by Scott Ronalds

The Test of Metal was a 67-kilometre cross-country mountain bike race that was held annually in the Squamish area. It was last run in 2016, but her scars and stories live on in the biking community.

A friend of mine, Gord, used to do the race every year and would regale me on how challenging and tough it was. Yet, super satisfying in the end.

Like the race, investing has been a test of mettle lately.

The first four months of 2022 marked the worst start to a year for the broad U.S. market since 1939. Just two years after the pandemic-driven decline in stocks, investors are once again looking at unsavory short-term returns. Decades-high inflation, the war in Ukraine, energy and food security, and lingering supply chain issues are top of mind. It’s easy to be discouraged.

But there are also good reasons to be optimistic. First off, much of the dirt is in plain view and well publicized, meaning it’s already factored into the price of securities. As well, unemployment levels are near historic lows, households and businesses have plenty of cash, and corporations are still highly profitable. And the biggie, stocks are notably cheaper than they were last year.

Looking back at our advice to investors during that painful spring of 2020, I found some sound bites that are just as applicable today.

Stock markets consistently overreact in times of crisis. We’ll only know in hindsight whether the adjustment in March [2020] was too much or too little, but we can see now that the reaction in certain areas of the market was excessive.

Stock market bottoms can’t be predicted with any precision. Our strategies for what’s ahead can at best be ‘approximately right’.

The market will bottom well before the pandemic and economic plague are declared over. If we wait for certainty, we risk missing out on a bulk of the price recovery.

Be greedy when others are fearful. This Warren Buffett axiom is an excellent risk management tool. When others are running for the exits, we know the risks are in plain view and it’s a good time to invest. We just don’t know if it’s the best time.

Hopefully these four aphorisms are helpful in these bumpy markets. I’ll add Gord’s words of wisdom to the list too: just keep pedaling.