You are doing your clients a disservice and embarrassing yourself when you forecast what the stock market is going to do over the next month, year or even few years.
For instance, elections in Ottawa and Washington have little impact on long-term returns while the growing middle class in Asia is a key economic force.
How these companies do depend on many things including quality of management, demand for the product, input prices, competitors, regulation, changing customer preferences and innovation.
Their profits also depend on macro factors like the strength of the economy, currency movements and the level of interest rates.
Even if you get all that right, you then need to grapple with the linkage between the company’s fundamentals and its stock price.
A company may have a historical valuation range, but at any given time its price-to-earnings multiple can be stretched or compressed based on, you guessed it, a multitude of factors.
A year ago, companies like Zoom Video Communications, Doordash and Affirm Holdings were riding high based on market leadership and unlimited growth potential.
In the last 60 years, the Canadian stock market has had an annual return in that range exactly five times.
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