March 2026 Update
What a few weeks it’s been for the stock market! As I write this, we are roughly 10 days into the conflict in the Middle East and there are a lot of ramifications. We’ll go through that (at least to some extent) and we’ll review the implications for investors and how to navigate these volatile times over the coming weeks.
First, let me note that I have made a few changes to the fund, and before we went into this conflict, we were holding a significant amount of cash. This has served us well, and it means that the drawdowns we see in the market overall are times when we’re looking for opportunities as opposed to times where we’re panicking or worrying about how devastating this is. I would also point out that while the market has been volatile, we’re really at a point where we are about 5% off the highs, and that is really nothing to get too excited about. Instead, we’re best to take a calm, measured approach to things, and not do anything rash. I’ll talk more about this and how we’re managing things through the conflict, but the duration of these displacements is often temporary.
There are several factors to consider when it comes to this conflict, and the most glaring is the closure of the Strait of Hormuz, and the impact that has on the global oil market. This has meant a spike in energy prices, and that increase has been incredibly fast. The issue there, is that approximately 20% of the global oil market and about that same percentage of the LNG market comes through the Strait. It’s a major chokepoint, so when this closed it caused a major disruption to global supply. There are potential solutions, even if those are short-term in nature, and this is one of the things that makes these dislocations difficult from an investing perspective. Historically, conflicts in the Middle East have caused oil price spikes that range from a few weeks to several years, and that timeline is obviously unknown. I think that this is a more severe shock than some of the others that we have seen historically because of the closure of the Strait, but at the same time we will see much more of a push to get that open and flowing again because of the importance.
This question about the duration and the longer-term nature of some of the impacts is one that impacts our investment strategy the most. I’m not interested in trying to buy things today and sell them at the end of the week for a quick gain, because that kind of thing is more speculation than investing, and in most cases is just not possible. Instead, we are looking for structural changes or longer-term opportunities that could arise because of this. In other words, opportunities that come from this crisis with staying power. These are areas that are not directly related to this but are taken down because of general weakness in the market. Maybe the share price of a company has been under a lot of pressure, but the impact on that business because of the war is negligible. That’s something that we’re interested in. I suppose this is a roundabout way of saying that you shouldn’t anticipate the fund to be loading up on energy stocks now. While these things are impossible to predict, my thought is that this has largely blown over in about 6-8 weeks, and the spike in energy prices has likely subsided at that time. Maybe the closest recent parallel we can look to, is the Ukraine war in 2022. At that time, this caused major supply chain disruptions, and those were ongoing. Economies adapted, and the oil prices came back down. In that case, oil was back to the pre-war price by about December of 2022, which was roughly 10 months. I do think that this resolution and return to a more stable oil market will be faster, as the impetus for that resolution will be greater.
I also want to briefly acknowledge that when I say market reactions to events like this tend to pass relatively quickly, that comment is strictly about the behaviour of financial markets. It is not meant to diminish the very real human cost and devastation of war.
The impacts of these events will affect many people and families for the rest of their lives, and that reality should never be minimized. My point is simply that markets, by their nature, tend to move on to the next issue much faster than the people directly affected by these events.
Until next month,
Vic
