The natural question is: why do investors believe that their risk tolerance is higher than it is? We believe that this inconsistency is related to something that we have long argued at Sionna, which is that the markets reflects human nature as much as underlying fundamentals.
After a lost decade of stock market returns, investors may wonder whether the “buy and hold” approach to investing is dead. Of course, it is not uncommon for the investment community to question the merits of long-term investing during periods of high volatility.
As keen students of financial history, we have spent time over the years trying to gain a better understanding of what drives markets over longer periods of time and have identified several fundamental factors that tend to result in market outperformance.
Canada has long been associated with commodities, and our stock market is no different. Half of the value of the S&P/TSX Composite Index is derived from cyclical stocks in the resource sectors, energy and materials.
Correlations between most equity sectors and individual stocks are all well above historical norms. In the short term, this is reducing the benefits that have typically come from individual stock selection and causing returns for all investors to be connected.
Return on equity (ROE) is one of the metrics commonly used for assessing the profitability of a company. A business that can sustainably generate higher returns for every dollar of capital employed is a more valuable business than one that generates less.