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The Long Haul
The market has been remarkably correlated with Covid case counts and other “health” developments (i.e. news of vaccines, treatments, etc.) thus far in the crisis. Investors are focused on the “get back to work” story, and not so much on the potential, longer-term implications such as structurally higher unemployment, corporate defaults, and general declines in consumer demand. A rapid recovery in fundamentals is not our base case. There is nuance, as always, in the form of Central Banks around the world deploying a wall of money, and expectations of an unprecedented low interest rate environment boosting asset prices.
We continue to believe individuals should be active long-term participants in these markets, albeit with a defensive stance. Volatility is creating substantial opportunity over the long-term in certain segments of the market, though depressed prices have been masked by the broad index rally thus far.
Yes we know, a list. Trust us and give this one from Kevin Kelly a read. Kevin is the founding executive editor of Wired magazine, and he published this great piece on his 68th birthday. A few of our favourites:
Being enthusiastic is worth 25 IQ points
Don’t be the best. Be the only
Show up. Keep showing up. Somebody successful said: 99% of success is just showing up
When you die you take absolutely nothing with you except your reputation
Over the long term, the future is decided by optimists. To be an optimist you don’t have to ignore all the many problems we create; you just have to imagine improving our capacity to solve problems
Iger is among a small group of thoughtful CEOs where just to their thought processes can be very helpful. His recent autobiography is well worth a read, but this chat sums up a lot of the highlights. In speaking of Disney’s brand and historical aura:
If we revere something, we might as well put it in a glass case…I had to really attack that”
We don’t necessarily subscribe to this view, but reading different opinions is helpful in navigating an unprecedented time. The piece argues that the things we are all hearing will vanish or will be greatly diminished post COVID-19, such as business travel, higher education, etc. will come back in force. The reality is that the answer will almost certainly lie somewhere in the middle.
“If you think that when all of this is done we’re not jumping right back into the race, I have a bridge to sell you. The one-year viral reprieve is going to make it especially clear what we were paying for all that time. Also, it doesn’t matter if you disagree with this; as long as at least some of your competitors feel otherwise, you’ll be forced to go along anyway."
A piece which reinforces some of the market commentary above. It sometimes appears that the stock market is designed to make the greatest number of people lose the most amount of money. Remember that the stock market looks years into the future. Sometimes its predictions are correct, and sometimes they are not.
“In 1982, the unemployment rate started high and finished higher. It entered the year at 8.6% and concluded at 10.8%, its steepest level since the Great Depression. That was the first time that I had paid attention to employment statistics, because I was approaching my college graduation, and I must confess I was worried.
To my surprise, stocks surged in 1982. The S&P 500 gained 21.6% on the year, well above its average. That made no sense to me. Not only was unemployment rising, but seasonally adjusted gross domestic product fell during every quarter of 1982.”
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