A Year Of Lessons

I think that we all can agree that 2020 had its share of challenges.  No matter the person, nor the circumstance, we may not have all been in the same boat, but we certainly were in the same storm.  The gambit of the reasons for our struggles last year were far and wide.  Maybe you struggled with health, maybe your job, maybe you suffered stress from the presidential race, maybe you struggled with keeping your sanity, all the while missing family and friends. 
Yet, I can’t help but think of what a perfect year of lessons it was for the goal-focused, long-term, planning-driven investor.  If ever a year encapsulated the “why” on why investors should be focused on the bigger picture, look no further than 2020.     
On December 31st, 2019, the Standard & Poor’s 500-Stock Index closed at 3,230.78.   This past New Year’s Eve, it closed at 3,756.07; the percentage increase of the Index year over year, was 16.3%; and the total return with reinvested dividends was 18.4%, according to Barron’s.   
Imagine us having a conversation at the end of 2019, and I prognosticated that in 2020 a pandemic would grip us with fear and buckle the American economy, bringing it to its knees by enforcing lockdowns.  There would be social unrest in America’s biggest cities, and just to put icing on the cake of misery, we had a hotly contested, highly partisan presidential election, that tore at the very fabric of friends and family alike.  I’m guessing your first reaction as an investor would have been to sit this year out.   Yet, here we are, and we start the New Year, at or near record highs on the S&P 500 Index.   There is a lesson here for you, the long-term investor, that he/she probably already knew, but had long forgotten:  At their most dramatic turning points, the economy can’t be forecast, and the markets cannot be timed.  Instead, having a long-term plan and sticking to it – “acting” as opposed to “reacting”, which is your and my investment policy in a nutshell – once again demonstrated its enduring value.  The second most important lesson can be derived from the trajectory of the rebound in the S&P 500 Index from the depths of a panic driven selloff, which saw the S&P 500 Index drop a horrifying 34% in 33 days.  I don’t recall one single conversation from any media outlet, market pundit, or arm chair stock market guru, encouraging investors to put money into the markets at the end of March. 
Once again, and as I have written about many times over the years, it is and was again in 2020, a mistake to do a TKO 10-count on the American economy.  The American economy, and its leading companies, continued to demonstrate their fundamental resilience through the balance of the year.  The stock markets responded from the depths of panic to make multiple new highs. 
From the start of the panic, the great American companies, did what they always do – rolled up their sleeves and went to work by developing, and getting approved in record time at least two viable vaccines.  Distribution of the vaccine has begun, giving hope to the millions who are most vulnerable to the virus, and finally relieving them from their burden of fear. 
And as if those two lessons weren’t important enough, the third lesson was nevertheless, just as important as the first two Presidential elections do not define us, nor should they be part of any investment policy.  The reason that the mainstream media will shove “This is the most important election of our lifetimes"
The goal-driven, long-term, planning driven investor thrives on uncertainty, because it’s that uncertainty that drives their superior long-term performance, which is absolutely needed in order to achieve their goals set forth in their financial plan.  

Transcript

Unknown Speaker  0:00  
Welcome to the emotional wealth podcast where Certified Financial Planner speaker and consultant lawn Brodsky will discuss strategies that can help you to successfully navigate today's challenging financial environment. And using emotional discipline and focus, you'll discover how he educates his clients to stay on track with their financial goals. Now, here's law.

Unknown Speaker  0:33  
Welcome to this edition of emotional wealth and, and as I contemplated what I wanted to talk to you guys, today about, I absolutely dreaded it.

Unknown Speaker  0:45  
Because we have to talk about 2020. I didn't want to, but it's almost like we have to write at this point, because we all know what 2020 was, okay. 2020 was a band aid that got ripped off of a fresh flesh wound, especially if a hairy leg, let's say, okay, and you get a wound on and you put that band aid on when that band aid comes off, it hurts almost as worse as the wounded. Well, that's what 2020 was. 2020 was a band aid getting ripped off of a hairy leg.

Unknown Speaker  1:13  
Now, I want to take a step back, I want to go to December of 2019. And and I want you to pretend for a minute, so close your eyes.

