The 2020 roller coaster continues.  But before we dive into some 3rd quarter thoughts, here’s some helpful information:

The fourth quarter is usually the best performing quarter for equities, being higher 79% of the time and on average, up 3.9%.

-Yahoo Finance, October 1, 2020

In a third-quarter where markets notched a second consecutive quarter of remarkable overall gains, what stock outshone all the others in the S&P 1500 Composite Index?

Zoom? Apple? Netflix? Nope, none of these, or any of the other trendy FANMAG stocks (Facebook, Amazon, Netflix, Microsoft, Apple and Google’s parent company Alphabet). Not Tesla, either.

It was Tupperware, up a jaw-dropping 345% for the quarter.

“Of course,” you might reason. “Everyone’s cooking at home this year. That makes sense.”

But consider this: Tupperware’s remarkable quarter ramped up most dramatically in late August, after steep, double-digit declines in each of the three previous quarters.

So, feel free to collect more of those sturdy little lid-burping containers, but remember:  Trying to load up on the market’s next big hit based on recent returns is more likely to detract from than contribute to achieving your personal financial goals.

That’s because future returns don’t hinge on what has just happened, or even on what is expected to happen next. Rather, as Dimensional Fund Advisors explains, prices change when the unexpected occurs:

 “For most investments and most investment horizons—a month, a year, five years, even ten years—the realized return is driven far more by the unexpected return than the expected return.”

This applies to surprises like Tupperware, as well as to the supposedly unstoppable FAANG darlings of our day.

In fact, the more popular a big growth-oriented company becomes, the harder it often is for it to keep exceeding everyone’s sky-high expectations. To continue outperforming its popular benchmark, it must continue to deliver bigger, better, ever more pleasant surprises. Eventually a fresh competitor steps into the ring, and the cycle begins anew.

Overall, this is how markets grow, even as the individual players come and go.

Have you ever noticed how the hotshots in your favorite action-adventure shows rarely need to defend against more than one or two challengers at a time? Even when our champion is way outnumbered, the individual attacks arrive in implausibly orderly fashion. Otherwise, our heroes wouldn’t stand a fighting chance.

Pundits often suggest markets are subject to an equally implausible universe, where there’s always an orderly set of reasons for why “X” is about to soar, or “Y” is about to fall. In real-life markets, that’s just not how it works. Everything happens all at once, all the time: 

•         Who is going to be the next U.S. president?
•         When will a COVID-19 vaccine be available?
•         How is Brexit really going to roll out?
•         What are China’s next moves?
•         Are we going to address climate change?
•         How much longer will the FAANGs keep growing larger than life?
•         What other big news is about to hit that we haven’t even seen coming?

In short, investors don’t stand a chance at guessing when and from where the market’s next helping hand or painful punch is going arrive. This is why we continue to recommend positioning your retirement portfolio to harness the power of markets’ broad expected outcomes, rather than their never-ending torrent of erratic incidents.

Photo by Sharon McCutcheon on Unsplash

Please Note:  Speak to your tax, legal or financial advisor for specific advice about your particular plans and situation.

2020’s been a heck of a roller coaster, so before we dive into mid-year thoughts, here’s some fun trivia:

Did you know you have to count to 1,000 before you’ll find the letter “a” in a spelled-out number?

We thought you could use that break from the torrent of commentaries on 2020’s bipolar extremes. The general theme has been how quickly global markets sold off and came back – even as economic and sociopolitical headlines continued to stoke bonfires of ongoing upheaval.

And the year is only half over.

We’ve seen comparisons to Rip Van Winkle, who could have slept through the extraordinary turmoil and awakened in June with only minor changes to his 60/40 stock/bond portfolio. 

We’re also seeing predictions that 60/40 portfolios have entered into a lost decade of paltry performance.

Still other forecasters (perhaps to cover all grounds) suggest we’re in a time with “equal reasons for caution and optimism.”  No kidding.

As usual, everyone has something to say.

So, what’s it going to be for the rest of 2020? As always, with respect to your investments, let’s not make any assumptions or firm expectations as an encore through year-end. Instead, let’s agree with Jason Zweig, who wrote in his recent “Intelligent Investor” e-newsletter:

“The first half of 2020 should remind us that investing isn’t about conquering markets; it’s about mastering ourselves.”

In this context, perhaps our trivial pursuit is not so disconnected after all. We know markets are highly likely to deliver inflation-busting returns to those who can patiently “count to a thousand” while riding out the inevitable downturns. We also know investment “success” can take longer than you might think – potentially much longer.

