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2020: Lessons Learned as Investors

2020: The Year in Review

Every January, it’s customary to look back at the year that was.  What were the highlights?  What were the lowlights?  What events will we always remember?  Most importantly, what did we learn? 

Here’s the problem, though: How in the world do you recap a year like 2020?  You could write a book about March alone.  So, we thought for a long while about everything that happened last year and while much has been written and discussed how it was a year to forget; we decided to focus on three important lessons that we as investors can learn from 2020.

The first lesson has to do with:

The Markets.  When word began leaking out about a new viral epidemic in China, the markets didn’t really know how to react.  Would this go away in a few weeks and be nothing more than a footnote in history?   Would it be like the SARS epidemic of 2002 – terrible, but largely restricted to China?  Would it progress into a full-blown pandemic?  Obviously, we know the answer now, but we didn’t back then.

There’s a well known saying about collapses and crashes: They happen slowly, then all at once.  That’s sort of what the markets experienced in those turbulent few months between January and April.  There was some volatility near the end of January, but nothing major.  Toward the end of February, as the virus began affecting global supply chains, the volatility got worse. However, for all the bad days in the markets, there were plenty of good days, too.  

Then came March.  As the virus spread to our shores, as the World Health Organization declared a pandemic, as local governments instituted lockdowns and other restrictions, investors realized several things: 

  • Lots of people were going to get sick, and some would die. 
  • Many would lose their jobs.
  • The economy was going to fall into a recession. 

With startling speed, what had been happening slowly, suddenly, seemed to happen all at once: The markets crashed.  From February 19th to March 23rd, the S&P 500 fell almost 35%.1  On more than one occasion, trading at the New York Stock Exchange was automatically halted because prices were plummeting so quickly.  For most investors, it was like nothing they’d ever experienced before.  Understandably, fear was rampant, but not, we’re grateful to say, at EnRich.

When speaking on the phone with our clients, we did our best to emphasize a very important point: While COVID-19 was new and scary, what the markets were doing was old and familiar.  It’s a classic tale: Something unexpected happens, and the markets panic.  We saw it in 2008 during the financial crisis.  We saw it in 2001 after September 11.  We saw it in 2000 after the dot-com bubble burst.  The cause is always different, but the effect is always the same.  

When 2020 began, no one could have predicted the pandemic.  However, something, sometime, would bring the markets down – that was inevitable.   That’s why we had already factored that inevitability into our strategy and prepared for how to handle it. 

We also knew that, historically, epidemics tend to cause sharp downturns followed by equally sharp recoveries.2  Thus, our message to clients was simple: All that market madness didn’t mean we should deviate from our existing strategy.   Quite the contrary.  It meant we should hew to it more closely than ever. 

Well, you remember what happened next: The markets recovered, and quickly.  Between March 23rd and April 14th, the S&P 500 rose 27%.1   Before much longer, the markets had regained almost everything they had lost.  And while there were further spasms of volatility later in the year, by the end of 2020, the markets had risen to new highs.  

That’s why Lesson #1 is simple: 

1. No matter what the markets are doing, nothing should ever make us choose panic over our strategy. 

To understand the second lesson, let’s first understand something about:

The Economy.  As we moved into the summer, many clients asked the same questions: “The markets are up, but the economy is still very, very down.  Why is that?  Should we consider getting out of the markets again?”

It’s a terrific question.  Here is the answer: The markets and the economy are not the same thing.  They’re related, but different – and they don’t always move in concert with one another.  The economy moves based on activity, like production, consumption, and trade.  The markets, on the other hand, move largely on anticipation.  When investors expect something will happen, they make decisions based on that expectation.  So, when the markets plummeted in February and March, it was based on the expectation that unemployment would rise, consumer spending would fall, and the economy would contract.  

All those things happened, but here’s the thing: Once they happened, they were already “priced in” to the markets.  So, in April, May, and beyond, the markets were no longer reacting to the idea of a recession.  We were already in a recession.  Instead, they were reacting to what analysts anticipated would happen in the future: An economic recovery.  Specifically, that government stimulus would help, more government stimulus would arrive, and the pandemic would end.  Some of those things happened, and some didn’t, but as always, the markets were moving ahead of the economy.  

