April 2022 Quarterly Investment Update

Uncertainty and Market Volatility

Uncertainty goes hand-in-hand with market volatility – and political uncertainty offers no exception to this rule. Think back on the summer of 2015. The S&P 500 dropped by over 12% on fears that Greece would default on its debt and exit the European Union (Grexit). In the summer of 2016 markets again dropped as Great Britain initiated its own process to exit the European Union (Brexit). Later that year in November, the S&P 500 futures dropped by over 5% on the evening Donald Trump shocked the world by winning the US presidential election (it recovered overnight and was up by over 1% the next day). The Russian invasion of Ukraine did not come as a surprise to the world. The S&P 500, nevertheless, convulsed in the first quarter – dropping by over 13% by March 8. (Source: yahoo.ca/finance).

It is during these times of market volatility that we are well-served to check our convictions on why we own what we own. This is process is known in our industry as conducting due diligence. It is defined by the Oxford Dictionary as: a comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential.

Due Diligence

In our investing process we employ professional managers who are constantly conducting due diligence on our behalf. They ask questions such as:

1. Does the business solve compelling problems for its customers – and will it continue to do so in the future?
2. Is the business able to generate a solid stream of free cashflow from its operations?
3. Are the business managers competent, honest and hard-working? Do they have a successful track record?
4. Is the business well-positioned to survive a crisis?

I encourage you to ask the same questions too.  If for no other reason than to reassure yourself that you are holding shares in businesses that will provide for you and your family in the future. If you have a moment, look up the securities you hold in your mutual fund portfolios and ask yourself if these are the kinds of businesses you want to own in a volatile world. Search for the top holdings of your mutual funds (this information is publicly disclosed and updated each month).