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Tye Bousada and Geoff MacDonald remember exactly what they were doing the last time the financial world collapsed around them. In September, 2008, they were two of three star mutual fund managers who’d left giant Trimark Financial Corp. to strike out on their own and form Toronto-based EdgePoint Wealth Management.

On Sept. 15, the day Lehman Brothers filed for bankruptcy in New York – a collapse that would send stock markets into a six-month tailspin and set off a global financial crisis – the trio started their long-planned 40-city roadshow for an initial public offering to try to raise investment capital. At nine that morning, Mr. Bousada and Patrick Farmer, who’s now EdgePoint’s CEO, went ahead with a presentation to a small group of investment advisers in London, Ont., and Mr. MacDonald did the same in Oshawa.

Then, as now – and many times in financial history – a massive crisis was about to cause widespread pain and dislocation. But it would also create huge opportunities.

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EdgePoint had a fundamentally simple value-investing approach, focusing on solid, promising companies, rather than the entire economy or markets as a whole. “We believed capitalism would prevail, and things would slowly get back to normal for the economy and these businesses,” Mr. MacDonald recalled in an e-mail to The Globe and Mail.

If the companies could just get through the crunch, he said, “there would be significant money to be made.”

As things turned out, it was one of the best times ever to invest in stocks. When the IPO closed in November, 2008, EdgePoint’s publicly traded lead investor, Cymbria Corp., had raised $234-million. By the end of 2009, the firm had $450-million in assets under management. At the end of last year, after a decade of stellar returns in many of its funds, EdgePoint had $28.9-billion.

In many ways, however, the global coronavirus crisis of 2020 is much sharper, and more problematic, for investors. From September, 2008, to the bottom in March, 2009, the Standard & Poor’s 500 Index declined by 45 per cent. This time, the plunge has been smaller so far – about 33 per cent from a pre-crisis peak in February to a trough on March 23 – but it took just a month. Yes, the S&P 500 has recovered roughly half the lost ground since then, but the market still swings wildly almost every day.

ANNUAL RETURNS SINCE 1825

Just nine disastrous years of

20-per-cent-plus losses

2015

2011

2007

2005

1994

Stocks plunge more than 20% on Black Monday (Oct. 19), but market posts a gain on the year.

 

1993

1992

1987

2016

1984

2014

1978

2012

1970

2010

TOTAL PERCENTAGE RETURN IN THE

STANDARD & POOR’S 500 INDEX

OR EQUIVALENT BY YEAR

1960

2006

1956

2004

1948

1988

2000 - 2020

1947

1986

1900 - 1999

1923

1979

1825 - 1899

1916

1972

2019: The long bull market continues, with the S&P 500 up 28.9%, its biggest gain since 2013

2018

1912

1971

The dot-com

2000

1911

1968

bubble bursts

1990

1906

1965

1981

1902

1964

1977

1899

1959

1969

1896

1952

2017

1962

1895

1949

2009

U.S. stocks hit

1953

1894

1944

2003

bottom in July,

1946

1891

1926

1999

down 86 per

cent since before

1940

1889

1921

1998

the Crash

1939

1887

1919

1996

Stocks start

1934

1881

1918

1983

collapsing in

February as

2020

1932

1877

1905

1982

COVID-19 spreads

2001

1929

1875

1904

1976

2019

globally (YTD)

1973

1914

1874

1898

1967

2013

1966

1913

1872

1897

1963

1997

The Great

Crash in

1957

1903

1871

1892

1961

1995

October ushers

1941

1890

1870

1886

1951

1991

in the Great

n

Depression

1920

1887

1869

1878

1943

1989

1917

1883

1868

1864

1942

1985

1910

1882

1867

1858

1925

1980

U.S. stocks

1893

1876

1866

1855

1924

1975

finally regain

their pre-

1884

1861

1865

1850

1922

1955

Crash peak

Lehman

1873

1860

1859

1849

1915

1950

Brothers goes

2002

1854

1853

1856

1848

1909

1945

bankrupt and

triggers the

1974

1841

1851

1844

1847

1901

1938

1958

1954

global financial

1930

1837

1845

1842

1838

1900

1936

1935

1933

crisis

1907

1831

1835

1840

1834

1880

1927

1928

1885

2008

1857

1828

1833

1836

1832

1852

1908

1863

1879

1931

1937

1839

1825

1827

1826

1829

1846

1830

1843

1862

-50

-40

-30

-20

-10

0

10

20

30

40

50

60

ANNUAL RETURNS SINCE 1825

Just nine disastrous years of

20-per-cent-plus losses

2015

2011

2007

2005

1994

Stocks plunge more than 20% on Black Monday (Oct. 19), but market posts a gain on the year.

