The coronavirus is still very much with us, as is much of the economic dislocation occasioned by the resulting lockdowns.
Granted, we are evidently closing in rapidly on a vaccine, indeed, a number of vaccines. However, it might be quite some time yet before most of us will get access to a vaccine, and frustration may abound. Furthermore, in the coming weeks we will have to go through a hyper-partisan presidential election in the US, with a variety of voting issues we’ve never had to deal with before.
So, before we’re further engulfed by these multiple unknowns, I want to take a moment to review what we as investors should have learned, or relearned, since the onset of the great market panic that began in February / March and ended when the 500 largest companies in the US, as measured by the S&P 500 Index, regained its pre-crisis highs in mid-August.
The lessons are:
- No amount of study—of economic commentary and market forecasting—ever prepares us for really dramatic events, which always seem to come at us out of deep left field. Thus, trying to make investment strategy out of so-called “expert” forecasts — much less financial journalism—always sets investors up to fail. Instead, having a long-term Wealth Plan, and working that plan through all the fears (and fads) of an investing lifetime, tends to keep us on the straight and narrow, and helps us to avoid sudden emotional decisions;
- The global equity market fell 26% in 25 days. None of us have ever seen such a speedy decline before, but with respect to its depth, it was just about average. When reviewing monthly returns data, this ranks 5th in the top declines dating back to 1970. Declines of -49%, -35%, -33%, -29% have been experienced over that time period. However, in those ~50 years to 30/09/2020, global equities enjoyed a cumulative return of 12,967% in nominal terms. The lesson is that, at least historically, the declines haven’t lasted, and long-term progress has reasserted itself;
- Almost as suddenly as global equities crashed, they completely recovered, surmounting its February 20 all-time high on September 2. Note that the news concerning the virus and the economy continued to be dreadful, even as the market came all the way back. I think there are actually two great lessons here:
- The speed and trajectory of a major market recovery very often mirror the violence and depth of the preceding decline; and
- The equity market most often resumes its advance, and may even go into new high ground, considerably before the economic picture clears. If we wait to invest before we see unambiguously favourable economic trends, history tells us that we may have missed a very significant part of the market advance.
- The overarching lesson of this year’s swift decline and rapid recovery is, of course, that the market can’t be timed, that the long-term, goal-focused equity investor is best advised to just sit tight.
These are the investment policies you and I have been following all along, and if anything, our experience this year has validated this approach even further.
A word now, really just a repetition of what we’ve stressed before, about the US election. Simply stated, it’s unwise in the extreme to exit global equities in which you’ve been invested during your lifetime because of the uncertainties surrounding the election. Your chances of getting out the market and then back in advantageously are historically very poor, nor can Wells Gibson possibly help you in attempting to do so.
As we do before every UK or US election, we urge you to just stay the course. As always, we’re here to talk through these issues with you.