Welcome to summer 2020! We hope this writing finds you and yours healthy and whole as we begin to edge into a new normal.
It has been almost three months since the U.S. largely became locked-down in an attempt to manage the surge of the pandemic and our health care system’s capacity to respond. Three months seems like a lifetime in Covid years. We have witnessed unparalleled races for testing and vaccines, war-time level production of ventilators and PPE equipment, superhuman efforts of our first responders, staggering levels of unemployment and unmatched government stimulus aid.
Our financial markets have themselves undergone unmatched volatility. We have experienced the market’s fastest downturn in history (22 trading days to fall 30%) followed by its swiftest surge (37.7% increase in 50 trading days).
For those that have followed our writing for years, our message is not new. We reinforce and stay disciplined to our investment philosophy during up and down markets. Why? It protects against the negative impacts of behavioral economics. We wrote to you at the early onset of our country’s response to the pandemic that “It’s not different this time”. There have been innumerable crises of different forms and levels throughout our history. We also fully understand, and feel ourselves, the emotions associated with loss and uncertainty. Which is precisely the reason to remain disciplined.
Know also that we firmly believe we are not out of the woods yet. We fully anticipate elevated levels of volatility as we approach the election and defend against an anticipated resurgence of the virus.
As Warren Buffet’s mentor, Benjamin Graham, famously said, “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” We are still in voting machine territory as investors are speculating on the actual effects of the virus on companies’ profits. The weighing machine period comes as companies’ earnings are released over the coming months and even years (we still have 3 quarters of earnings left to report).
Our current crisis continues to reinforce our conviction that remaining invested in a portfolio that is diversified, low-cost, and within your risk tolerance continues to be the best strategy towards achieving your goals. Trying to time the highs and lows of the market consistently is incredibly difficult. By remaining invested in the market, dollar-cost averaging, rebalancing along the way and taking advantage of tax-loss harvesting, Roth conversions or other more advanced strategies where applicable, we can capture the favorable opportunistic economics of the current crisis, rebound or steady-state.
We wish you well as we all deal with the social changes we have experienced – no one has been immune to the impact of quarantine from young to old alike. We also know there are many silver linings and look forward to continuing to reap those rewards.