 

1993

1992

1987

2016

1984

2014

1978

2012

1970

2010

TOTAL PERCENTAGE RETURN IN THE

STANDARD & POOR’S 500 INDEX

OR EQUIVALENT BY YEAR

1960

2006

1956

2004

1948

1988

2000 - 2020

1947

1986

1900 - 1999

1923

1979

1825 - 1899

1916

1972

2019: The long bull market continues, with the S&P 500 up 28.9%, its biggest gain since 2013

2018

1912

1971

The dot-com

2000

1911

1968

bubble bursts

1990

1906

1965

1981

1902

1964

1977

1899

1959

1969

1896

1952

2017

1962

1895

1949

2009

U.S. stocks hit

1953

1894

1944

2003

bottom in July,

1946

1891

1926

1999

down 86 per

cent since before

1940

1889

1921

1998

the Crash

1939

1887

1919

1996

Stocks start

1934

1881

1918

1983

collapsing in

February as

2020

1932

1877

1905

1982

COVID-19 spreads

2001

1929

1875

1904

1976

2019

globally (YTD)

1973

1914

1874

1898

1967

2013

1966

1913

1872

1897

1963

1997

The Great

Crash in

1957

1903

1871

1892

1961

1995

October ushers

1941

1890

1870

1886

1951

1991

in the Great

n

Depression

1920

1887

1869

1878

1943

1989

1917

1883

1868

1864

1942

1985

1910

1882

1867

1858

1925

1980

U.S. stocks

1893

1876

1866

1855

1924

1975

finally regain

1884

1861

1865

1850

1922

1955

their pre-

Crash peak

1873

1860

1859

1849

1915

1950

Lehman

Brothers goes

2002

1854

1853

1856

1848

1909

1945

bankrupt and

triggers the

1974

1841

1851

1844

1847

1901

1938

1958

1954

global financial

1930

1837

1845

1842

1838

1900

1936

1935

1933

crisis

1907

1831

1835

1840

1834

1880

1927

1928

1885

2008

1857

1828

1833

1836

1832

1852

1908

1863

1879

1931

1937

1839

1825

1827

1826

1829

1846

1830

1843

1862

-50

-40

-30

-20

-10

0

10

20

30

40

50

60

ANNUAL RETURNS SINCE 1825

Just nine disastrous years of

20-per-cent-plus losses

2015

2011

2007

2005

1994

1993

Stocks plunge more than 20% on Black Monday (Oct. 19), but market posts a gain on the year.

 

1992

1987

2016

1984

2014

1978

2012

1970

2010

1960

2006

1956

2004

1948

1988

1947

1986

1923

1979

1916

1972

2018

1912

1971

The dot-com

2000

1911

1968

bubble bursts

1990

1906

1965

1981

1902

1964

1977

1899

1959

1969

1896

1952

2017

1962

1895

1949

2009

1953

1894

1944

2003

U.S. stocks hit

1946

1891

1926

1999

bottom in July,

down 86 per

2019: The long bull market continues, with the S&P 500 up 28.9%, its biggest gain since 2013

1940

1889

1921

1998

cent since before

the Crash

1939

1887

1919

1996

1934

1881

1918

1983

Stocks start

collapsing in

February as

2020

1932

1877

1905

1982

COVID-19 spreads

globally (YTD)

2001

1929

1875

1904

1976

2019

1973

1914

1874

1898

1967

2013

1966

1913

1872

1897

1963

1997

The Great

Crash in

October ushers

1957

1903

1871

1892

1961

1995

in the Great

Depression

1941

1890

1870

1886

1951

1991

1920

1887

1869

1878

1943

1989

TOTAL PERCENTAGE RETURN IN THE

STANDARD & POOR’S 500 INDEX

OR EQUIVALENT BY YEAR

1917

1883

1868

1864

1942

1985

1910

1882

1867

1858

1925

1980

2000 - 2020

1893

1876

1866

1855

1924

1975

U.S. stocks

1900 - 1999

finally regain

1884

1861

1865

1850

1922

1955

their pre-

Crash peak

1825 - 1899

1873

1860

1859

1849

1915

1950

2002

1854

1853

1856

1848

1909

1945

Lehman

Brothers goes

1974

1841

1851

1844

1847

1901

1938

1958

1954

bankrupt and

triggers the

1930

1837

1845

1842

1838

1900

1936

1935

1933

global financial

crisis

1907

1831

1835

1840

1834

1880

1927

1928

1885

2008

1857

1828

1833

1836

1832

1852

1908

1863

1879

1931

1937

1839

1825

1827

1826

1829

1846

1830

1843

1862

-50

-40

-30

-20

-10

0

10

20

30

40

50

60

As for EdgePoint, it’s no longer a nimble start-up. The firm now has more than 300,000 mutual fund investors, and it serves the vast majority of them through 1,500 financial advisers employed by investment dealers. Mr. Bousada and Mr. MacDonald spend a lot of time communicating with those advisers and clients, urging them not to cash out during a panic.

In an e-mail to The Globe, Mr. Bousada said EdgePoint sticks to a sound basic strategy in good times and bad, and investors should “always try to live within a narrow emotional band no matter what is going on in the stock market.”

