01 May 2020 Tough Facts To Swallow
Here are some facts which I present, for now, without commentary:
- From February 19th to March 23rd the U.S. stock market was down about 35%.
- Since March 23rd, the market has been up over 30%.
- The stock market is still down about 15% since the February 19th peak, because percentages work more slowly on lower numbers.
- Intermediate Treasurys (as represented by IEF) are up about 7.5% during that same period.
- More than 30 million people have filed initial unemployment claims since mid-March (during which time the stock market has been going up like gangbusters).
- Over 60,000 people have died from the Coronavirus in the US.
- Congress has put an unprecedented amount of cash into the hands of Americans
- Interest rates are historically low
My oldest son Miles will be five years old in a couple months, and he is obsessed with facts. Facts about cats, birds, and sea creatures especially. And already at the age of four he is running into the strange paradox of, say, loving killer whales and sea lions and penguins at the same time. One moment a penguin is joyfully flying through the water, the next it’s being ripped to shreds by the dangerously lithe sea lion. One moment the sea lion is enjoying a belly full of penguin, the next it’s being tossed 80 feet above water by a five-ton orca.
I don’t know which animal I most identify with in that group of three right now, but it’s definitely not the orca. Who I really identify with is Miles. How do we handle facts that are hard to stomach?
Just as I can “explain” to a four-year-old that it’s possible to love orcas and sea lions and penguins at the same time, there is also a pretty rational answer as to how the facts I listed above all fit together despite being at first blush completely incompatible. Among other things, the culmination of that rational “answer” would include the following financial takeaways:
- Sticking to an investment process during periods of volatility will almost always beat gut-feeling attempts to get in and out of the market (or make bets on certain companies and sectors).
- A well-diversified portfolio is the closest thing to magic that exists for an investor
- The stock market is not a barometer of the current economic situation, and believing that it is will lead to either A) Poor investment decisions (see the first point above), or B) A great deal of cognitive dissonance and heartburn, or perhaps C) Some of both A) and B).
But of course, there is one glaring difference between Miles’ animal facts and our Coronavirus-related facts: Though we may currently feel like the sea lion being toyed with by an orca, hopelessly bound to the predatory instincts of the food chain, we are still human. And it is by virtue of our humanity that we have a different, more effective means of dealing with hardship which includes but goes beyond rational answers, hard logic, and instinct. We also have empathy, compassion, generosity, and each other. Maybe the unfortunate reality is that those words sound like a cliché, but I think we know now, perhaps better than we did three months ago, that those words stand for deep truths.
What I mean is, the hard things are still real. The stock market being up big lately and mortgage rates at historic lows won’t make those hard things come untrue. And at the same time, we have an incredible opportunity to come together as a community by being more intentional with our phone calls, more aware of our neighbors, more generous with our surplus, more honest about our needs, and more open to simpler living.
We at Beacon are so grateful for the community that surrounds us and for the opportunity to work hard on your behalf. Stay safe, stay sane, and please let us know if there is anything we can help you with.