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My wife asked my what I thought about 2020! “Wow, what a year,” I said. She looked at me and said, “.” So I accepted the challenge and answered her impromptu AMA. Since I love a great question, please keep them coming by submitting a question here.
Whichever way you slice it 2020 was an investing whirlwind. From Dow Jones Industrial Average all time highs over 30,000 at the beginning and end of the year to a low of 18,214 in mid-March the rollercoaster was violent. Seemingly illogical at times too. Certain predictions could be made, but only with the distance of time can we truly look at what happened. Here is that first look at what happened with a smidge of perspective available to me as we are just now putting 2020 behind us.
The market is supposed to be a lagging indicator however in 2020 it was quite clearly taking on an unnatural role of leading indicator. I believe this is a result of the rapid and significant (relative to past action across the decades) action from Uncle Sam. Yes, the Global Financial Crisis of 2007-2008 (GFC) ushered in a new era of economics. Those days and years taught Uncle Sam’s Fed, Treasury, elected officials, appointed officials, C-suite players, et al that it could go from reactive to proactive – or at least to very responsive. The appetite for such action would have never been there without the GFC. But we had seen Uncle Sam in action for better or worse in this new way, learned what worked well and what did not work well, and added it to our country’s bag of tricks. We are certainly in a new era of macro-economic action from the US government. No longer is the response slow and laborious like it was with The New Deal, albeit daring and important.
No longer is Uncle Sam responding to economic calamity with bridge building but rather with bridge loan issuing.
Note: an entire series of articles about the transition from Austrian economics to Keynesian economics to today’s 21st century “Info economics” should be written. I’ll add that to my list and write it.
The speed and magnitude by which Uncle Sam acted in 2020 cannot be overstated. Indeed there were many that wanted more, better, and sooner – and their points are well made. But the market saw dad unwilling to let his child collapse. The market liked it, grew bold, and somehow started behaving like a leading indicator!
The notion that we just need to get through the pandemic with all our Wall St limbs intact and never look back was palpable. The market collapsed when the pandemic hit, which was a fairly logical response because quite literally production was on the brink of halting entirely across the globe. Certainly it slowed nonetheless. When this was recognized the market began an amazing downward sprint. Then a steady climb began as US government leveraged resources. Yet as the climb was underway all was not well, and all was not certain, so the market’s collective breath was held as jobs reports, unemployment reports, earnings reports, and so on and so on came in. Each day (and for many who watch persistently each hour) held concern. This concern led to a sawtooth climb back to 30,000 with many down days and returns to 26,000.
Note: we also had an election in case you forgot and it was a doozy.
If you had just left your money in the market you likely ended a little higher than where you finished as the DJIA returned about 10%, the S&P500 returned about 18%, and the Russell 2000 which is a small-cap index of the 2000 smallest companies in the Russell 3000 was about 19%. Overall these are amazing years. But we all know what 2020 was like. It was not some steady and poised march to 10-20% returns.
You could have absolutely been devastated in 2020 – and many were.
If you moved in at the wrong times and moved out at the wrong times; if you just exited at the bottom then missed the climb back; if you broke even but got hammered by brokerage fees, et al. The number of ways to be devastated in 2020 were plentiful – not to mention how many people lost jobs and lost income, the ability to invest, and employer matching!
For all of these reasons I strongly recommend you adopt a sound investing method. Personally, I have developed mine over about 25 years of investing and learning. I call it The Target List Averaging Strategy (TLA), and it was extraordinarily effective in 2020 going up 160%! It’s averaging methodology is mathematically good in rising markets and extremely good in declining or tumultuous markets. I’ll take good, and extremely good, any day of the week. If interested, here’s a synopsis of how it works: The TLA Strategy. There are other articles I’ve written about it too, so please peruse the blog.
Now back to the regularly scheduled program…
So Uncle Sam is more grease than apparatus thus far in the 21st century.
A lot of this still has to do with our reckoning with coming off the gold standard and our money becoming currency – and currents must flow otherwise they become vile. Yes, I contend it has taken 30-40 years for Uncle Sam to transition from gold-standard-economic action/inaction to fiat currency economic action/inaction.
It has long been my contention that the market is mostly rational but also emotional. It is mostly rational and therefore opportunities exist in the portions of “mostly rational” that are inaccurate. Undoubtedly, the market is also emotional. We see this on a daily basis when a growing or mature company dips 5% on bad news, or even on neutral news. Unless we are buying companies we really do not understand, then we know the bad news that was just released is not reflective of all an excellent company is doing, nor does it account for the fact that the company is good precisely because it solves problems well; so why would the bad news problem be any different?
So how do we come out of this? Democracy, States, Uncle Sam… Companies, Organizations, and Individuals… has it all put us at the forefront of opportunity once again? Relative to other nations around the world are we economically positioned really well to explode out of the pandemic? My gut says yes. How hard were we hit, how quickly can we get back up, and with how much fervor can we attack the future? These are all important questions, but more important is how do the answers to these questions compare to other nations.
Oh by the way, I contend that we ought to lift people up as we thrive forward. Not to some foolish level of self-eroding, but to a noble level of harnessing all that mankind has to offer, whether productive to GDP or just productive to humanity at large!
I wonder if foolishness is baked-in right now as the DJIA sits at 31,000+ yet coronavirus cases climb and the northern hemisphere’s winter has just begun. And the explosion in so many home prices seems temporary. Did the powers that lend and the people that borrow overextend themselves once again? Or is there a new arena in which foolishness took hold? I worry about Cloud and Software-as-a-Service (SaaS) being a new dot com. Simply adding Cloud and/or SaaS to your company’s description surely entices investors – both gigantic and regular.
My overall impression is that there is likely some foolishness baked-in right now but that the US economy is positioned well to accelerate out of this pandemic faster than other nations, especially ones near our size. I think in the coming months and years there will be faltering as the foolishness that occurred in 2020’s investor-moves collapses, but the overall thrust of the US economy overcomes those moments and productive businesses thrive en masse.
Thank you for your time.
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