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Kim Parlee talks to Michael Craig, Head of Asset Allocation, TD Asset Management, about the state of the markets amid the COVID pandemic and the importance of resisting the urge to panic-sell, and to stay focused on long investment term goals instead.
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[MUSIC PLAYING]
- Hello and welcome to MoneyTalk's COVID-19 Daily Bulletin for Thursday, April 23. I'm Anthony Okolie. In a few minutes, Kim Parlee will be speaking with Michael Craig, Head of Asset Allocation at TD Asset Management, about the state of markets and the importance of focusing on long-term goals. But first, a quick wrap of today's market news.
[MUSIC PLAYING]
The number of Americans who filed for unemployment insurance grew by 4.4 million last week. It has taken only five weeks for the US economy to wipe out all the job gains it added since the 2009 Great Recession. The economic impact is also being felt in Europe where business activity hit a record low this month. The lockdown and slumping global demand for goods has crippled economic activity, causing layoffs and businesses to shut.
More fallout for the Canadian airline industry. WestJet says it will lay off 3,000 people and cancel more than 4,000 domestic flights weekly in May. Bad news for clothing retailer Gap, who said it did not pay rent on its stores in April and warned it may not have enough cash to fund its operations. Finally, Apple is laying the groundwork to start selling Mac computers using its own processors, which could be a blow to its current supplier, Intel.
And that is a wrap of today's headlines. As promised, Kim Parlee's conversation with Michael Craig.
[MUSIC PLAYING]
- Michael, it's been an incredible few weeks in the markets. And who's kidding, it feels like a few years in the past little while. What is going on right now in the markets?
- Stock markets have rallied anywhere from 20% to 30% off their lows. The corporate bond markets have come unfrozen. They weren't really trading not too long ago. And now corporate bonds have rallied quite a bit.
And so broadly speaking, the tone is much better. You know, in the real economy, things are still very difficult and incredibly challenging. But in the financial markets space, while we're well off the highs that we saw back in February, it feels a whole lot better today than it did just a few weeks back.
- For most people, they always hear the advice, you know, don't sell at the bottom and don't try and time the markets. I think people hear it a lot but maybe don't specifically understand why. So can you just talk a bit about that and why that matters?
- Yeah, I think sometimes people give these words of wisdom but they don't explain why, which is probably why it's hard to follow.
Selling at the bottom is problematic for two reasons. One, you crystallize losses which are not-- you know, on any given day the markets may be up or down, but when you crystallize losses, those are real losses that you that ultimately affect the investor.
The other issue is, look, if you're investing in high quality businesses and the price falls 20%, you know, nothing-- while the outlook short-term for that business might be a bit more challenged, you have the same management team. You have the same business strategy. And you're essentially getting the same business but for 20% less.
And so if we walked into a store and we saw our kind of favorite item on sale for 30% off, you'd be inclined to buy it. And I think the same thought process should be when you're Investing. If there's something you think is-- has a lot of value and is a good thing to hold for a long period of time and it goes on sale, you should do the same. So that's important. And not to get too concerned about the past sometimes. We worry about-- we forget about what the long-term implications are of Investing. And that ultimately is what affects-- makes up for bad decision making sometimes with Investing.
- You're giving us a little hint there in terms of how TD Asset Management views the markets in terms of seeing some great quality businesses for sale, on a discount, but give us a little more color in terms of how specifically you're managing through this.
- So we have a-- we have horizons that vary depending on our investment strategies. And those kind of speaks to the value of diversification. We see on a short-term basis, you know, things are still going to be quite volatile.
In the long-term basis, we spend a ton of time researching kind of what the potential financial markets can give us in terms of return based on our expectations for economic growth. And we see things on kind of a 12 to 24 month horizon as still offering quite a bit of value. I know there's been a fairly breathless rally off the bottom, but that doesn't mean we're anywhere near the top of this.
So I look at this now-- in the short term, still going to be very volatile, still lots of troubling headlines on the health care front. But from an investment standpoint, I'm quite calm here. It feels like there's been bad news that's already well understood by markets. And there's been tremendously powerful and direct responses from both governments and central banks around the world to, essentially, underwrite economies as we go through this period of hibernation.
So a lot of the-- it's a lot to take in, a lot happening. But I think we're seeing today does make some degree of sense. I've been investing now for 20 years. And I think I better understood behavioral economics before it was really well known. You know, certainly financial problems were always a bit of a stress as I was growing up as a child. And so I saw firsthand how stressful financial uncertainty can be.
So I think I've always thought of myself as a risk manager before an investor. I mean, because if we are able to manage the investment path, our customers would be more comfortable and confident thinking in what really matters. That's long term. And you know, from my-- we all have a story of growing up, but that was something I understood before I knew anything about Investing and, still today, something I look back on quite often.
- You talk about the news cycle and even the market reactions. It can be exhausting, I think, for a lot of people who are watching. It's hard not to focus on that. What you and I have talked about is don't focus on what's happening in the news. Focus on your own plans and your own goals.
- Yeah, absolutely. The biggest risk that investors have is not a recession or some volatility. The biggest investors' risk that investors face is their long-term goals and not meeting those goals. Because if you don't meet them, that means whatever financial or whatever type of future you were envisioning that was going to be supported by a certain amount of savings has to be adjusted and usually down.
And so while we talk about this all the time, it's hard to visualize because we're not dealing with that. We don't know what we look like when we retire or what life looks like. It's hard to imagine that. But it is the greatest risk and the most important thing for investors is think about is on that kind of end point of where they want their investments to be.
I recognize that this is a period time that there's all kinds of stress that people are enduring, not just financial, but health care, too. But we're here for you. We're here to serve our customers, to ensure that we make sure that they're able to achieve those financial goals that they set out for when they first made-- when they made their first investment.
