This is a compilation of commentary from Joe Burgess and direct citations from Nick Murray’s “The Lessons of and Exceptionally Instructive Year”.
To be sure, I like focusing my time on talking about your overall financial strategy and much less time specifically on the markets and performance. However, investment portfolios are the primary vehicles used to fulfill your strategy. And how you react (or don’t react) to extreme situations like 2020, can have a significant effect on your long-term success. With that in mind, let’s discuss what we have learned in the last 12 months.
Last year, the S&P 500 ended up with its 31st positive year out of the last 41. In fact, total performance, including re-invested dividends, was 18.4%.
If you were in a coma for these past 12 months and woke up in January 2021, you would say that 2020 was quite a good year. Indeed, it was. What should be so phenomenally instructive for the long-term investor is how it got there.
On February 19th, the market hit a new all-time high. From there, it reacted to the onset of the greatest public health crisis since the Spanish Flu in 1918, by losing a third of its value by March 23rd. Learning from the Financial Crisis from 2007-2009, the Federal Reserve and Congress responded with $2 trillion aid package to prop up the economy while we sorted out the severity of the situation. The result was that the S&P regained its February high by mid-August.
Lifetime Investment Lesson #1: At the most dramatic turning points, the economy can’t be forecast, and the market cannot be timed. Instead, having a long-term plan and sticking to it—acting as opposed to reacting, which is your and my investment policy in a nutshell—once again showed its enduring value.
The American economy—and its leading companies—continued to demonstrate their fundamental resilience through the balance of the year. The result was that all three major indexes have reached new all-time highs. In fact, even cash dividends appear to be on track to surpass those paid in 2019, which was the previous record year3.
When the pandemic started, I had a friend who suggested it will be at least 3-5 years to develop a vaccine and the country has no other outcome other than an extreme long-term depression. As we sit today, there are two vaccines that have been developed and approved in record time. It appears the most vulnerable of our population should get vaccines by Spring and the rest of the population who wants to be vaccinated can do so by the end of the year, if not sooner.
A second lesson in our hugely educational year had to do with the presidential election cycle. As we dealt with extremes in 2020, the election was no different. To say it was hyper-partisan is putting it lightly. Anyone who exited the market in anticipation of the election and related unrest lost out on 11.7% return in the S&P 500 in the 4th quarter of the year2.
Lifetime Investment Lesson #2: Never get your politics mixed up with your investment policy. Of course, in uncertain times, the stock market can react. However, there is no consistent evidence of a market dip prior to elections or recovery thereafter. Further, we cannot attach stock market performance to which party gets elected (although many people try).
As we wade into 2021, there remains plenty of uncertainty. As I write, the House of Representatives is considering impeaching President Trump for a second time. Certainly, the political unrest that remains is unsettling. In addition, COVID has not yet released its grip on our everyday lives.
Is it possible that things get worse from here? Is it possible the stock market, which soared on the backs of handful of largest growth companies last year, has a flat or even negative year? Yes, of course it’s possible. How, then, should you and I—the long-term, goal-oriented investors—make an investment policy out of that possibility. The answer is we don’t because we can’t. Our strategy for 2021 is entirely driven by the same principles as it was a year ago—and will be a year from now.
Jack Bogle, the founder of Vanguard Group is quoted as saying, “The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly fifty years in this business, I don’t know anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has.”
I look forward to discussing further with you in our next review. Until then, everyone at Moxie would like to thank you again for being our clients. It is our privilege to serve you.
All the best,
Joe and the Moxie Team
1 DQYDJ.com – S&P 500 Calculator
2 Patriot Investment Management, Market Reach New Highs in 2020, Jan 8, 2021.
3Seeking Alpha, Dividends By the Numbers in December 2019, Jan 8, 2020.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast for future events, or a guarantee of future results.
The Standard & Poor’s 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Please keep in mind that one cannot invest directly in an index.
This information should not be relied upon by the reader as research or investment advice regarding any funds or stocks in particular, nor should it be construed as a recommendation to purchase or sell a security. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested.
This article a compilation of commentary from Joe Burgess and direct citations from Nick Murray and is being distributed for informational purposes only. Neither Moxie nor Cetera Advisor Networks LLC are affiliated with Nick Murray.
3443878/DOFU 2-2021
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