End of Year

As we approach the end of what has been an incredible year for many reasons, I am reminded about how much misinformation is on the internet. Whether it is about COVID-19, politics, or investing there is so much misleading information available. I have received a number of calls from clients who are concerned about a recent viral article with the anxiety inducing headline of “Warren Buffett: The economy is ready to crash” I will address the misinformation, and provide some facts about what Warren Buffett is actually doing in an effort to relieve your nerves ahead of 2021.

Claim: Warren Buffett is selling stock, therefore the economy, and stock market is going to crash.

In the most recent quarter where Warren Buffett addressed the media at the end of November, it was disclosed that he did in fact sell some stock. He completely sold his position in Costco and reduced his position in a couple of US banks and a gold stock. What is not reported in that article is that he reinvested the proceeds of these dispositions back into the stock market, and actually added $4.8 billion dollars from cash into healthcare names, Bristol Myers Squibb, Merck, Pfizer, AbbVie and a few technology names. On top of this he actually took an additional $9.8 billion from cash and bought back his own stock! If he truly thought the market was going to crash, not only would he not tell the motley fool, he certainly wouldn’t have invested $15 billion dollars into stocks!

Back in February and March of this year the velocity at which the stock market was declining was unnerving. The reason for the precipitous decline was the Fear of the Unknown. I have talked for years that when there is uncertainty the markets react to it. Early this year the concept of shutting down the economy was so significant that the only logical argument was that it would mean 100% loss of employment, employment income, and profits. Global governments were well aware of the unprecedented (the most over used word of 2020) actions they were taking, and we had a unified response of stimulus to protect the economy. The results were record breaking on many levels, but for the first time a lack of government intervention was not the cause of the recession. The markets immediately rebounded and ultimately went higher.

As we are about to enter our second full lockdown in Ontario, I don’t think that it will cause a decline in the markets and here is why; First it is no longer the fear of the unknown. We all know how to survive a lockdown and we probably won’t even need to hoard toilet paper in the process. Second, the government stimulus is still in effect for those in need and they remain committed to keeping capital markets stabilized. Third, the vaccine is in the process of being distributed. Fourth, although there is concern about the amount of consumer debt, unlike 08-09 where the housing market collapsed, the housing market in 2020 increased and most people have significant equity in their homes that should take the pressure off both banks and the homeowners.

All of this being said, I am much more excited for what the future brings. I think there is significant opportunity right now if we can think forward to what the world will look like in 2-4 years. Although there will be challenges in the short term for some small businesses and consumers, I am optimistic we will prevail.

Our office has implemented some new changes as well. We are here in the office, and we are available to meet in person and by phone just like before. We are now also offering the option to meet via video conference services such as Zoom, Webex, or Microsoft Teams. If there is anything Ivy and I can help with please let us know. 2020 has brought significant challenges, but we have persevered. I look forward to talking with everyone, and I wish you and your families all a Happy New Year!

Kyle A. Stevenson, CIM, Financial Advisor