Investors tend to have short-term memories when it comes to market swings, leading them to make mistakes that can hurt their portfolios over the long term, says money manager Wes Ashton.
“What investors, unfortunately, have forgotten is that volatility is common,” says Mr. Ashton, co-founder and director of growth strategy at Vancouver-based Harbourfront Wealth Management.
Mr. Ashton, a portfolio manager who oversees about $600-million in assets, notes the markets were relatively quiet for 15 months after the pandemic-driven drop in March, 2020, with no decline greater than about 10 per cent.
“There’s a recency bias,” he says, referring to the cognitive behaviour that sees people favour recent events over historical ones. “So when we get into the kind of volatility that we’ve been having lately, people tend to forget and make irrational decisions like panic selling.”
While his portfolios haven’t been immune to the market drop, Mr. Ashton says his clients have had a better experience than the broader markets, given their defensive portfolio construction, which includes equities and private investments.
His average portfolio gained 7 per cent, on a total return basis, for the year ended May 31. That compared with a gain of 3.8 per cent for the S&P/TSX Composite Index over the same period and a decline of 1.7 per cent for the S&P 500.
The Globe and Mail recently spoke to Mr. Ashton about what he’s been buying and selling and one of his best long-term stock purchases.
Describe your investing style.
We don’t try to time the market, but rather we prepare for events that are likely to happen, like rising interest rates and inflation in the current environment. We also try to be strategic by investing in companies when they’re cheaper and adding them over time. We’ve been focusing on good-quality investments that pay dividends. We’re also fortunate to be able to employ an institutional investor approach by adding private assets in real estate, private equity and private debt. These investments have been consistently providing 6-to-10-per-cent rates of return with a lower standard deviation than your more traditional equity and fixed-income markets. That has really helped our clients withstand the market downturn.
Do you see a recession on the horizon?
Given inflation and the economic volatility, it wouldn’t surprise me if we enter into a recession. What investors have to realize though is that we could already be in the beginning stages of one. Often, the markets are in the process of exiting a recession before it’s considered official. So if a recession is announced, I don’t think you’d want to be suddenly moving all of your investments into something more defensive because we may already be at the tail end of it. Another market pullback is a possibility, but that’s par for the course as investors navigate some of these uncertain times.
What have you been buying?
Energy has been a good play for the last 12 to 18 months, so we’re sticking with it and increasing our exposure because we believe there’s a little bit of room to run. That said, from a geopolitical point of view, if sanctions suddenly come off, we could lose that trade pretty quickly. So we have to be mindful of that. We’re adding dividend-producing companies with stronger yields, which have become more attractive as prices fall. Some of the energy names we own include Cenovus CVE-T, Crescent Point Energy CPG-T, Suncor SU-T and exchange-traded funds like the iShares S&P/TSX Capped Energy Index ETF.
We’ve also been adding to some technology names, such as Amazon AMZN-Q and Apple AAPL-Q. Some of these mega-cap names have posted declines of as much as 30 per cent so far this year. Amazon also recently did a stock split, which makes it more attractive to investors looking to get in. The sector may still face some headwinds, but we think, for some of these larger names, it’s an attractive point for longer-term investors.
What have you been selling?
Not a lot lately. We’re not big fans of selling good quality companies and crystallizing a loss just because the overall market is down. Tech is a good example. It’s not a surprise that it’s come off, but some of these names appear oversold.
Name one stock that’s been a good investment for you over the years
Tesla. Speaking of volatility, the stock has seen its share in recent years but has been a good investment over the long run. We’ve progressively added to it over time, whether through individual holdings or pooled strategies. To us, it’s not just a car company; it’s a tech company that happens to sell cars. It’s been very disruptive to the automotive industry and a leader in bringing electric vehicles to the forefront. In hindsight, I wish we would have bought more back when we did.
What general advice do you have for investors?
Don’t try to time the market. It’s a futile exercise; you’re speculating, not investing. When you’re investing, it’s usually with a theme that plays out over a longer period of time. In general, timing the market can involve making decisions based on emotion and having a mid to long-term strategy benefits portfolio performance. Over the long run, investors with a goal are more likely to make sound financial decisions and reduce their chance of making poor ones.
This interview has been edited and condensed.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.