Did you know that you need to count to 1,000 before finding the letter “a” in a number, spelled-out?
One question that seems to be popping a lot is “Why aren’t stocks down more?” After all, we’re in the midst of what I hope will be the worst economic calamity of this generation and equity losses are only moderate as we sit here today.
This is a rough time. There’s really no way to sugar coat it. People around the world are falling ill. Many transactional businesses are severely imperiled. Lots of Americans are out of work. Even for those of us who have been fortunate enough to remain healthy and stay employed, things are still hard. Parents deal with the stress of juggling both children and work during the day. Grandparents can’t hold their grandkids. I’m sure many of us are probably experiencing a touch of cabin fever. And of course, the specter that is the primary subject of this commentary, investments have yielded brutal returns the past several weeks.
It’s honestly pretty weird to have a market crash that has such a simple explanation. An uncontained viral outbreak is endangering public health and disrupting economic activity. That’s the whole breakdown. It’s one sentence. It would take me 5,000 words to explain the financial crisis from last decade and, even then, you’d have a list of follow-up questions. The ability to succinctly and confidently answer the question “why did markets go down?” is bizarre.
Speaking strictly financially here: I’ve heard a lot of suggestion that this time it’s different. Here’s the real inside information: It’s always different. Here are several This Time It’s Diffferent™ events that have led to bear markets in domestic equities in the past: Unfettered lending, terrorism, the birth of the internet, an oil crisis, a single day in 1987, war, an extended period of high inflation. In each case, markets flailed with uncertainty as participants grappled with how to handle events that generated a high degree of uncertainty and worry. What ended up not being different is that markets recovered from each of these This Time It’s Different™ events.
You may have already heard, but Coronavirus is sweeping the globe. As of Monday, according to the World Health Organization, there have been just under 80,000 confirmed cases of COVID-19 (approximately 77,000 of which are in China) and around 2,500 deaths attributed to the virus.
Airlines are canceling flights, the US is issuing travel advisories, and there’s even talk of calling off the Summer Olympics, set to take place in Japan in a few months. It is certainly a scary time to have access to up-to-the-minute news.
The Wall Street Journal and Morningstar are fighting. On Wednesday, an in-depth piece ran in the Wall Street Journal that attacked Morningstar’s rating metrics as being misleading and causing individuals, advisors, pension funds, and endowments to make poor decisions about where to invest. Later that day, Morningstar issued an aggrieved response that claimed that the Journal had drawn incorrect conclusions about their rating methodology and that, despite misunderstandings, the ratings are still a valuable tool for investors.
Bitcoin is has been in the news a lot recently. As of August 24th, the price of ‘physical’ Bitcoin had increased by 336%, year-to-date. Of course, as anyone who has looked into purchasing direct Bitcoin already knows, the process of “investing” in Bitcoin is rather complicated and poses a litany of unique risks.
Last week, the Dow Jones Industrial Average (“The Dow”) cracked the 20,000 point mark. It’s fun and exciting, and it’s seemingly and indication that the stock markets and economy are doing well. Or at least that’s what financial media purports. So, what does the Dow reaching this level actually mean? Well, in truth, very little. The Dow, as a benchmark, is an archaic, arbitrary bellwether of the US economy. The Dow is a bad index.
Prediction season is upon us. Towards the end of each calendar year, financial news outlets bring all sorts of voices to our TVs and radios to make predictions of what’s to come next year. In the coming weeks, you will see all manner of assertions and guarantees. Some will emphatically tell you to invest in one place or avoid another. Others may offer a forecast of the economy or what will happen in Donald Trump’s presidency. Note that at no point will you see an accounting or reckoning for the mountain of incorrect predictions from last year’s prognostication. Nevertheless, the networks soldier on and continue to peddle their advice.
Donald Trump will be the president of the United States. The world is not ending. We got up this morning and we went to work. Some of us are a little happier than we were Tuesday. Some of us are a little sadder. My job today isn’t to offer criticism or praise of the politics. I simply want to lay out a pragmatic approach for how most people should think about their portfolio, post-election.