But he added that his firm keeps looking for opportunities in a crisis and has bought positions in eight companies over the past eight weeks (although it has followed them for years). “That’s a lot for us,” Mr. Bousada said. “We usually buy six in a year.”

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Many analysts and managers believe there are a lot more bargains to be had. Even after the S&P’s recent comeback, North American stocks remain historically cheap, so why not start buying again right away?

Financial sage Burton Malkiel, a Princeton University economist and author of the 1973 investing classic A Random Walk Down Wall Street, published a widely cited opinion article in The Wall Street Journal this past week saying the cyclically adjusted price-to-earnings (CAPE) ratio for the S&P 500 – averaged over the past 10 years – remains 20-per-cent lower than its pre-crisis peak, and investing when the ratio is low almost always produces solid long-term returns.

That ratio has been near 20 for long periods going back to the 1880s, but surged to almost 35 just before the Great Crash of October, 1929, more than 45 just before the dot-com bust took hold in 2000, and 30 this past February. This past week, it was near 23.

Prof. Malkiel, who’s 87, has never had any use for professional money managers or individuals who try to pick specific stocks – they almost never beat the market. He has long argued in favour of low-cost, broadly based index funds, and in an e-mail to The Globe, he said individuals should buy “a little now, a little more when the market goes down another 10 per cent, a little more down another 10 per cent. No particular time schedule.” Year-to-year swings in stock market returns can be wide (see chart), but over several decades, indexes usually climb strongly.

The coronavirus crisis is also much different than the financial crisis in other fundamental respects. Like many strategists, Candice Bangsund, vice-president and portfolio manager, global asset allocation, with Montreal-based Fiera Capital, says the 2008–09 debacle was primarily a financial contagion that hit banks and other institutions hard, while most of the rest of the real economy kept going.

This time, she says, there was a global external shock not just to markets, but to almost every sector in every economy.

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At some point, the crisis will ease, but Ms. Bangsund says markets are still far too tumultuous and uncertain for anyone to be making bold bets on a recovery. “We actually think we’re going to see a double bottom. We’re going to retest those March lows.”

Fiera has $160-billion in assets under management, and for the moment, according to Ms. Bangsund, the firm is staying “neutral across the board.” It hasn’t “sold into a panic,” she says, and has maintained its overall asset allocation between stocks, bonds, real assets and cash. Nor does it have any strong preferences among sectors or regions.

Ms. Bangsund says Fiera is looking for several more certain signs that markets and the economy are stabilizing. Those signs include peaks in the number of COVID-19 cases worldwide, governments lifting quarantine restrictions, and strong evidence of improving consumer and business psychology.

Even so, she says, “recovery is going to look more like a U-shape than the V-shape” some investors were hoping for.

The trouble is those clear signs often don’t emerge until a market recovery is well under way. In the meantime, there’s uncertainty. William J. Bernstein, a celebrated investor and financial historian in Portland, Ore., who was a practising neurologist for 25 years before shifting careers in the early 2000s, says it’s hugely difficult to stay cool during a panic.

“There’s the worst thing you can do, which is sell,” says Mr. Bernstein. “There’s the next best thing you can do, which is absolutely nothing. And then the third thing you can do, which for some people – and I emphasize the some – if they have the patience, the cash and the courage, and in that order, they can do some buying.”

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Mr. Bernstein has written seven books about investing and financial history, including The Birth of Plenty and A Splendid Exchange. While trying to remain calm himself during the current crisis, he says the parallels to the Great Crash and the Great Depression are worrisome. U.S. stocks and the economy both just kept sinking in the 1930s – stocks declined by almost 90 per cent by 1932, with the unemployment rate climbing to more than 20 per cent for most of the early ’30s.

The speed of the coronavirus crisis alarms him. “You know, 10 million people out of work [in the U.S.] within a matter of weeks? That’s unprecedented,” he says.

Yet, Mr. Bernstein says there are reasons to hope for the best-case scenario. If effective treatments and a vaccine for the coronavirus emerge within several months, “the economy slowly starts to pick back up, and 12 months from now, we’re back to normal.”

Whatever happens, Mr. Bernstein says investors should always follow several classic rules. Your asset allocation is more important than your choice of specific stocks or bonds. Rebalance your portfolio regularly (although not constantly) to get back to your target asset allocation. Even once a year might be enough for some people.

Young investors with long time horizons can invest heavily in stocks for growth, but older investors should boost their weighting of bonds as they age.

Even before the latest crisis, however, Mr. Bernstein says some old investing notions had already become obsolete. The low interest rates and bond yields since the financial crisis will likely endure, he says. “People got used to the idea from 10 or 20 years ago that you could live off the interest rate of your fixed-income assets. It is no longer true, and it probably will never be true again. You consume fixed-income assets as you get older. That’s what they’re there for.”

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Coming to grips with uncertainty is also daunting at any age, but in many ways, it’s the norm – even welcome. “Times of uncertainty create opportunity for investors,” says EdgePoint’s Mr. MacDonald. “When things are certain and we all see the same future, there’s no opportunity for outsized returns.”

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