. We are very appreciative of the response so far and the trust you have given us to answer your questions - whether we are getting the questions publicly or privately. We hope to see the community continue to grow as the more voices we have, the better we can learn together.
I’d like to sign off this week by paying tribute to John Lewis, a civil rights hero in the US, who passed away at 80 this week after battling Pancreatic Cancer. The abuse he took at Selma on Bloody Sunday (and hundreds more times) shocked America in 1965 and, according to the Times (read article), led to the passing of the 1965 voting rights act. He was one of 13 freedom riders who drove across state lines when it was illegal for Black people to do so. He spoke at Dr King’s 1963 I have a dream speech and was awarded the presidential medal of freedom in 2011. He was arrested 40 times between 1960 and 1966 and coined the phrase “good trouble” which he continued for decades in congress becoming known as the “conscious of congress”. When Barack Obama was inaugurated as the first African American President in US history, John Lewis approached him with a commemorative picture and asked the new President to sign it. President Obama wrote “Because of you John. Barrack Obama”.
After fighting the battle of inequality his whole life, it is encouraging that he looked at today’s Black Lives Matter movement and said: “This feels and looks so different…It is so much more massive and all inclusive…There will be no turning back.” We end with a quote from his twitter account in 2018:
““Do not get lost in a sea of despair. Be hopeful, be optimistic. Our struggle is not the struggle of a day, a week, a month, or a year, it is the struggle of a lifetime. Never, ever be afraid to make some noise and get in good trouble, necessary trouble.” ”
See you in 2 weeks,
Mat