Geopolitics, Volatility, and Why Market Selloffs Can Create Opportunity

Interviewer:
Joining us now with more on the recent market turbulence stemming from geopolitics is Kim Inglis, Senior Portfolio Manager with Raymond James. Well, Kim, first, markets have been volatile lately with all the tensions in the Middle East. Should investors be worried? 

Kim Inglis:
Yeah, uh, volatile is, is definitely the understatement of the day, I would say. Um, definitely markets have been volatile. Um, this is not abnormal for a major geopolitical event, though. Uh, typically, what you see is right out of the gates, you see some short-term, knee-jerk volatility, um, some panic selling, um, much of which we are seeing right now. Um, but typically that tends to be pretty short-lived, um, and the longer term lasting impacts on the markets, uh, are pretty much nonexistent. Um, if you look at, for instance, the last eighty years of geopolitical events, major ones, um, typically that's what you see. You see right out of the gates a lot of volatility, but about three months in, the average return for the S&P five hundred is, is pretty much flat, it's at, at point three percent. Uh, but if you look out a little bit further, six months down, uh, the average return is about two point six, and a year out is about five and a half. And during that time, the average drawdown that investors would experience is eleven point seven, so which is, for a major political event, uh, geopolitical event, not that bad when you consider that even in strong bull markets you'd see, you know, five to ten percent drawdowns, uh, quite normally. 

Interviewer:
Of course, a lot of people are talking about whether this could escalate into a world war, Kim. What happened to markets during the first two world wars? 

Kim Inglis:
Yeah, so that's definitely a common question right now. Um, so during World War I, pretty much right out of the gates, the Dow dropped about thirty percent or so, and then it, the markets halted for about six months, uh, pretty much because, um, the world ground to a halt more or less. Um, however, once the markets reopened, the Dow gained, uh, close to ninety percent, uh, very shortly thereafter. And then the average annualized return during the entire World War I was about eight point seven percent. Uh, World War II was pretty similar. Um, the average annualized return during World War II was about seven percent, which is obviously not, not bad returns during, uh, world wars. Um, obviously it's impossible to predict what's gonna happen over the very short term, but over the long term, the markets move on. 

Interviewer:
Now, should investors actually embrace this kind of volatility?

Kim Inglis:
Yeah. Um, short answer would be yes. Um, you know, typically when... any time you see panic selling, which is, um, you know, pretty much what we're seeing right now, when you see everything across the board being down, whether it's a good quality stock or a bad s- quality stock, um, when- whenever you see that, that lack of discernment between, um, good and bad, um, can, can mean that there's a lot of opportunity out there. Um, and if you think about it, the, the, the good quality stocks effectively go on sale. Um, you know, and, and let's say you go to the grocery store and your favorite cereal goes on st- uh, goes on sale. Well, you're, you're gonna use that as an opportunity to buy more. You're not gonna wait for the price to go back up. And I would say that that's the same thing here, is that if you've got good quality holdings, um, this is an opportunity to add to them. 

Interviewer:
Finally, Kim, what would you say to investors who worry about getting the timing just right? "Oh, let me hold out and see if maybe the price will go down even more." 

Kim Inglis:
Yeah. So, you know, I'd, I'd start off by saying, uh, don't bother. Um, don't try to time the market. Nobody can get market timing consistently right all the time. Um, I mean, even if you consider the fact that Warren Buffett, uh, one of the world's greatest investors of all history, uh, will tell you not to market time, um, it means that no one's good at it. Um, you know, and, and I think that what you wanna do here, um, is, is actually use this volatility to your advantage, as I, as I was saying. Use it to add to good quality stocks. You know, and the, the question you often get is, you know, "Well, what if I buy it and it continues to go down?" Well, if you're buying quality, then it doesn't matter if you get the exact bottom. Um, it's going to rebound, and for that matter, when markets do rebound, the good quality ha- investments tend to be the first to rebound. And, you know, I, I actually just came across some stats just the other day, um, that is a perfect example of why you don't wanna try to time the market is, you know, a more recent example being COVID. So the Canadian markets from March of 2020 to the end of 2024, uh, gained about a hundred and twenty percent. But let's say you tried to time the market and you, you maybe, maybe actually managed to time it getting out and you got out in, you know, January of 2020, kind of when the first signs of it started to happen. But then, if you'll recall, during that time period, um, you know, huge amount of volatility, Chicken Little running around saying, "The sky is falling," it was hard for people to get back in. Um, so let's say you, you did manage to get back in later, later that year and you got back in in November, your return would've only been thirty-two percent versus a hundred and twenty, uh, by the end of, of December, uh, of 2024. So it's, it's kind of a perfect reminder of, of, of why you don't wanna try market timing.

Interviewer:
Well, Kim, always great to have you. Thanks for joining us. 

Kim Inglis:
Thanks for having me. 

Interviewer:
And thank you to everyone watching. Once again, that was Kim Ingalls with Raymond James. And I'm your host, Jenna Dagenhart, with Asset TV.