Q1 2021 Commentary: Bouncing Along and Bounding Forward

Pine Haven Investment Counsel

Paige Johnson Roth, CFA®

With apologies to Charles Dickens ---

It was the best of times…

            March 2021

It was the worst of times …

            March 2020

What a difference a year makes.

Financial markets have certainly recovered from the doom, gloom, and uncertainty of last March. The markets have rebounded faster than the rest of the economy, which is still struggling to emerge in some areas. Many companies quickly adapted to the stay-at-home orders by switching to work from home mode. We all consumed a lot of Netflix, got used to Zoom meetings, and fortunately, essential services were able to continue. We also overcame shortages of toilet paper, flour, spices, printer toner, and now silicone chips and ketchup. Capitalism proved to be resilient again.

What have we learned in the past year that we can take into the future? Will your favorite local restaurant emerge? What have we learned about ourselves and the people around us? What are you most eager to do?

One thing we can expect is future market dislocations, disruptions, and surprises. The financial industry will spend hours debating the biggest risks to the economy: is it tax hikes, tax cuts, budget deficits, inflation, or money printing? Other “experts” will try to figure out what the next disruption will be or the next hot stock or industry. Only to be surprised by something unexpected.

However, history has shown that we can’t predict the worst downturns (and upturns spurred by innovations), and that is why they prove to be so disruptive. In hindsight, almost every major news story of a particular decade was something that happened that no one was talking about it until it happened: Pearl Harbor, Sputnik, September 11, Housing Bubble/Crash, and COVID-19. As the financial journalist, Morgan Housel said, “History is one damned thing after another. A war ends, a boom follows, then a crash, then an uprising, then a pandemic, a breakthrough, a new boom, a new war. On and on, from agony to awe.” 

Whatever your view of the world was a year ago or three years ago, it is different now. Is this the biggest lesson from COVID-19? Is that change inevitable and unpredictable? Nobel Prize Winner Daniel Kahneman says that when you experience a surprise, the correct takeaway is not to assume that event will happen again; it’s to accept that the world is surprising. And that these surprising items will move the needle more than what we expected to have happened.

On the investment front, this means on focusing on the basics and the importance of three main drivers of success: diversification, reserves, and steadfastness. Diversification is having different asset classes and different sectors in your portfolio reduce the volatility. Appropriate levels of reserves are a vital part of diversification and setting of financial goals. And if diversification and reserves are in place, it will help with remaining steady in times of disruption – in other words, less likely to panic. History has shown it is time in the market – not trying to time the market that leads to successful outcomes.

Slow and steady keeps us all on track.

“All of life is peaks and valleys.  Don’t let the peaks get too high and the valleys too low.” – John Wooden, Hall of Fame Basketball Coach