Some of my COVID-19 lockdown time has been spent reading Tolstoy’s War & Peace. (I figured, “it’s now or never.”) This wonderful historical drama is legendary for its intimidating length. But its theme I find to be very timely for us. Major historical events sweep each of us along involuntarily in ways that shape our lives, but human nature and human behavior remain the same. Wars and pandemics alike produce uncertainty, anxiety, opportunity and sacrifice. Nobody is exempt. It is how we behave when the risks are elevated and the stakes are high that determines who we are and what our prospects are for long-term survival and prosperity.
At midyear, the best that can be said is that the economy is slowly reopening and that hopes continue for the development (and deployment) of a vaccine. The interaction between the pandemic and the economy in the short run is perfectly impossible to forecast, as is the timing of a vaccine. The equity market crashed from a new all-time high on February 19 to a bear market low (so far) on March 23, down 34% in 33 days. There is no historical precedent for this steep a decline in so little time. Amazingly, it then posted its best 50 days in history. Not one of the many esteemed market strategists could have predicted this turn of events. Investors with a constant commitment to owning stocks have sailed through this period with their wealth intact. The current market of extreme low interest rates means that few if any of my clients can continue to advance toward the achievement of their long-term financial goals in bonds, at anything like today’s yields. This is just another reason why I’ve stayed the course in equities for client portfolios.
Looking forward, even if the pandemic continues to subside and the economy to recover, investors will still have to deal with the fallout of civil unrest and with what promises to be a bitterly partisan presidential election in the U.S. I remind you that not one of you is investing for the next one to four calendar quarters. I say again: you and I are long-term, goal-focused, planning-driven, patient, disciplined investors. Our focus is on history rather than the headlines.
Investor behavior is always the most critical factor for achieving our financial goals. Sticking to a plan in the face of adversity is more significant than relative portfolio performance or market timing. You trust in me to do my best to achieve strong investment returns through stock selection and opportunistic trading. I trust in you to stay farsighted and resolute when markets convulse (as they will). As I write, most client portfolios show very minimal losses (if any) in 2020. Be of good cheer. This grim episode in our lives will pass in time. Optimism remains, to me, the only long-term realism.