Unknown Speaker  1:22  
And pretend we're having a conversation about your investment potential for 2020. And I said, Okay, imagine this. I've got, I got my little crystal ball here. So this is what's going to happen in 2020. Mr. And Mrs. investor, 2020 is going to see a pandemic, the likes of which we have never ever experienced, the economy's going to come to a screeching halt, everything is going to be shut down, you're not going to be able to buy toilet paper. And oh, by the way, that's going to last throughout the whole entire year. And let's just add a degree of social unrest to where there is across the United States, and the major cities are experiencing massive amounts of social unrest. And oh, just just to add a little salt in the wound, we're going to have a presidential election, that's going to be very contentious. That's going to split families and friendships into two, and that the election will not be decided in 2020. Even though we're going to vote in November, it won't be decided in 2020. It's gonna drag into 2021. If I told you all three of those things, and I said, now's the time to put money in, you would have looked at me like I had a third eye. Right? You would have looked at me like I was a cyclops, you'd have said there's absolutely zero chance of you getting me to invest for my future in that environment. And on December 31 2019, the s&p 500 stood at 3230. And on December 31, of 2020. The s&p was at 3756. Despite all of those things I just told you, the s&p 500 went from 3230 to 3756. At 16.3% total return with reinvested dividends according to Barron's magazine 16.3%. After all of that, wow, there's no way you could have convinced me in December, knowing that was going to happen, that would be a great environment for investors. Why was it a good year for investors? Well, that's a multitude of different reasons. And I'm not here to to engage with you on why that may be because that's just speculation. You know, at the beginning of the year, when when these epidemiologists were giving these these frightful numbers that we were all scared of, and they're modeling and giving us their their opinion as to how many millions were going to die and how many, how many hundreds of millions were going to be infected. That was scary. But I also think that last year provided investors with three great lessons. 2020 is a microcosm of the bigger issue of these very important lessons that we should never ever forget. By the way, these lessons as I give them to you are not in any sort of order. Okay, there's not one that's more important than the other, but they're all equally important. Okay. But the first lesson I want you to take away from 2020 as an investor is that at their most dramatic turning points, the economy can't be forecast in the in the markets can't be timed. 2020 prove that right. Again, I give financial advice for a living. I certainly didn't know that the equity markets were going to rebound that quickly. I should have looking back at that time, I should have recognized that. The equity markets are just exactly like a rubber band right? When you take that rubber band in

Unknown Speaker  5:00  
You pull it just back a little bit, and you let it go, it's not going to go very far. But if you take that rubber band and man, you stretch that sucker all the way back, and you let it go, it's gonna fly across the room. equity markets are exact same principle.

Unknown Speaker  5:17  
But you can't forecast that. You can't time the market 2020 prove that. It's about developing that long term plan and sticking to it. And it's about acting versus reacting. Acting being that you're developing the long term plan, you're developing your asset allocation plan, you know how it's going to perform and good times and beds and sticking to that plan, and not causing a reaction when the market drops 34% in 33 days, because had you panicked and sold out, that would absolutely have been the worst thing you could have done for your financial goals, because the markets and equity markets rebounded so quickly. But once again, having that plan in place, demonstrated its enduring value to investors, having that long term focus, and 12 months is not long term in terms of investments. second most important lesson, probably, that I think any way investors should be be thinking about in or have learned from 2020 is that it doesn't matter. The media outlet doesn't matter. The market pundit doesn't matter your your buddy or your neighbor who's an armchair stock market guru, that there was no way to predict the rapid rebound that we saw.

Unknown Speaker  6:37  
And that it was an even bigger mistake, to do a 10 count TKO on the American economy. And the great businesses of America

Unknown Speaker  6:47  
2020 prove that if you're betting against the American economy, if you're betting against the great American companies you lost. And time and time again, history has proven that to us, you know, I was having a conversation with with a friend of mine, about a month ago when we were talking about these electronic checkout counters now that you see everywhere you see me in grocery store to see my Walmart, and he was telling me how dismayed he was by these electronic devices, and the fact that they were displacing good people. And I didn't argue that point. I didn't argue that point of people were going to be displaced. My point to him was, what did it take to put that electronic device in Walmart? Yes, it's displacing a checker. But are you thinking about the small manufacturing firm, say in in Nebraska, that that makes installation for electrical wiring? And because all these machines are going into Walmart stores across the nation, that small manufacturing firm that hires 25 people is busier than ever, and now they have to add on a second and third shift to get all these machines out? And oh, by the way, those jobs pay more per hour than the job that they replaced. What about the truckers? What about the the integral amount of trucking that has to take place in order to deliver these delicate electronic machines to Walmart?

