Happy Father’s Day to all the dads!
Hope everyone had a great weekend. My wife and I just had our 25th wedding anniversary last week and this weekend our kids surprised us with a party. Kristy and I were wondering why my daughter was actually voluntarily cleaning our kitchen as friends picked us up to get us out of the way so she and her brothers could get the house ready. We were guessing that she had broken something in the house or was buttering us up to ask for something big, but we never made the connection that it had to do with celebrating our marriage. Great surprise and great evening!
Markets hit some dead space and are down 8% or so from where they were a couple weeks ago. Had some bad news with Covid re-occurrence coinciding with markets getting overbought as they got a bit too far ahead of where the economy is. The push/pull feeling makes for an interesting place right now in that with volatility in the markets jumping again it has heightened the anxiety of investors who are still raw from the violent sell off in Feb/March and yet the hard economic data has been surprisingly supportive of a V shaped recovery, rather than the U shape most have been predicting.
The last two articles I just finished read like opposing sides of a debate on what is going to happen next in the market. Both authors are highly successful money managers with billions under management. The more pessimistic one was focussed on the terrible GDP numbers, civil unrest in the US and the demise of globalization. It argued, quite reasonably, that a US – China conflict and the global pandemic are accelerating moves by multinational corporations to re-shore and duplicate supply chains with a focus on reliability rather than just cost optimization which is going to have a huge impact on the long term profit margins of companies.
The second article was entitled “Why the Market is Getting Ready to Rip”. The optimistically entitled premise for this is that the markets just do not care about the virus anymore. The economy is reopening regardless of what happens with Covid as there is simply no appetite to close anything back up again – the cost is just too great to keep it shuttered. You could make a pretty strong argument that the US didn’t really even close in the first place and there is no way they are going to step backwards again with Trump starting off his campaign efforts! May and June’s unemployment numbers were not as bad as predicted, retail sales were better than expected, and while the actual numbers are not good, those are likely to be as bad as they are going to get. The economy will make changes, adjust, and move on from here supported by a Fed and governments that are splashing out money to consumers and business alike for them to keep spending. They won’t let this economy fail and markets recognize this, and they are looking through the short term headlines to when things turn back and whether that is in two months, six months or a year, it doesn’t really matter when the end result will ultimately be a healthy economy again.
At my anniversary party one of my friends, who is also a client and reads these market updates, commented that I must be running out of ways to write and say that I really have no idea what is going on right now in the markets. He’s pretty much dead on with that! I do want you to assure you though that I arrive at the conclusion that I know nothing through a lot of research, reading and trying to educate myself on what other economists, analysts and money managers are hypothesizing! The other thing I was reminded of at my party as I watched the video montage of our 25 year marriage play out on our TV is that while the days are long, the years are short. The commitment to the big picture and the discipline to continue to work at our marriage makes the struggles and ups and downs of individual days, weeks and even months, seem so insignificant when looked at through the lens of a rear view mirror and placed alongside the entire body of work that go into what has been an amazing marriage with three fantastic kids.
Investors must commit to a similar mindset in order to be successful. Have long term objectives, but be flexible and understand it is not a straight line towards prosperity. The unexpected bumps and twists in the road are necessary as both learning experiences and opportunities to accelerate growth. I believe duration is the key and time is the vital variable. If you are really investing for the next 10 years and you are really looking for capital appreciation, then the markets abound with opportunities. The market’s movement has become breathtakingly volatile and the ability to time or trade around it is becoming increasingly difficult, but that should not deter the long- term investor. There are opportunities in the emerging long-term trends whose adaption is being fast forwarded by the pandemic – virtual work, e health, e commerce chief among them, and I also think there is value to be found in some good companies that are struggling right now but are priced well below what they are actually worth. It is important to be buying and balancing a portfolio out with multiple themes as there is too much uncertainty to have too strong a conviction in any one idea, but as a long term investor with the advantages of duration and time, you can buy with confidence now knowing that well chosen investments are going to look brilliant in 10 years regardless of short term variances in acquisition costs.
The great part of this is that it means I don’t actually need to know what I am doing in the short term or get the finite details correct in order to be successful long term. If 25 years of marriage has taught me anything, you will also be amazed at how quickly that time passes!
Stay safe, stay healthy, stay disciplined!
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