Tax-Free Savings Account (TFSA) investors shouldn’t be too rattled by any short-term volatility. The rough patches, jittery nerves, and tough times never do last. While buying stocks in the face of a panic-driven selloff (think the unravelling of the Yen carry trade) will always feel like a dangerous money-losing move, buying such massive dips in the markets can be rewarded with some pretty magnificent gains, as we saw last week. It’s hard to believe, but the S&P 500 is down less than 2% from its high after flirting with a correction just over one week ago.
Though there is never any guarantee that the recovery bounce will be faster than the decline, I think investors’ bravery has been rewarded in a big-time way this August. But that was then, and this is now. Moving ahead, the gains could become harder to come by.
After all, a 7% surge in stocks in just over a week is simply not sustainable. Though it’s impossible to tell where we’ll be in a month, a quarter, or even a year from now, odds are that stocks will be higher in a decade or two from now. Indeed, investing with the long-term in mind is a lost art these days.
TFSA investors: Don’t speculate; play the long game!
It’s too hard to make big money by trading in and out of stocks on a frequent basis. When it comes to your TFSA, you may just get penalized for excessive trading activity if you do find success with moving in and out of securities on a rapid basis.
While you’re free to take risks with more speculative investments (think smaller-cap tech stocks), it would be such a shame if you were to lose invaluable TFSA cash on a bet that has a high chance of blowing up. Arguably, it makes more sense to play it safer with the funds in your TFSA.
By safe, I don’t mean going all-in on the utility stocks and defensives. Rather, it makes sense to pursue great companies that trade at reasonable discounts for what you think it’s worth. If you can grab shares of a growth company at 20% below your estimate of its intrinsic value, it can make sense to buy.
Without further ado, here’s one top TFSA-worthy name that makes sense to start with as we enter September 2024.
Fairfax Financial Holdings
Fairfax Financial Holdings (TSX:FFH) and its legendary top boss, Prem Watsa, are back in the spotlight again. Having the share price double in just under two years’ time will do that. Though the pace of gains has slowed down this spring and summer, I view any relative underperformance or consolidation as a buying opportunity. The stock looks deeply discounted at 6.9 times trailing price to earnings (P/E), and I think the next big move will be higher.
The company’s firing on all cylinders, and Prem Watsa has a unique opportunity to go bargain hunting should the TSX Index end up cratering from here. With a 0.83 beta, which entails a lower correlation to the Canadian market, and a solid balance sheet to seize deals as they come along, I’d not take profits in the name, even though the momentum has ground to a bit of a halt in recent months. You’re getting excellent stewardship in a firm with the discipline to make value-conscious decisions at times when most others are inclined to panic a bit.
As a great long-term capital appreciator, FFH stock seems like the ultimate TFSA core holding to consider.
