The First Half of 2020 - Who Knew?

What a first half 2020 gave us.  It is worth doing a quick recap, and given everything that has happened, a restatement of how I practice the stewardship of your invested wealth.

On February 19th (that feels like a lifetime ago), the S&P 500 (the broad measure of the US stock market) peaked at 3393.

Over the next 23 trading days the market fell 34% from its high.

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Never in history had the market fallen so far so fast.  The fall was unprecedented in its speed.

On March 11th, after acknowledging that I had no idea how the virus was going to play out or what the economic fallout would be or where the stock market would find its bottom, I wrote what I did know:

“I do know that this is temporary, like every other crisis that has ever been before it.  I do know that this too shall pass.  I do know that markets, without warning or any ringing of any bell, will resume their uptrend, possibly never to return to these levels again.  I also know that, based on history, we are entering the zone of opportunity.”

On March 23rd the S&P 500 bottomed and it then went on to have its best 50 days ever (yes, EVER).  It rose over 15% in the three days following March 23rd and it has now up over 40% from the bottom.

I didn’t predict that.  I didn’t predict anything.  I never predict anything.

Guess what?  No one predicted that.  Not one person on the planet predicted that the first half of 2020 would unfold in that way.  And I am willing to bet that no one will get the second half right either.  The interaction between the virus, the economy and the stock market is simply impossible to forecast.

The most important lesson from the year so far is perhaps the importance of humility in investing.  You can’t know what is going to happen next, nobody can know.  The short-term movements of the market are, as Nick Murray writes, perfectly unknowable

As long-term goal-oriented investors, true wisdom comes from the realisation that we don’t need to know what happens next.  We are not investing for next week or next month or next year.  We are investing for our most cherished goals, for our future freedom, for our children’s freedom.  Conceptually, even if not specifically, we know what will ultimately happen.

All successful investing is focused on our long-term futures, and our long-term plans.  All failed investing is focused on market movements and short-term events. 

As Ben Graham once said, “in the end, how your investments behave is much less important than how you behave.”  Our success as investors is a direct function of how we react, or more properly, how we refuse to react

We are reminded in 2020 that the stock market can’t be consistently forecast, much less timed.  Therefore, the only certain way of capturing the superior long-term return that comes from stocks is to sit through their occasionally steep but historically temporary declines.

Or as I sometimes like to put it, ‘you can’t stop the waves but you can learn how to surf.’

Georgie

georgie@libertywealth.ky

Georgina Loxton