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If we knew for certain that Canada was about to enter a recession, could you correctly guess where the TSX would be 3 years from now? What about 2 years from now? Or even next year?

Over the last several months the market’s given investors lots of news to talk about. There was Greece exiting the Euro, a full on stock market crash in China, gold continuing a bear market, and possibly a new Canadian recession back home. Some investors read headlines like this and assume investing should be fairly straightforward. Just read the news story, anticipate how the crowd will react, buy/sell something, and voila, profit. But are headlines actually helpful? 

The tough thing about investing based on the news is that there are so many variables at play. Even if you get it right, you’ll never know if it was luck or skill. Good investment strategy is about exploiting a reliable and repeatable piece of knowledge to your advantage. For example, buying companies with increasing cash flow is a good strategy. Fighting a battle from higher ground is good strategy. Shaking hands when first meeting your girlfriend’s father is good strategy. These are all things that have a positive expected outcome based on evidence.

On the other hand, there is no pattern we can exploit from countries exiting the Euro. There’s no correlation to be found between Chinese stock market crashes and Canadian earnings. And as surprising as it sounds, recessions don’t always produce negative returns (more info on that here: http://awealthofcommonsense.com/stock-performance-before-during-after-recessions/).

Although macro predictions make for great cocktail party conversations, they rarely turn into good investments.

The news doesn’t make the market. It’s the other way around.


Ben Kizemchuk is a Portfolio Manager & Investment Advisor with Altus Securities Inc. in Toronto. He offers financial planning and investment management for high net worth Canadian investors. Ben focuses on high quality investments, the Growth and Income Portfolios, low risk investing, and reducing tax.