Unknown Speaker  8:08  
Maybe there's a trucking firm that started up to deliver these specific electronic types of devices that need a special type of trucking. Oh, and what about the software engineers, that now makes the software that goes into these devices, now they have to hire many more engineers to run the software that's required, and to run through the updates that Oh, by the way, pay a lot more than that checking physician paid. We're not thinking about that. And that's a different way to understand and realize that it's part of an evolution of the economy. Just like back in the early 1900s, when the automobile first first appeared, were we afraid of the technology? are we worried more about the horse buggy manufacturer, if you're not keeping pace of that horse, buggy, horse, whip buggy manufacturer was not going to change what they were doing? Yeah, they're gonna go out of business. But that's been like that, since the dawn of time. It has not changed today. And that's the second lesson is don't bet against the American economy. Don't bet against the great American companies, because they're going to respond. They're going to make the necessary adjustments so that they ensure that their shareholders get value. They're going to do what they've always done, and times and hard times. They're going to roll up their sleeves, and they're going to go to work and they're going to find the solutions. And you're seeing that in in the vaccine vaccine that just rolled out before Christmas, right? That was rolled out in record time. There's no way you could have done that three or four years ago now what the the red tape Vax vaccines and medicines has to go through all that was removed.

Unknown Speaker  9:49  
And these great American companies focused on getting a vaccine made that was safe, and that was viable. record time. You want to talk about innovation. Look, no

Unknown Speaker  10:00  
further than that. And the third lesson, I think, for 2020, that investors should should take with him, maybe put aside in the cabinet somewhere and in the next four years when that presidential election comes up again, is that it doesn't matter who's president, your investments don't care, you care, maybe your family cares, maybe your your friends care, maybe your your neighbor cares. But your investments don't, the President is not going to be the difference between you achieving your financial goals and you falling short of your financial goals. Because the narrative of this is the most important election of your lifetime. That narrative which is shoved down our throats every single four years. The only reason that narrative comes up every four years, is so that those articles that you're reading, that's pushing that narrative on you that shoving it down your throat, that sole purpose is for you to continue to read that article, so that you can buy what their advertisers are selling. The second reason for that narrative, this is the most important election of your lifetime, how else are you going to vote for their particular party's candidate, if you're not emotionally invested in the election? Think about it. If you have two candidates, that you know what,

Unknown Speaker  11:20  
neither one of these candidates do it for me, you're not gonna get up off the couch and go vote, they don't care.

Unknown Speaker  11:27  
But when this is the most important election of your lifetime, ah, now I need to get out and go vote. American democracy does not end with one particular candidate getting elected doesn't,

Unknown Speaker  11:39  
they're going to tell you that it does. But it doesn't. Because that's the narrative, Apple, Google, Microsoft, IBM, they don't care who gets elected, they're gonna adjust like they've always done, they will make the necessary adjustments to ensure that their shareholders get value. As we start thinking about 2021. Let's lean on those lessons of 2020.

Unknown Speaker  12:02  
Let's lean on the lessons of it doesn't matter what the presidential election, we've got another one coming up in four years. And I guarantee you, that ad nauseum that headline of this is the most important election of our lifetimes. It's wearing thin, should be wearing thin, because it doesn't matter. You cannot predict where the economy's going. And you cannot predict where the markets are going. It can't be timed. And the other lesson is, is that don't count out the American economy and don't count out the great companies of America. Don't do a 10 count TKO because that's a mistake, there's probably going to be a lot more uncertainty, there always is right uncertainty is part of the investing landscape. And thank goodness, you had that uncertainty, because it's that uncertainty that allows you to get the superior long term rate of return that's necessary for you to achieve your goals. If uncertainty wasn't there, you probably wouldn't be getting a very good rate of return, which might get you further from your goals rather than closer to. It's the goal driven, long term planning driven investor that thrives on uncertainty.

Unknown Speaker  13:16  
Because that's what drives your superior long term results, leave uncertainty to, to those that get paid to debate it. Okay? Leave that to the to the mainstream media to debate uncertainty about what you should be doing now. And I don't know where the markets are going, blah, blah, blah, blah, blah. You know, it bothers me as an advisor to see the headlines. And every January the headlines are the same. History repeats itself, that headlines repeat themselves, every January, money moves you should be making in 2021, you're trying to predict the future, it can't be done. I don't care how much education you have, I don't care how much expertise you have, it cannot be done. You cannot predict the future. So stop trying to do it. I just know not to bet against the economy. The market can't be timed. I just know that the President, whoever that may be, whoever he or she may be, it doesn't matter to your investments, they don't care. But you need that uncertainty in order to get superior long term performance in order to get you closer to your financial goals. Thank you for listening. Look forward to our next podcast. Understand that we at pines wealth, have got remained steadfast in our commitment to our clients, and the trust that you have placed in me, your advisor, I'm going to ensure that we remain on track, regardless of who's president and the results of these elections. Thank you for taking the time to listen to me. Appreciate you. You being here. Don't forget to follow us on social media, Facebook and Twitter.

Unknown Speaker  14:52  
Email us at podcast at pints wealth.com. Call us 1-800-467-6567 that's one 804

Unknown Speaker  15:00  
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Unknown Speaker  15:08  
Enjoy your week and we'll talk to you soon.

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