This post is an excerpt adapted from a letter sent to my financial advisory clients on July 14, 2020.

“I haven’t opened my investment statements since 2008.”

On a recent call with a wonderful long-time client, she admitted to knowing that things had gotten rocky in the stock market earlier this year, and she had tried to remain detached from the turmoil by continuing to not look at her statements since 2008.

I do think it is important for people to have a high-level understanding of how their money is invested, and while I don't necessarily advocate this “Rip Van Winkle” approach, it does accomplish two key steps toward being a successful investor: having a long-term mindset and not swaying from a well-designed financial plan during the market’s regular fear and greed cycles.

Global pandemic, economic shut-down, oil prices tanking to below zero(!), corporate scandals, and widespread social upheaval, along with a stock market that experienced an historically sharp plunge and then 50 days of a rocketing recovery. For many reasons, it seems 2020 is a year that will be talked about and studied for decades to come. From an economic standpoint, one of the key lessons is that investing is about numbers, but it is also fundamentally about mindset. Many shareholders sold in the midst of the panic, missed the recovery, and suffered substantial losses.

There is value in our investment and financial planning processes, but experience has shown that wealth is built and goals are achieved only when discipline and conviction are applied to those plans over a lifetime of financial challenges.

Our goal is to help not only with the technical aspects of your financial life, but also to coach, lead, and provide accountability through the unending struggle against forces that pull at our financial decision making.

Big Questions

While we have been pleasantly surprised with investment performance to date and have optimism for the future, big questions remain (e.g., COVID-19, presidential election, etc.). A few investment-specific issues we’re watching and questions we’re being asked include:

1. Why are stocks up when the economy is so bad? The short and standard answer is that markets are forward-looking and are pricing in future prospects for company earnings. Of course, market “bubbles” and crashes show that markets don’t always get it right or, at least, don’t always offer a smooth ride during this “pricing mechanism.” This article by Hartford Funds, “Slumping Economy, Surging Stock Market–What’s Going On?,” goes into more detail about the current stock market status.

2. Is there another technology stock bubble? Speaking of bubbles...large company technology stocks have continued to drive market returns. The market’s recovery from March’s low was not broad-based, but rather, led by a small group of big tech players who now account for a significant portion of the S&P 500’s company weighting. As I wrote last year, this phenomena has given us caution and a lean toward value-oriented stocks, as well as managers with a valuation and profitability screen. However, Dimensional Fund Advisors (“DFA”), who actually is one of those value and profitability tilted managers, shows in their article, “Large and In Charge? Giant Firms atop Market Is Noting New,” that it is not unusual for a concentrated group of companies to lead the markets.

3. Day traders in 2020? What’s up with Robinhood? A counterintuitive trend coming out of the early 2020 market crash is the rise of the new day trader, many of whom operate on the popular tech platform, Robinhood. Why are young people risking their life savings and financial foundation in the midst of tanking stock prices and an economic shut-down? One theory is that with the lack of sporting events (due to COVID), day traders began trading company stocks to fill the adrenaline void typically fulfilled by their favorite sports teams.
   
   Unlike the Robin Hood of fiction, who “stole from the rich to give to the poor,” short-term trading typically flows the other way. Small-time neophytes investing in stocks inevitably lose to the large professional players on Wall Street. Here’s an interesting podcast from Wall Street Journal on this new breed of day traders, "The Stock Market Is Wild. Investors Are Piling In."

Looking Ahead

Could the second half of 2020 be as tumultuous than the past six months? It seems hard to imagine, but whatever may be around the bend, we’ll be here to offer our best service and advice as we negotiate it together.