Markets recovered somewhat during the 2nd quarter of 2020 - but generated an ever larger split between mega cap technology names and everything else. Social unrest and surging Coronavirus cases in many states also scared investors out of many "recovery" stocks which are still down significantly.
Investing in Uncertain Times
The recent political and world health chaos is unlike anything I have lived through. Anger, frustration and fear are common responses to what many of both sides of the political isles see as bad public policy decisions and political pandering by those with opposing views These emotions boil over in daily broadcast radio and television and worse – in mean and highly personal private spats on social media.
This kind of turmoil breeds uncertainty. The storm clouds have gathered and are dark and ominous. Of course, investors prefer blue skies…
Wall Street has developed many aphorisms over the last 100+ years that I have learned to respect over my mere twenty-five years in the industry as sound advice. “don’t fight the Fed”, “don’t try to catch a falling knife”, “markets can remain irrational longer than you can remain solvent”, and the one that is most germane to our current circumstances: “stocks climb a wall of worry”.
Over the course of my career I have observed that most of the time there are plenty of storm clouds - but recall feeling like there were blue skies ahead only once. It was in early 2000 – just after coming through the Y2K scare. The economy was very strong. Interest rates were low and there were few economic or geo-political concerns on the horizon. What happened next? The tech heavy NASDAQ declined 78% over the next 2+ years and is only now double what it was over 20 years ago. The S&P 500’s decline from early 2000 highs was not permanently put in the rear-view mirror until the fall of 2012 – making the intervening time the “lost decade” for stocks.
Bottom line: It’s NOT a good idea to invest based on how clear or stormy the skies appear – economic and political worries are NOT an indicator of whether it is a “good time” to invest…
Why is that? Part of the answer is that the financial markets “discount” or factor in future expectations into prices of stocks. The rosier the future expectations – the higher the prices of stocks and the less room for any disappointments. The other side of this is that low expectations mean that there is more money on the sidelines waiting for a “better time” to invest and also the higher likelihood that the future is better than expectations – and hence provide a boost to current low prices.
In the words of another aphorism:
"Bull markets are born on pessimism,
grow on skepticism, mature on
optimism, and die of euphoria"
My suggestion born of 100 years of investment history is: invest! Don’t try to time your investing based on external factors. Be more cautious when markets have gone up a lot and be more greedy when markets or asset classes have taken a recent beating. Invest based on your circumstances – put available, long term money which you won’t need for an extended period of time to work and don’t expect to be glad you did it for a long time.