Many investors shook their heads this week wondering how markets are now higher than where they were when the

Iran war

started. In fact, the

S&P 500 index

is now up about two per cent for the year so far. Maybe not barn-burner numbers, but admittedly a pretty good showing considering we are in the middle of a war and an oil crisis.

A

previous column

went through some of the reasons why markets are showing resiliency in the face of never-ending bad news. Let’s look at some more strategies for investors to handle the current world uncertainty. As usual, we will discover, it often comes back down to the basics. Here, then, are five market strategies to consider during these uncertain — yet currently profitable — times.

Sentiment matters more than fundamentals

It is a tough time in the market for analysts. That’s because, for now at least, company and economic fundamentals matter less than sentiment. A company could post very strong earnings, but one social post from U.S. President

Donald Trump

could result in the company’s stock moving the wrong way anyway. Investors can make more money right now guessing on sentiment rather than on fundamentals. How to handle this as an investor? Our first suggestion is: don’t guess. Unless you know what will be in the president’s next social post, a guess is all it is. If you don’t guess then you won’t react and trade excessively. The best strategy, in our view at 5i Research, is just to follow the suggestions below and wait for fundamentals to matter again. They will. They always do.

Diversification, as always, is important

Not that long ago, investors hated energy stocks. Even though valuations were low, balance sheets were strong and dividends were growing, the sector just wasn’t exciting enough for investors looking at go-go AI and quantum stocks. Yet now, energy stocks have been about the only sector working really, really well. Investors who did not abandon the sector are now enjoying the fruits of their conviction, with the

S&P/TSX

composite index energy sector up about 30 per cent year to date. Diversification has once again proven its benefit to many portfolios.

It can pay to be a contrarian

Essentially, market trades have been very “crowded” in the past year. Everyone piled into AI stocks. Then, everyone piled into materials stocks. Today, everyone seems to be shorting software stocks. In terms of the Iran situation, a contrarian call might be to actually be bullish. Imagine that. The Iran war could end, earnings could be strong and inflation might not be the big problem it is expected to be. Markets could see a big rally under the right conditions, with short-covering giving investments an extra boost. Investors, on average, certainly like to worry. But those willing to put their money in when others are fleeing can do very well at times. We are not saying mortgage your house to buy stocks. But we are saying that maybe it is not the time to be too bearish, since everyone else in the world is already, and prices might already reflect that sentiment.

Cyclical stocks should not be ignored

While everyone worries about an oil shock, stagflation, a recession, or worse, cyclical stocks have quietly started to recover nicely. Take

TFI International Inc.

, for example. A trucking company’s stock, you might think, would be getting killed, what with much higher oil prices and concern about the economy. Yet, its shares are up about 22 per cent in the past month, and about 26 per cent in the past six months. What gives? Well, investors, as always, are looking forward.

Oil prices

may be high now, but if you look at oil futures, no one really expects them to stay high for very long. It is said that the best time to buy cyclical stocks is when everything looks bad, and that certainly might be the case today. It may be a good idea to own a few stocks that are part of the cyclical theme.

Position portfolios for the end of the war

Not much good can ever be said about wars in general. The best we can say, though, is that they end, eventually. We cannot predict the timing of the end of the current Iran war, but end it will, at some point. Thus, it is very important for investors not to get too despondent or pessimistic. Investors who moved money into cash at the start of the war looked smart for a while, but now they are falling behind. Much, of course, will depend on an investor’s timeframe. If you are investing for less than a year then it actually might not be a good idea to be in the market at all. But if you are investing for five, 10 or more years, then the current Iran war is likely to be a distant memory by the time you need to withdraw capital from your portfolio. Investors with cash should continue to deploy it. Remember, neither you, nor anyone else, can time the market with any degree of predictable accuracy. Disciplined, consistent buying, even in the face of bad news, has shown to be a solid investment strategy for those who have the right timeframe.

Peter Hodson, CFA, is founder of 5i Research Inc., an independent investment research network helping do-it-yourself investors reach their investment goals. He is also portfolio manager for the i2i Long/Short U.S. Equity Fund. (5i Research staff do not own Canadian stocks. i2i Long/Short Fund may own non-Canadian stocks mentioned.)

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