- Michael, thanks for your time. We really appreciate it.
- Thank you for having me.
[MUSIC PLAYING]
- Hello and welcome to MoneyTalk's COVID-19 Daily Bulletin for Thursday, April 23. I'm Anthony Okolie. In a few minutes, Kim Parlee will be speaking with Michael Craig, Head of Asset Allocation at TD Asset Management, about the state of markets and the importance of focusing on long-term goals. But first, a quick wrap of today's market news.
[MUSIC PLAYING]
The number of Americans who filed for unemployment insurance grew by 4.4 million last week. It has taken only five weeks for the US economy to wipe out all the job gains it added since the 2009 Great Recession. The economic impact is also being felt in Europe where business activity hit a record low this month. The lockdown and slumping global demand for goods has crippled economic activity, causing layoffs and businesses to shut.
More fallout for the Canadian airline industry. WestJet says it will lay off 3,000 people and cancel more than 4,000 domestic flights weekly in May. Bad news for clothing retailer Gap, who said it did not pay rent on its stores in April and warned it may not have enough cash to fund its operations. Finally, Apple is laying the groundwork to start selling Mac computers using its own processors, which could be a blow to its current supplier, Intel.
And that is a wrap of today's headlines. As promised, Kim Parlee's conversation with Michael Craig.
[MUSIC PLAYING]
- Michael, it's been an incredible few weeks in the markets. And who's kidding, it feels like a few years in the past little while. What is going on right now in the markets?
- Stock markets have rallied anywhere from 20% to 30% off their lows. The corporate bond markets have come unfrozen. They weren't really trading not too long ago. And now corporate bonds have rallied quite a bit.
And so broadly speaking, the tone is much better. You know, in the real economy, things are still very difficult and incredibly challenging. But in the financial markets space, while we're well off the highs that we saw back in February, it feels a whole lot better today than it did just a few weeks back.
- For most people, they always hear the advice, you know, don't sell at the bottom and don't try and time the markets. I think people hear it a lot but maybe don't specifically understand why. So can you just talk a bit about that and why that matters?
- Yeah, I think sometimes people give these words of wisdom but they don't explain why, which is probably why it's hard to follow.
Selling at the bottom is problematic for two reasons. One, you crystallize losses which are not-- you know, on any given day the markets may be up or down, but when you crystallize losses, those are real losses that you that ultimately affect the investor.
The other issue is, look, if you're investing in high quality businesses and the price falls 20%, you know, nothing-- while the outlook short-term for that business might be a bit more challenged, you have the same management team. You have the same business strategy. And you're essentially getting the same business but for 20% less.
And so if we walked into a store and we saw our kind of favorite item on sale for 30% off, you'd be inclined to buy it. And I think the same thought process should be when you're Investing. If there's something you think is-- has a lot of value and is a good thing to hold for a long period of time and it goes on sale, you should do the same. So that's important. And not to get too concerned about the past sometimes. We worry about-- we forget about what the long-term implications are of Investing. And that ultimately is what affects-- makes up for bad decision making sometimes with Investing.
- You're giving us a little hint there in terms of how TD Asset Management views the markets in terms of seeing some great quality businesses for sale, on a discount, but give us a little more color in terms of how specifically you're managing through this.
- So we have a-- we have horizons that vary depending on our investment strategies. And those kind of speaks to the value of diversification. We see on a short-term basis, you know, things are still going to be quite volatile.
In the long-term basis, we spend a ton of time researching kind of what the potential financial markets can give us in terms of return based on our expectations for economic growth. And we see things on kind of a 12 to 24 month horizon as still offering quite a bit of value. I know there's been a fairly breathless rally off the bottom, but that doesn't mean we're anywhere near the top of this.
So I look at this now-- in the short term, still going to be very volatile, still lots of troubling headlines on the health care front. But from an investment standpoint, I'm quite calm here. It feels like there's been bad news that's already well understood by markets. And there's been tremendously powerful and direct responses from both governments and central banks around the world to, essentially, underwrite economies as we go through this period of hibernation.
So a lot of the-- it's a lot to take in, a lot happening. But I think we're seeing today does make some degree of sense. I've been investing now for 20 years. And I think I better understood behavioral economics before it was really well known. You know, certainly financial problems were always a bit of a stress as I was growing up as a child. And so I saw firsthand how stressful financial uncertainty can be.
So I think I've always thought of myself as a risk manager before an investor. I mean, because if we are able to manage the investment path, our customers would be more comfortable and confident thinking in what really matters. That's long term. And you know, from my-- we all have a story of growing up, but that was something I understood before I knew anything about Investing and, still today, something I look back on quite often.
- You talk about the news cycle and even the market reactions. It can be exhausting, I think, for a lot of people who are watching. It's hard not to focus on that. What you and I have talked about is don't focus on what's happening in the news. Focus on your own plans and your own goals.
- Yeah, absolutely. The biggest risk that investors have is not a recession or some volatility. The biggest investors' risk that investors face is their long-term goals and not meeting those goals. Because if you don't meet them, that means whatever financial or whatever type of future you were envisioning that was going to be supported by a certain amount of savings has to be adjusted and usually down.
And so while we talk about this all the time, it's hard to visualize because we're not dealing with that. We don't know what we look like when we retire or what life looks like. It's hard to imagine that. But it is the greatest risk and the most important thing for investors is think about is on that kind of end point of where they want their investments to be.
I recognize that this is a period time that there's all kinds of stress that people are enduring, not just financial, but health care, too. But we're here for you. We're here to serve our customers, to ensure that we make sure that they're able to achieve those financial goals that they set out for when they first made-- when they made their first investment.
- Michael, thanks for your time. We really appreciate it.
- Thank you for having me.
[MUSIC PLAYING]
