I’ve been listening to the news too much lately. I can tell because I know a lot more about France’s quarantine measures and the presidential election in Côte d’Ivoire than strictly necessary. More relevant to my workday, I had the impression that the markets were flagellating like a tent in a hurricane all Fall. When I went to analyze the results for the month, though, it doesn’t look nearly so dramatic.
From peak to trough within the month, down 7.5%. But over the course of the month, down 2.8%. And still up 1.2% for the year. Which is impressive considering the tumult in the Spring.
More interesting though is the reasoning behind these market fluctuations. So far as I can tell, traders freaked out when COVID 19 cases increased with the coming of colder weather. Which was something that public health officials had been warning about pretty much all year. It made me think of “Reasons Why Your Toddler Is Crying.”
source: bored panda
To be fair, the increasing certainty that Congress would not pass any further economic stimulus before the election (or possibly even after) also had an impact on the market. Given that we have a consumer-driven economy, it’s reasonable for investors to be worried about high unemployment and under-employment, whole industries teetering, and a federal government unable to bring themselves to keep people fed and housed.
None of this was terribly surprising, though, if one was around and paying attention all summer.
Our markets, and indeed our country broadly, suffers from ‘Short-Termism.” According to the CFA Institute, “Short-termism refers to an excessive focus on short-term results at the expense of long-term interests.” My favorite example of this concept is from maybe a decade ago, when long-term investors were explaining why Amazon’s negative net income was good news. At the time, the company was investing heavily in infrastructure, both distribution centers and its web services. Short-term investors pushed down the company’s stock price each time Amazon announced “high” spending and negative profits for the quarter. Of course it turned out those investments were a great idea, and even before the pandemic made them seem like essential infrastructure, the company was doing extremely well.
What those long-term investors had in common, besides a strong stomach and high confidence in their investment thesis, was an ability to filter out the barrage of noise around them. Not to ignore it, because they couldn’t risk missing some signal amongst the static. But instead, to quickly discard the immaterial points. This is a wonderful skill that can serve us all well in lots of situations. For individual investors, remembering our reasons for investing how we have, our goals and timelines, our immediate cash needs and income sources, can all help us resist the temptation to fall into a news overload rabbit hole. I also highly recommend turning off all news sources and going outside for a bit.
Real estate is an area that has not suffered a slowdown in the pandemic, at least at the national level. Below are two charts showing the S&P/Case-Shiller indices for housing in the US Broadly, 20 US cities together, and each of Cultivating Wealth’s office locations.
The labor market is clearly in the throes of fundamental change. Amazon can’t hire fast enough, restaurant staff are hurting for work, and we continue to need more college-educated science and math-focused professionals than we are producing domestically. Unemployment is a bit tricky to measure – the most broadly reported measure thereof excludes people who are no longer actively hunting for a job. When compared to “U6,” which includes people “Marginally Attached to the Labor Force” as well as underemployed (involuntarily part-time) workers, it offers a more complete if perhaps messier picture.
Change is uncomfortable. Long-term investing involves tolerating temporary discomfort in pursuit of a larger goal. Stay the course, and remember, we are here to help.