Mind the Noise

If you watch the news, follow social media, read headlines, or even just casually listen to your friends at social gatherings, you are likely aware that almost everyone is calling for some type of market volatility to hit. After all, there are escalating trade wars, inverted yield curves, political turmoil, a no deal Brexit, slowing U.S. economy, etc... Bad news seems to be everywhere and with so much bad news how could the global stock markets possibly continue to rise?

For most, these issues seem to be percolating at the same time, but for me, these are issues that I have been paying attention to on a regular basis. In fact, many of the mutual fund managers who I have seen or spoken to have been speaking of a market downturn for the past 2-3 years and how to protect client portfolios. Selling out would have made sense, all the signs were there - we were into the 8th year of one of the largest Bull runs in history, Trump had just been elected, UK had just voted to leave the European Union, there were violent terror attacks around the globe, Black Lives Matter and markets were at all time highs. Just to add to the distraction and confusion, this was also being echoed via “expert opinion” – you know those people on TV, and in print who profess to have some sort of clairvoyance about market direction. Imagine if we listened to the advice of the "experts" then and tried to protect portfolios... in late August 2016, the Dow Jones Industrial Average was at 18,120 vs today at just below 26,400 ... that's 45% growth in 3 years. Fortunately, we know that there is quite often a bigger story behind the headlines of the day, beyond the noise and expert opinions… SCIENCE.

That’s right, I said science!

Financial sciences have been around for almost half a century and are routed in academic research using the scientific method. These scientist have a goal to analyze and understand how the markets work to deliver returns vs the more traditional “art” of investing. They are not trying to sell a fund or advice, they are only interested in data analytics. Thanks to this research, we know that if you missed the single best trading day between 1990-2018, your average annual compounded return would be 40 basis points less (0.40%) than what the U.S. market indices returned over that same timeframe. To put that in real numbers, if you invested $100,000 in 1990 and got the same annual compounded return as the stock market (9.29%) it would now be worth $495,000. However, if you were on the sidelines on the best trading day over that 28 year period, it would have cost you $35,000 in growth. If you missed the best 5 days during that 28 year period, then it would have cost you $112,000 and if you missed the best 15 days over that 28 year period by trying to outguess the markets, your average annual return would have been 5.79%, costing you $220,000 in growth. Don’t think for a minute that I don’t see the irony in this. Investors who try to outguess the markets to avoid the inevitable short term losses are very likely losing out significantly more on long term growth.

Here's the thing - There has always been noise, and always will be, but the one thing that’s consistent is the markets’ ability to deliver consistent long-term returns. So do your future self a favor and don’t get caught-up in the hype.

In US dollars. For illustrative purposes. The missed best day(s) examples assume that the hypothetical portfolio fully divested its holdings at the end of the day before the

missed best day(s), held cash for the missed best day(s), and reinvested the entire portfolio in the S&P 500 at the end of the missed best day(s). Annualized returns for

the missed best day(s) were calculated by substituting actual returns for the missed best day(s) with zero. S&P data © 2019 S&P Dow Jones Indices LLC, a division of

S&P Global. All rights reserved. “One-Month US T- Bills” is the IA SBBI US 30 Day TBill TR USD, provided by Ibbotson Associates via Morningstar Direct. Data is

calculated off rounded daily index values.

This publication contains opinions of the writer and may not reflect opinions of Manulife Securities Investment Services Inc. The information contained herein was obtained from sources believed to be reliable, but no representation, or warranty, express or implied, is made by the writer or Manulife Securities Investment Services Inc. or any other person as to its accuracy, completeness or correctness. This publication is not an offer to sell or a solicitation of an offer to buy any of the securities. The securities discussed in this publication may not be eligible for sale in some jurisdictions. If you are not a Canadian resident, this report should not have been delivered to you. This publication is not meant to provide legal or account advice. As each situation is different you should consult your own professional Advisors for advice based on your specific circumstances

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