It seems like there are complaints about the market, regardless of its trajectory. Undoubtedly, with the TSX Index and S&P 500 recently hitting yet another fresh all-time high, the market being “expensive” commentary seems to have returned. And when the market does head into a correction (or part of the way there), it’s too scary to punch a ticket as valuations contract, and investors become more worried about macro factors as well as the possibility of a bear market or complete stock market meltdown.
Of course, a market crash will eventually happen, but it’s really hard to tell if the first signs of volatility or a brief entry into a correction (that’s a 10% from peak levels) is the start of one or just another of those many annual dips that are nothing more than a buying opportunity before a V-shaped bounce while the bull market stays alive and well.
Not every quick dip is followed by a steep bounce, though. But the April run we’ve had certainly seems like a melt-up that was even sharper than the descent from last month. Either way, April’s hot surge goes to show just how severe the penalties can be for panic-selling, especially after others have already had the opportunity to do so.
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Investors should focus on the long game and look for value where it still exists
Now, the doubters are sure to dismiss the latest surge as ignoring risks that were apparent a month ago. And while valuations are steeper than they were just a few weeks ago, I think that the market has continued to stay resilient. Even if the pace of gains slows and volatility in both directions becomes the main theme for the rest of the year, smart investors should know how to respond.
Sometimes, the best response to complaints about volatility or the broad market being overvalued is to have no response at all. You see, you don’t need to tune into the markets every single day and make a move each and every week based on the news. Long-term investors know that it’s the fundamentals and the next five-year runway that matter more than any macro variable that could cause a panic or growth score.
When things do get bad, it can pay dividends to buy something, whether it’s the market or a name on your radar. However, for the most part, focusing more on spotting mispriced individual opportunities rather than dismissing the entire market because you think it’s expensive or will keep moving lower isn’t a winning strategy over the long haul.
The phrase that one should maximize time in the market instead of timing it has never rung truer.
Cheap financials with generous yields still exist
And while the TSX Index might be getting hotter, not every stock is overheated and overdue for a plunge. In fact, some stocks are already down and out, and could be worth picking up. Undervalued opportunities, like Great-West Lifeco (TSX: GWO) and its 3.43% dividend yield, can exist in hot markets. While shares of GWO are coming in hot, with a 36% gain in the past year alone, the high-performing insurer still trades like a bargain stock at 13.5 times forward price to earnings.
With the wind at the back of the financials, I like the name, even as complaints about the market lead some to wait around for the next dip that might not happen until many months or quarters later. And given the inflation to come, perhaps waiting with cash isn’t the best idea in the world when you can get paid a steady 3.43% yield from a premier insurance juggernaut like Great-West Lifeco.
