Happy Anniversary

It’s the first anniversary of the stock market bottom from the Coronavirus Crash. I know you remember, but do you really remember?

Large stocks (S&P 500) were down 34%. Small stocks (Russell 2000) were down 42%. Junk bonds, developed international stocks, and emerging markets got crushed too. Heck, even Bitcoin was down 67%.

Do you remember billionaire hedge fund manager Bill Ackman’s CNBC interview in which he predicted, “Hell is coming” and warned, “America will end as we know it”?

I brushed off the Ackman interview, figuring the full-time billionaire hedge fund manager and part-time CNBC talking head was going to get the attention he was seeking with those exaggerated claims, but there was another interview that scared me…

President of the St. Louis Fed, James Bullard. He must be a trustworthy, reasonable source, right? His prediction — Record-setting 30% unemployment and a 50% crash in GDP.

The March 21st cover of The Economist pretty much summed up the situation:

At the time, the seemingly prudent decision was to get out of stocks, at least until “the dust settled.” Being bullish on stocks wasn’t just going out on a limb — it was considered a reckless disregard for the reality of a developing pandemic.

Part of my job is contextualizing market and economic news to help individual investors stay invested for the benefit of their long-term financial plan. When markets are climbing, it’s a message that is considered reassuring and steadying, if not repetitive (hence the constant stream of sports analogies and memes). But when markets are crashing, it sounds childish and aloof, if not indifferent.

Morgan Housel explains why:

“Pessimism is intellectually seductive in a way optimism only wishes it could be. Tell someone that everything will be great and they’re likely to either shrug you off or offer a skeptical eye. Tell someone they’re in danger and you have their undivided attention.”

Contrary to my typical advice, please do me a favor and check your 1-year portfolio returns today.* If you like what you see, remember, the changes you DIDN’T make to your portfolio are responsible for the impressive return. The single decision to NOT act in the heat of the moment, when the sky appeared to be falling, probably outweighed every other investment decision you made over the prior decade. Reread that sentence a few more times and commit the feeling to memory. It may be the most valuable shred of perspective I have or will ever offer you.

This anniversary sadly won’t be celebrated next year. For some reason, the industry standard is to report 1, 3, and 5-year performance numbers. Occasionally you’ll see a 7-year return, but the next reported return typically isn’t until 10 years, at which point multiples of 5 become the norm (15, 20, etc.). I also have a gripe about the industry’s insistence on focusing on YTD returns. When the calendar flips to January, we instantly forget about prior months, and start recording performance since the start of our latest trip around the sun, as if that has anything to do with anything. Another blog for another day…

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