On Monday, I attended a small roundtable with three highly respected portfolio managers from one of the top wealth management firms in Canada. I was looking forward to getting some insight because the three portfolio managers have all been in the investment industry for a very long time and have done an excellent job of managing money. What was not surprising was that they each stressed that they had never seen a market like this before.

The general consensus was that we are in for more volatility in the coming months ahead and well into 2009. The one stipulation, however, was that there would likely be some very sharp rallies going forward after which the markets would fall back to their lows. Eventually, however, the markets will stop re-testing their lows and move higher. For the most part, stocks have priced in the very worst case scenario in regards to the global economy. Despite this, many individual investors have been liquidating their portfolios without a moment’s hesitation.

The one thing that I would encourage investors to keep in mind is to look forward a few years and decide how the economy will be doing then before making the decision to sell everything today. If you look out three years and believe that the bailout package will fail, value investors such as global pension funds, sovereign funds and endowment funds will stay on the sidelines or that we are in the midst of a depression and, for the first time in history, the economy will never improve then you should reduce your equity exposure. If, however, you think that this is just another bear market, albeit a bad one, but things will return to historical norms, then you should refrain from making irrational decisions and start considering how you can turn what has happened into an opportunity.

Mounir R. El-Ayari, CIM, FCSI, C.h. P. Strategic Wealth
Investment Advisor
Associate Portfolio Manager
e-mail: mounir.el-ayari@nbf.ca