Mike Vinokur A Comment -- General Comments From an Expert A Commentary COMMENT Mar 07, 2025

What a year it's been last week ;)  Lots of volatility out there, but we've seen this before. Right now, we can't call it a bear market or a bull market. It's more like a "kangaroo" market with all the bouncing around. 

Uncertainty breeds volatility. But for long-term investors, volatility creates opportunity and we're seeing that at this stage. No one really knows where the bottom is. But if you're investing for the long term or for the next 12- 24 months, investors will probably be pretty pleased with the investment decisions they make today. We saw it in 2008 with the great financial crisis, and in 2018 with the US-China trade war. With the Covid crash, we ended the year at all-time highs.

It's all about patience, not panic. That's what will help in the long run.

His portfolios are more weighted towards the US. He also looks at international markets for the valuation discount. Without talking about tariffs, the US market has much more depth and choice than the Canadian one. 

US economy is very resilient. Inflation numbers have come down a bit which is good news, and unemployment is still near multi-decade lows. Consumer is still very strong, and the US consumer is 70% of GDP in the US. As long as that consumer remains strong, that will continue to help the market. 

Of course, tariffs will affect the consumer. Looking 6-12 months out, we have to ask whether tariffs will look like they do today? Remember that what they looked like a week ago changed 5-6 days later. 

Also have to consider that US mid-terms are coming up next year. The trade stance could soften. It already softened yesterday. We can see fiscal support from the US government. We may see more tax cuts and deregulation, which would help the economy. 

Sentiment has been so tough. The VIX went up above 45 and hit 60. If you look at the stats going back to 1980, typically when you go over 45 on the VIX, the 12-month return for the S&P is 37% on average.

He's not a big buyer in the gold space. His models look for intrinsic value. Gold does not have a dividend or cashflow or a revenue stream. It has done extremely well over the last year, but historical volatility can be tough.

That being said, XGD or GDX are probably your best bets.

He doesn't know that we are heading for a recession, and we're getting conflicting data. Employment has remained particularly strong, which is unusual in the face of all the other data. Consumer confidence surveys are unexpectedly worse than normal. 

If we look to the bond market for some indication of where we are in this whole scenario, we're missing a couple of things for a pending recession. The yield curve -- instead of steeping it's re-inverting. Credit spreads in high-yield are widening, which is a risk-off scenario. The silver and gold ratio is spiking, again risk off.

Is this a normal growth shock, and you should buy the dip? Or this a real recession where you get real damage to growth portfolios in the 30-50% range? There's no confirmation of the latter yet, so he's still marginally on the side of the bulls.

The time to prepare for the earthquake and get insurance is before the earthquake, and there's still time. But today it's incredibly important that investors make sure that portfolio risk aligns with their risk tolerance. Need to have sufficient liquidity in the short term to withstand volatility. 

Be diversified by asset class like gold and geography. Perhaps today isn't the day to get into gold, though. Drawdowns have been far less in Europe. As well, not as much pain in non-market-cap-weighted US securities. Managed futures are also a strategy that does well in recession-type declines.

Most importantly, stay engaged. The tendency during these declines is to stop watching what's going on. Volatility often creates opportunity. Now, if you're one of those laid-back investors who never sweats the daily moves, keep on doing that ;)  Whatever your playbook was before, don't just disregard it now.

We had this huge 10% day, along with a spike in volatility, which can often happen within bear markets. There's a possible opportunity there. But we haven't see the follow through yet, where the bottom's in and then some days later there's another surge in volume with maybe a bit more breadth across the markets. Those types of signals would be a little more green for him.

Multiples Needed to Breakeven from Drawdowns

One of the most often misunderstood concepts in investing is the difference in percentages from a drawdown against an increase. For example, if a stock declines by 10%, a subsequent increase of 10% will not bring the investor back to breakeven, but rather an 11% increase in the price is required to break even. For example, a $10 stock declines by 10% to $9, a subsequent 10% rise from $9 brings the stock up to only $9.9. Below we have listed various drawdown percentages in increments of 10%, and the subsequent percentage increases needed to break even, along with their respective ‘multiples. For example, a 90% drawdown in the price of a $10 stock requires a 10X to bring the stock back up to $10. 
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