All most people saw, though, was a series of unrelenting negative headlines.  That’s why many investors ended up sitting on the sidelines as the markets rebounded.   After all, no one buys sunscreen when it’s raining.  Sadly, too many investors missed out, just as they often do whenever the news seems bleak.   (The opposite, of course, is also true: Too many people rush to invest just because the news is good, even if what they’re buying doesn’t make sense.)  The problem was repeated in the fall when too many investors made decisions because on who won the election, or who lost, even as the markets continued to climb. 

You can probably guess Lesson #2:

2. The markets and the economy are not the same.  That’s one of many reasons we should never make investment decisions based on headlines!

Finally, let’s talk a little bit about the most important thing that happened in 2020.  We’re referring, of course, to:

The Coronavirus.  The next few paragraphs are not coming from us as financial advisors.   They’re coming from us as people.   There’s no getting around it: 2020 was a hard year.  Everyone suffered in some way.  Some people suffered because they lost their jobs, saw their pay reduced, or their hours cut back.  Others suffered because they felt isolated or lonely.  And of course, so many people suffered due to the virus itself – either because they were sick or because someone they loved was. 

This pandemic has tested our collective spirit, our resolve in so many ways, and while we sincerely believe there is a light at the end of the tunnel, 2021 will come with its own challenges.  There’s a final lesson that 2020 taught us, though, and it will get us through the months ahead. 

3. There is nothing we can’t adapt to.  There is nothing we can’t overcome.  There is nothing we can’t do. 

That’s what 2020 taught us: That we are stronger than we knew.  The universe threw a pandemic, a market crash, a recession, and an hotly contested election at us in 2020, and we got through it.  Maybe the year left scars, but it also left us stronger.  So whatever 2021 hurls our way, we can take it.  Economic uncertainty?  Seen it, dealt with it.  Market volatility?  Been there, done that.  We’re not saying it will be easy.  But doable?   You bet. 

As we progress further into the New Year, we hope you will remember these lessons.  It may sound corny, but we earnestly hope you keep them in your heart.   They will help you weather the trials to come.  They will help you work toward your financial goals.  

To our clients, colleagues, family, and friends: Happy New Year!  Let’s make it a great one!

 1 “S&P 500 Historical Prices,” The Wall Street Journal, https://www.wsj.com/market-data/quotes/index/SPX/historical-prices

2 “How the market has performed during past viral outbreaks,” MarketWatch, https://www.marketwatch.com/story/heres-how-the-stock-market-has-performed-during-past-viral-outbreaks-as-chinas-coronavirus-spreads-2020-01-22

 Investment Advisory Services offered through EnRich Financial Partners LLC, a Registered Investment Advisor.

 This material may contain forward or backward-looking statements regarding intent, beliefs regarding current or past expectations.  Such forward-looking statements are not a guarantee of future performance, involve risks and uncertainties, and actual results may differ materially from those statements as a result of various factors.  The views expressed are also subject to change based on market and other conditions.  Furthermore, the opinions expressed do not constitute specific investment advice or recommendations by EnRich Financial Partners.

 Past performance is not a guarantee of future results.  Performance shown is for portfolios comprised of Indexes and includes the reinvestment of dividends and other earnings but does not reflect the deduction of investment advisory fees or other expenses.  One cannot invest in an index directly.  This content is provided for informational purposes and is not to be construed as specific investment advice. 

 The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value-weighted index. The Russell 2000 Index measures the total return of small capitalization U.S. stocks and is a market value-weighted index of the 2,000 smallest stocks in the broad-market Russell Index. The MSCI EAFE is a Morgan Stanley Capital International Index designed to measure the total return of the developed stock markets in Europe, Australasia, and the Far East. The MSCI EM is a Morgan Stanley Capital International Index designed to measure equity performance in global emerging markets.  The S&P 500, Russell 2000, EAFE, and EM are unmanaged indexes.  One cannot invest directly in an index.  Past performance does not guarantee future results.