2020 Q2 Newsletter“Attitude is more important than facts.” —Charles Swindoll
Here is one interpretation of the first half of the year:
The first six months of 2020 saw the advent of the worst global public health crisis since the 1918 influenza pandemic. In response, the world locked down, driving the global economy into a medically induced coma. Here in the US, the immediate effects were a savage and nearly instantaneous economic recession, record unemployment, and the fastest, deepest collapse in stock prices in living memory, if not ever. As the country attempts to reopen, reported cases of the virus are inevitably trending upward, and the development of a vaccine remains uncertain. We are also experiencing the most widespread civil unrest since the 1960s as we enter into what will surely be one of the most bitter and bipartisan election cycles on record. Faced with such economic, political, and societal uncertainty, corporate executives are not only unwilling, but unable to provide earnings guidance for the third and fourth quarters.
Investors are understandably cautious and flocking to safety, as evidenced by Fidelity Investments’ report that one-third of its customers older than 65 sold all their equity holdings between February 14 and May 20. Money market fund assets have now surpassed $4.8 trillion for the first time in history, surging past the prior record set during the Great Recession.
However, here is mine:
After surging nearly 30% during 2019, global equities took a much-needed breather and closed the first half of 2020 about 10% lower. In the interim, a global pandemic offered disciplined investors a rare and welcome opportunity to accumulate shares of the World’s Best Companies (particularly small, value, and international ones) at prices we may never see again during our lifetimes. Those seeking income to fund dignified two-, three-, or four-decade retirements are currently enjoying tax-efficient dividend yields that dwarf the paltry, permanently fixed 0.64% taxable income interest rate offered by 10-year US Treasury bonds.
While both interpretations are factually correct, every truly successful investor I have ever known has chosen to embrace optimism, even during the bleakest of times. The unprecedented and unpredictable events of 2020 have done nothing but reinforce my long-held belief that neither the economy nor the equity markets can be consistently forecast, much less timed. So rather than succumb to Doom and Gloom, we long-term, goal-focused Spartans make investment decisions with confidence, patience, and discipline within the context of our financial plans — especially during occasionally steep, but ultimately temporary declines. After all, achieving financial independence is much less a function of the economy and the markets than it is of our attitude and behavior.
Senior Portfolio Manager
Disciplined Equity Management
Plan Appropriately, Invest Intelligently, Diversify Broadly, Ignore the Noise