Any reasonable person on a hike who is told to avoid the edge of a cliff would comply, fearing a fall off that cliff.
When it comes to Moose Jaw City Council that advice may not be heeded — at least when it comes to investing city taxpayers’ $100 million reserves.
Two years ago when city council began talks about piling city reserves into the stock market — also known as a casino — it was warned.
Coun. Brian Swanson warned of the risk in investing entrusted funds in the volatile stock market.
This Bizworld column warned of the same risk paying particular attention to the fact stock markets had been in an upward trend for nine years, a historic length for a bull market.
Rising markets tend to last four or five years before moving down. This Scribbler argued that the shoe was about to fall. If council insisted on playing the stock market, wait for the downtrend first, then buy in. It made sense.
The stock market price boom was fuelled by central banks’ artificially low interest rates and computer trading programs.
Council insisted on ploughing ahead with a full purchase last summer, rolling the dice with $8.4 million in stocks.
The case for investing in stocks: gaining a higher rate of return and mimicking pension plan investment returns.
Following successive high points this year the market was waiting for an event to sell off. Any experience investor knew that.
Two events fed a massive rapid sell-off — the COVID-19 pandemic and an oil price war. Stock prices fell 30 per cent within days.
The city’s stocks were down almost 21 per cent at March 31, decreasing value by $1.7 million. That was after a week of recovery.
Now the city and its investment advisers will spin a response claiming these stocks fell by the same percentage as market averages and that no money is lost until stocks are sold, if then.
That defence ignores the risk from putting hard earned reserves accumulated over 65 years at risk of a loss. That defence ignores the possibility that these reserves could have been used to relieve property taxes during this once in a lifetime pandemic.
And that defence ignores the warning to not play the market when a falling-off-the-cliff event is imminent. The stock market was in its 11th year of increasing values, compared with the average four- or five-year bull run.
Nor does anyone know when and if prices of these stocks will recover.
If the city wanted to reduce risk instead of plunging in headfirst, there is a long-standing formula for spreading and avoiding risk.
Buy one-third of the planned position, wait some time and check out the market performance, then buy one-third. Repeat.
Had council waited until now to buy stocks taxpayers might be applauding the prudent action.
Instead, council and administration look like a bunch of rubes sucked in by a snake oil salesman.
Ron Walter can be reached at [email protected]
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
