Financial Fundamentals: Wealth Management Series
Kimber L. Barton, CFP®
[email protected] 615-301-5050; 5409 Maryland Way, Ste. #140; Brentwood, TN 37027
What Have We Learned?
The current state of the markets, the economy, and let’s face it, our country, collectively present an opportunity I believe for a teachable moment. One definition of ‘a teachable moment’ goes like this: “an event or experience which presents a good opportunity for learning something about a particular aspect of life.” (Oxford dictionary.)
Let’s examine the last 16 weeks or so:
- After equity markets reached all-time highs on or around February 19th of this year, the rather sudden and unexpected variable known as COVID 19 was introduced into the equation, and everything cratered until March 23rd… at least that’s the low as far as we know at the moment. A 34% drop in the S&P 500 over 33 days was an event with no historical precedent.
- This was immediately followed by the best 50 days in history. (In case you were wondering, that would make that unprecedented as well.)
- Following the deepest, fastest economic contraction in history, and the largest increase in unemployment, the June 5th unemployment report reflected a gain of 2.5 million jobs when the consensus estimate was that there would have been a loss of 7.5 million jobs.
- On June 11th, reacting to a flare up in reported virus cases, the market went down approximately 6% in one day.
The point? This is the time of year my email begins to get flooded with ‘mid-year outlooks’ from many sources and it struck me that none of their ‘beginning of the year’ outlooks had a whiff of anything we’ve actually experienced. It validates once again, what I’ve always believed, which is that we simply can’t know what’s going to happen in the markets or the economy in the short to intermediate term and it is a wasted exercise to try to build an intelligent investment policy based on what we think might happen in these time frames.
We can have a reasonably good idea, conceptually at least, of what markets ultimately do, but we must commit to the long view. We must choose between approaching the market with a strategy of ‘timing and selection’ or from the perspective of aligning our long-term goals with what history suggests to us (growth over time). However, the two approaches together mix like oil and water. (I am not talking about using ‘past performance to predict future results’ and must point out as with anything in life, there are no guarantees, certainly not when it comes to investing.)
I’ve said this before, but I’ll say it again: I believe that all successful investors will act continuously on their plan while failed investors will react continually to the markets. All successful investing is goal focused and planning-driven while all failed investing is market-focused and event-driven.
Perhaps the events since mid-February are a good opportunity to learn these lessons once and for all.