This will be the last Weekend Reading of 2020. I hope you have all enjoyed at least 51% of the emails this year, and I thank you for your readership, responses, and encouragement. Before we dive in, I’d like to wish you all a Merry Christmas, Happy Hanukkah, Happy Holidays etc.…. whatever you choose to celebrate this time of year, I wish you and your loved ones the best of it. It’s been a very different year than we expected, but it’s encouraging to see the signs that 2021 could bring with it a return to some normalcy. For the first time in my lifetime my whole family won’t be together over the holidays, as my sister Kate couldn’t navigate the lockdowns and quarantines required to make it back from Ontario. We’ll also be missing out on seeing family and friends that would normally make up a major part of our celebrations, and I suspect many of you are in the same boat. While it’s far from ideal, whenever the Libertarian Freeman elf on my shelf gets too worked up I try to think of this relative to what certain groups of our ancestors endured. It’s not the early 1900’s, where medical science was a pale shadow of what we have now and swaths of people are being struck down in their prime. It’s not the 1980’s, when there was no internet, no Amazon, no Door Dash, no online grocery delivery, no Zoom, and no streaming services to help pass the time. And maybe most importantly, I’m being asked to stay home and hoping my sister can make it back from Ontario next summer. I’m not being asked to ship out, and hoping my sister makes it back from a beach or a jungle a year or more from now. Starving kids in Africa don’t make bad food taste better, but they do make you realize there are things worse than bad food. Let’s all finish our brussels so we can get our serving when it’s time for dessert. (I love brussle sprouts, for the record.)
As a wrap up to this crazy year, I’d like to share an interesting thought penned recently by Noah Blackstein at Dynamic. Noah has been a hobbyist musician for most of his life, and he remembered a guitar teacher he had in his teens who was a professional jazz musician. Try as he might, Noah never really got into jazz with one exception. Thelonious Monk.
I had to YouTube him so don’t feel too jive if you aren’t a hip enough cat to be digging what Noah was laying down on the first try. As it turns out, Monk’s music has acted as muse and inspiration to a long line of artists and professionals, including Dave Chappell and recently Nick Nurse, championship coach of the Toronto Raptors. Dave Chappell summarizes Monk well in saying “Every comedian is a stickler for timing, and Thelonious Monk was off time, yet perfectly on time.” It’s this controlled chaos, or organized disorganization, that was Monk’s art and Noah sees a similarity between Monk’s music and the markets, perhaps partly explaining his affinity for both.
Many investors think, or at least act, as if the market is pop music. Simple, straight forward 4/4 time, and your return comes more or less evenly over the 253 trading days a year. This is not the reality, and I can’t really say it any better than Noah did, so here he is on how returns are really earned…
“There are explosive flurries of gains or losses followed by long pauses and empty spaces where nothing seems to happen. The biggest problem investors have is getting bored if something isn’t moving right now, or even worse, succumbing to fear in a correction when the long term picture for a company remains excellent.”
This year was the perfect example. The returns were driven over very short periods of time and by very small segments of the market. Imagine selling in March and missing the rebound in April. Imagine how returns this year would look if we removed April and November. Now imagine how they would look of we removed March. Over the past 13 weeks, the index is up barely 2%, but it feels like a heck of a lot more when you have lived through it. The number beside each index on December 31st this year won’t tell the story of 2020, and in some cases it may even do it disservice. This is because, when you are invested in the markets, you’re playing jazz, not pop. They change timing. They change key. Sometimes they freestyle, and sometimes they fall in time. They play soft and then loud, they pause and then come right back with a vengeance. When it feels like everything is working, that’s the science. When it feels like everything is out of synch, that’s the art. The combination of the two is the market’s music.
I’m a better investor than I was 10 years ago, and I’ll be a better investor again 10 years from now. The more jazz you listen to, the more you are able to appreciate or understand it. I think that is true of many other things as well, like food, wine, art, markets, comedy, sports… the list goes on. You can appreciate both sides of the coin… you enjoy the songs you like, and you appreciate the talent present in the songs you don’t. It’s that appreciation that keeps you listening until you find something you like again. It’s the patience and deeper understanding of what is going on that moves you from a fan to an expert, a participant to a connoisseur, and a shareholder to an investor.
2020 taught us new lessons and reminded us of old ones. We own companies, not ticker symbols, and we are waiting for those companies to increase earnings, not for a talking head to mention them on BNN. As our very own Jim Allworth is fond of saying, “Share prices have risen with earnings, and earnings have risen somewhat faster than the economy has grown.” He calls that his “Secrets of the Investment Universe Revealed” slide and there is a reason he has been using it for so long. 2021 is about to begin and we’ve got the band back together. Let’s get ready to jam, and remember, it may feel like pop music one day and death metal the next, but we’re always playing jazz.
Have a great weekend everybody, and I look forward to seeing you all again in the New Year.