The first months of 2020 saw the onset of the worst global public health crisis in a century – since the 1918 Spanish Flu pandemic. In response, the world locked down, putting its economy into a kind of medically-induced coma. The immediate effects were 1) a swift and nearly instantaneous economic recession accompanied by high unemployment, and 2) the fastest, sharpest collapse in US stock prices in living memory, if not ever.
As many of you who I have served for some years know, I customarily summarize the economy and markets around mid-year and again at year-end. With the first half of 2020 eager to share its high drama with us in truckloads, I’ve arranged this Mid Year Review letter in two parts: the first – a statement of our philosophy and principles and restatement of how we practice our stewardship of your invested wealth; the second – a review of the significant unknowns and uncertainties that continue to face us at mid-2020 so we can yet continue to behave our way to ultimate success.
OUR PHILOSOPHY & PRINCIPLES
- We believe that enduringly successful investing and wealth-building is essentially goal-focused and planning-driven. Failed efforts at the same are market-focused and event-driven. Put into practice, this means acting continuously in the context of a long-term plan; failing at it means continuously reacting to the sudden shocks to markets that always come.
- Long-term success in wealth planning is only incidentally a function of the economy and the markets. Rather, it becomes a function how we behave in all circumstances, not how we react to them.
- We are a team dedicated to working with you on a long-term, goal-focused plan to build and preserve wealth with patience and discipline. A meaningful part of what we do for clients is the crafting of those plans. The much larger part is helping them to maintain their course and not to simply react in stressful times.
- We steadfastly believe that the financial markets cannot be consistently forecast, much less timed, and therefore the best way to experience the long-term gains of the markets is to sit through, unflinchingly, their occasional steep but historically temporary declines.
REVIEW & OUTLOOK
At mid-year, the best that can be said is that the mortality rate of the pandemic appears to be subsiding and the ecomony is slowly reopening. At is continues to open, there will inevitably be flareups in new infections. The interaction, therefore, between the pandemic and the economy over the next handful of months is impossible to forecast, although the successful completion of Phase 3 trials for vaccines – some of which will be starting later this month – could mark a turning point of significance.
The US stock market plummeted 34% in a record 33 days beginning February 19 th with cash stashed in money market funds exceeding $4 trillion for the first time ever. 1
At the conclusion of which, on March 23 rd , it promptly turned on a dime to post its best 50 days in history. 2 At this writing, the S&P500 Index stands at 3150, off a grand total of about 2½% since the first of the year. 3
Forecasting near-term corporate earnings or dividends is just not reliably possible, since they, just like the economy at large, are still largely dependent on public policy in response to the virus as set forth by each of the states. We can observe that, also due to the virus, interest rates have been pushed back down by Federal Reserve rate cuts to levels that no longer reward bank savings accounts or CD’s in any meaningful way: the rate on the 10- year Treasury Note stands at a scant 0.67% 4 .
Adding to this environment of uncertainty is what may be the most widespread civil unrest since the 1960’s and what is shaping up as a bitterly partisan election in the fall.
ALL of which is laid out here to provide the backdrop for this gentle reminder: none of us, at least not in any significant way, should be investing with a time horizon of the next few months (or even the next couple of years). We are, to state again our principles, goal- focused, planning-driven, patient, disciplined builders and preservers of wealth. Our focus is on history rather than headlines and we quote Chuchill in this regard: “The farther back you can look, the farther forward you are likely to see.”
Be of good cheer. Enjoy your families and celebrate our great nation, blemishes and all, on the anniversary of its birth. Optimism remains, to us, the only long-term realism. As ever and always, we enjoy hearing from you: let us know your thoughts!
1 “Ultimately, This Time Isn’t Different”, Nick Murray Interactive, May, 2020.
2 “A Teachable Moment”, Nick Murray Interactive, July, 2020.
3 CBNC.com, July 2, 2020.
4 National Financial Services – Wealthscape, July 2, 2020.
These opinions are based on observations and research and are not intended to predict or depict performance of any
investment. These views are as of the close of business on May 1, 2020 and are subject to change based on
subsequent developments. Information is based on sources believed to be reliable; however, their accuracy or
completeness cannot be guaranteed. These views should not be construed as a recommendation to buy or sell any
securities. Past performance does not guarantee future results.