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2020… The Year That Taught Us All Discipline Makes a Good Investor

January 31, 2021

On January 3rd of 2020, I responded to a client’s email asking about advice she received from a trusted family member. The advice was centered around her taking a less diversified approach and to “push it a little” because of the good year stocks would have in 2020. Below is an excerpt of my reply:

Hi (client),

First, I need to remind you that no one knows that this next year will be a good year for stocks.  No one…not me, not people on the news, not your friends or family have any idea what the stock market will do (Every year, everyone guesses and tries to predict the future. It’s easy to Google this to find the headlines). Second, there are about 19 different stock markets across the globe that we invest in…so which market is due to do well in 2020?  Again, no one has that information.  

Happy New Year!

Michael

That was January 3rd, 2020

Two months later, we were battling the emergence of something the media was referring to as the Wuhan Virus and sports leagues were shutting down. Within a few weeks we were all shutting down. The world was at a standstill. It is weird to think back to this time because it wasn’t really long ago, yet it seems (to me) to be three years ago. Kids home from school; events cancelled; flights cancelled; work cancelled; life itself was essentially cancelled. 

As of December 2020, the world is fundamentally different and may not ever get back to what we knew before. We will travel differently.  We will communicate differently.  We (hopefully) will pay attention to our own health differently.

Fear. Anger. Anxiety. Disbelief. Frustration. It was as if a dystopian movie had been thrown at us and we were all actors in some odd, bizarro world.

Markets crashed. By April 1, a 75% equity-based portfolio was on track to lose over 80% of its value1 .  

May 2020

By May, a rebound in the markets around the globe had already begun; however, most were not aware of it. March and April had many of my clients asking if we should get out of the market completely. Media was telling us it could take YEARS to rebound. A “V” shaped stock market recovery touted by the Trump administration was laughed at by ‘experts’.  

The fact that a negative 80% portfolio was unlikely to happen was ignored by just about everyone. The simple statistics around a properly diversified equity portfolio to be down 80% at year-end would be so far outside the range of any normal standard deviation that I knew it was incredibly unlikely to happen. But the media didn’t care…

More fear. More misinformation. More trouble for portfolios and our population.

Also – Did you notice the report that was released of the CIA confirmed aliens???? 2020 was a movie. 

Financial Armageddon!

As the media and others told my clients that the market was not coming back any time soon, something unusual happened. Financial Armageddon, predicted by so many, simply turned around. Markets continued to rebound. I’m not suggesting the American economy doesn’t face significant headwinds. I am, however, pointing out the very real fact that the world’s stock markets made a comeback for the ages.

A moment that may be the proudest of my career happened during this roller coaster ride: my clients didn’t waiver. You did not waiver.  Not a single family who trusts me with their money moved to cash. You listened to me describe how I was literally watching the markets around the globe every day and seeing how your portfolios reacted. I was on the lookout for anything that appeared “broken” in the portfolios. You trusted in me and remained disciplined.  

At the end of the day you could have moved your money to cash. You could have scrapped the financial plans we spent time building.  You could have forgotten the insurance portfolios that had cash in them to help in times such as these. You could have listened to everyone else out there, but you didn’t. You “zoomed” in and met with me virtually. You read my emails and blogs.  You attended my webinars. You asked questions. Most importantly, you trusted me.

And the discipline paid off

Here we are, what seems like light years away from an email I wrote on January 3rd of this year.  An email in which I was responding to a question from a client whose family member felt she was “too diversified” and stocks were due for a huge year. I highlight that email because it shows a principled approach to building and maintaining portfolios. I don’t predict. I don’t speculate, and I don’t gamble with your money. What right would I have to do that?  Rather, I take a time-tested approach in which we use a globally diversified equity portfolio and strive to offset risk with high-quality, short-term fixed income. And I don’t panic, therefore you didn’t panic. By the end of the year (as of December 21, 2020), globally diversified equity portfolios are positive for the year. POSITIVE. In a year when the world stopped turning.2

What does 2021 look like?

I have no idea.  No one does.  Not the media, not your family, no one. If you ever hear me say anything different, you should fire me on the spot because I’ve lost my way. I have principles that have been tested in the trenches. They’ve been tested through contested Presidential elections (two in the last 20 years), the worst terror attack on American soil, the Great Recession, Brexit, the 2016 election, a Presidential impeachment, and now a global pandemic (murder hornets never happened, right??), and that’s just highlighting some events of the last 20 or so years. I have colleagues who I would have in my “foxhole” anytime and anywhere. And I think I have the best clients in the world because, while you know I can’t predict the future, you don’t ask me to. You simply look to me for my experience and guidance.  

No matter what 2021, or any of the years after may bring, I am honored you “let me worry for you”.  

1. Numbers sourced from internal audit of client portfolios, additional details available upon request. 2. Source: S&P 500 Index YTD analysis. http://bit.ly/3rn3crz | This material is intended for general public use and is for educational purposes only.  By providing this content, Park Avenue Securities LLC is not undertaking to provide any recommendations or investment advice regarding any specific account type, service, investment strategy or product to any specific individual or situation, or to otherwise act in any fiduciary or other capacity.  Please contact a financial professional for guidance and information that is specific to your individual situation. All investments contain risk and may lose value.  Diversification does not guarantee profit or protect against market loss. | 2023-158307 Exp. 07/25

This website is intended for general public use and is for educational purposes only. By providing this content, Park Avenue Securities LLC is not undertaking to provide any recommendations or investment advice regarding any specific account type, service, investment strategy or product to any specific individual or situation, or to otherwise act in any fiduciary or other capacity. Please contact a financial professional for guidance and information that is specific to your individual situation.

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 5280 Carroll Canyon Rd, Suite 300, San Diego, CA, 92121, 619-6846400. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. WestPac Wealth Partners LLC is not an affiliate or subsidiary of PAS or Guardian. Insurance products offered through WestPac Wealth Partners and Insurance Services, LLC, a DBA of WestPac Wealth Partners, LLC. CA Insurance License Number - 0L49687. Securities products and advisory services offered through Park Avenue Securities LLC (PAS), member FINRA, SIPC.  (619) 684-6400. PAS is a wholly-owned subsidiary of The Guardian Life Insurance Company of America® (Guardian), New York, NY. CA Insurance License #0L49687 | Terms of Use | Online Privacy PolicyImportant Disclosures |  2023-158307 Exp. 08/25