So far, 2020 has been mostly serene, and I expect nothing to change as the election approaches.
I kid, of course.
We’re 82 days away from the election, and somehow, everything is political. Infectious diseases. School openings. Football. Everything.
Some of our clients have been asking about our thoughts on the impact that the election might have on markets, so I wanted to take some time to share some evidence that can guide us toward a reasonable conclusion. The conclusion is: History has shown us that the market has little correlation with the party in power in the White House.
A couple of years ago I wrote a post, part of which discussed the fallacy of pretending to have any idea what elections mean for markets. I thought I’d revisit this with some more data.
Over the past couple of weeks, there’s been a pretty big shift in the news cycle: constant talk of a global pandemic gave way in a sudden, startling fashion to conversations about race after George Floyd was brutally killed, on video, in broad daylight, by a white police officer in Minneapolis.
Protests and riots have ensued, and a whole new level of anger has been uncovered as people have responded to the broader treatment of black Americans by law enforcement. It’s led to some uncomfortable conversations, and many white Americans have started to discover (or better vocalize their understanding of) the inequities that exist in our society.
By just about any definition, I was born on third base. I was born in early 1980’s America, into a home with two loving parents, into a neighborhood with great schools, and little crime. And I have white skin. I controlled none of this. I’ve never felt scrutinized when I walk into a store. I’ve never had an uncomfortable run-in with the cops. I’ve never been denied a job opportunity because of the amount of melanin in my skin.
As a kid, I’m not sure that I realized the implicit advantages I was afforded thanks to my fortuitous situation, but my Dad would travel all over the world for his job, and he’d always come back home to California and tell us we were so lucky to live where we did. He was right. But not everyone is so lucky, even in America.
We’re working hard to instill grateful attitudes into our kids. Not guilty. Grateful. They’re lucky to have been born into our household, and with that reality comes a great responsibility. It means we should work to help those in need. The oppressed. In fact, it’s demanded of us.
The news over the past two weeks has moved at a brisk pace, to say the least. The state of the world from just one month ago is virtually unrecognizable at this point as we’ve made bold steps to control an invisible virus.
Our partners at Dimensional posted a video the other day to offer some perspective, and I think you’ll enjoy it. We also thought we’d share some additional perspective too.
The world now looks a lot scarier than it did in January or February, and that got me thinking.
I’ve often wondered how I would’ve reacted as an investor in 1929, when the stock market crashed and set off the Great Depression. In hindsight, it would’ve been great to say that I would’ve closely followed the rules of finance that have been developed through decades of research, but that would’ve been difficult for a couple of reasons:
As fears about the spread of the coronavirus continue to rile markets worldwide, I thought I’d provide another update into how we (and our clients!) are fairing.
First, I’m sure there are some clients who have had sleepless nights over the past couple of weeks, wondering when life will get back to normal. The other day, my wife asked me how I was holding up, and I told her that I’m fine but I’m more concerned for you, our clients.
However, I’m also incredibly grateful. For sure, we’ve fielded some calls and e-mails from clients who have some (valid!) concerns. But for the most part, our clients have been seeking out opportunities to accumulate more stocks at a discounted price.
Our trading systems and processes haven’t yet been stretched like they have for the past two weeks, and I’m glad to say that we’re doing just fine.
I’ve spent the better part of the last twenty years studying the capital markets, and trying to gain a better understanding of how they operate, and how investors react. As we ride through the current turbulence brought on by the news of the day, I thought I’d share with you some of the lessons that I’ve learned.
First, the nature of risk is that it’s unpredictable. And whether the cause of the turmoil is political, economic, health related, or some other nuisance, we know that the future, by definition, is unknowable.
Not long ago, the markets were deeply disturbed by the interactions between President Donald Trump and North Korean leader Kim Jong-un, and the potential for war between the United States and North Korea. Imagine having fallen into a coma in 2010 and awoken to see that as a headline.
Since their founding, Schwab has been disrupting the industry by taking advantage of the semiconductor to reduce the cost of investing for everyone. This is a good thing. Independently, Schwab and Vanguard changed the industry more than any other two companies, and average investors are better for it.
No longer is it the norm for brokers to charge 1% (or more) of a transaction amount just to trade a stock. No longer is it standard for a mutual fund manager to charge in excess of 1% (or more) annually to attempt to beat the market, which they rarely do anyway.
Research and technology made things better, as did market competition.
Your stuff lies to you, and to me, and to everyone else.
We use our stuff to tell lies to others, and they believe them, because we typically don’t let people see our balance sheet or our cash flow.
Our houses tell lies, and so do our cars. Our clothes, our trips, even our Instagram accounts do too. We use them to tell the story of our own financial success, which we know gets translated into success in life (for some weird reason). Sometimes, the success is real, and sometimes it’s fake. But as long as it’s documented well for our neighbors and our family, it doesn’t really make a difference.
I’m in a position to get to peak behind the curtain a bit, and ascertain whether the perceived success has any underpinning in reality, or if it’s all a facade. I get to see the truth. I wish our stuff would tell the truth, too, so everyone could be more honest with themselves and others about their current financial status. It would probably help to provide some better perspective about how meaningless stuff can actually be.