(Clients:  Know this is already factored into your plan.)

Similar to what you might have first guessed about the elusive “a” in our numbering system, the initial assumptions we make about investing are often off-target until we take the time to think them through (or learn from others with relevant experience). As such, we continue to remind you of the evidence on how to persistently participate in markets, lost and found.  We also continue to recommend allocating your wealth appropriately (for you) between the market’s higher-risk, higher-expected-return investments, and the sheltering calm of more stable, but lower-returning holdings.  

(Again, based on your plan, especially if we are creating retirement income for you at this time.)

Have we mastered the right balance for you and your personal financial goals? If not, let’s discuss. In the meantime, let others “conquer” the markets, as you consider these additional words from Zweig:

 “To be an intelligent investor is to recognize that you’re in a lifelong struggle for self-control – an unending effort to keep yourself from yielding to fear or greed, believing that you know what the future holds or letting short-term news knock your long-term plans off track.”

Thanks to Peter Pryharski for sharing their work on Unsplash.

Please Note:  Speak to your tax, legal or financial advisor for specific advice about your particular plans and situation.

​On any given day supposed financial experts could write about the markets, geopolitics, or the economy and use the opportunity to create anxiety so you really feel like you need their advice!  I won’t ever do this because I think its both unethical and morally wrong. Unfortunately, many careers thrive due to this “sewing of anxiety”.

Rather, I’d like to share information from one slide in my investment focused presentation deck that is titled “Focus on What You Can Control” in an effort to show you that doing less when investing, can often result in more.

Focus on What You Can Control highlights the following 5 points related to investing:

• Create an investment plan to fit your needs and tolerance for risk
• Structure portfolios along the dimensions of expected returns
• Practice smart diversification
• Manage expenses, turnover and taxes
• Stay disciplined through market dips and swings

Counter-intuitively, unlike many other endeavors in life, “trying harder” beyond what is outlined above is often counterproductive.

More…

Jim Parker, Vice President @ Dimensional Fund Advisors shares additional thoughts….

The Tao of Managing Your Wealth

The path to success in many areas of life is paved with continual hard work, intense activity, and a day-to-day focus on results. However, for many investors who adopt this approach to managing their wealth, that can be turned upside down.

The Chinese philosophy of Taoism has a phrase for this: “wei wu-wei.” In English, this translates as “do without doing.” It means that in some areas of life, such as investing, greater activity does not necessarily translate into better results.

In Taoism, students are taught to let go of things they cannot control. To use an analogy, when you plant a tree, you choose a sunny spot with good soil and water. Apart from regular pruning, you let the tree grow.

This doesn’t mean that we should always do nothing. In fact, insights from financial science suggest you should direct your investment efforts to the things you can control. These include taking account of your own preferences and sensitivities when choosing investment strategies, diversifying your allocation to moderate the ups and downs, being mindful of the impact of fees, and exercising discipline when emotions threaten to blow you off course.

Successful investing requires taking actions that can have a positive impact on the outcome. For instance, to maintain their desired asset allocation, investors should regularly rebalance their portfolio by reallocating money away from strongly performing assets.

But rebalancing is a disciplined, premeditated activity based on each person’s circumstances. It contrasts with the “busyness” of reflexively following investment trends and chasing past returns promoted through financial media. Look at the person who fitfully watches business TV or who sits up at night researching stock tips. That sort of activity is likely counter-productive and can add cost without any associated benefit. With investing, constantly tinkering with an allocation does not perfectly correlate with success.

Now, while that makes sense, many people struggle to apply those principles because the media tends to look at investing through a different lens, focusing on today’s news, which is already priced in, or on speculating about tomorrow. Guesswork can surely be interesting. But is it relevant to your long-term plan? Probably not.

People caught up in the day-to-day may constantly switch money managers based on past performance, or attempt tactical changes in their allocation, or respond in a knee-jerk way to news events that turn out to be noise.

Again, the assumption underlying these approaches is that if you put more effort into the external factors and adjust your position constantly, you will get better results. Unfortunately, people may end up earning poorer long-term returns from trading too much, chasing past performers, or attempting to time the market. Ultimately, that’s just another reminder of the potential benefits available to disciplined investors who stay focused on what they can control.

As the ancient Chinese proverb says: “By letting it go, it all gets done. The world is won by those who let it go. But when you try and try, the world is beyond the winning.”

Please Note:  Speak to your tax, legal or financial advisor for specific advice about your particular plans and situation.