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'Fear and panic are never winning strategies': It could take a while for stocks to recover

Jessy Bains
·2 mins read
A Toronto Stock Exchange sign adorns a doorway at the Exchange Tower building in Toronto, Ontario, Canada January 23, 2019.   REUTERS/Chris Helgren
REUTERS/Chris Helgren

As we’re already seeing, the day after the TSX’s (^GSPTSE) biggest single day rout since 1987, stock market recoveries aren’t always v-shaped.

After coming out of the gates with a 3 per cent rebound Tuesday, the rally fizzled as the trading day passed. The TSX even briefly dipped into red.

V-shaped recoveries might seem like the norm for investors over the last few years. A recent example is the steep declines at the end of 2018 over trade war fears, that were erased relatively quickly.

(Yahoo Finance Canada)
(Yahoo Finance Canada)

But v-shaped recoveries are historically rare. Keith Richards, portfolio manager at ValueTrend uses technical analysis to determine where stocks go next. He’s looking out for something called a “complex basing period” during the selloff as a sign the bottom is in.

“In English, this means choppy violent moves that wash out the non-believers in a recovery (i.e. the masses who feel that this is the way it’s going to be for the rest of eternity),” Richards told Yahoo Finance Canada.

“That’s why I called this selloff ‘just another ending of the world’ — this may take months to complete, but as somebody once said… this too, shall pass.”

Keep calm and carry on

Investing over the long-term has historically been a winning strategy. Stan Wong, director of wealth management and portfolio manager at Scotia Wealth Management, expects equities to outperform cash and bonds over the intermediate and long-term.

“It is difficult to determine if we will see a V-shape or U-shape recovery for the TSX (and other world equity markets) over the near-term but intense volatility (both upwards and downwards) will likely be the norm for the next while,” Wong, told Yahoo Finance Canada.

Wong says investors should focus on the next 3-5 years instead of the next 3-5 days and “fear and panic are never winning strategies.”

“The equity markets have been at the mercy of the headlines and news flow related to the COVID-19 outbreak and now, geopolitical events related to the oil market as well,” he said.

“While the near-term impact of the virus outbreak and oil price war is undoubtedly unsettling to market participants, long-term investors need to remain composed and structure their portfolios based on fundamentals, not headlines or transitory world events.”

Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.

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