“The intelligent investor is a realist who sells to optimists and buys from pessimists.”
— Benjamin Graham, British-born American economist, professor and investor
Before we talk about the economy, the markets, COVID-19 pandemic, or economic inequality, we would like to review with you our general principles for helping you reach your most cherished financial goals and objectives. We believe all enduring, successful investing is essentially goal-focused and planning-driven. We also believe all failed investing is market-focused and event-driven.
Stated another way: every truly successful investor we’ve ever known was executing continuously on a long-term plan. Every failed investor we’ve known continually reacted to sudden and terrifying, yet temporary, market shocks with fear and negative thinking. Thus we’ve found that long-term investing success is marginally a function of the economy and the markets. Rather, long-term investing is a direct function of how the investor reacts—or, more properly, how he or she refuses to react.
We want you to be long-term, goal-focused equity investors, acting on your plan with patience and discipline. A small part of what we do for you is to help craft that plan. The much larger part is helping you to keep the faith in stressful times like these. We continue to believe that no one can forecast, much less time, the equity markets. The only certain way of capturing equities’ superior long-term returns is to sit through their occasionally steep but historically temporary declines.
Half way through 2020, infection rates from the COVID-19 pandemic remain high. In some areas, the economy is slowly reopening. As it continues to reopen, there will inevitably be some flare-ups in new infections. The interaction between the pandemic and the economy in the short to intermediate term is therefore impossible to forecast, as is the timing of a vaccine.
It is also not possible to forecast the near-term course of corporate earnings or dividends, as they—like the economy they reflect—are still largely hostage to the pandemic. That said, the June 30 yield on the 10-year U.S. Treasury note was about two-thirds of one percent (0.65%). We infer from the current state of interest rates that though it is impossible to forecast equity earnings, dividends and prices, few if any of our clients can continue to advance toward the achievement of their long-term financial goals in only bonds, at anything close to today’s yields. This is just another reason why we’ve advised you to stay the course in equities.
It should also be noted that even if the pandemic continues to subside and the economy to recover, investors will still have to deal with what may be the most widespread civil unrest in our country in decades, and what promises to be a bitterly partisan presidential election cycle. Emotions seem likely to continue to run high, with unpredictable short-term market consequences.
We hope this summary will convince you of the sheer unknowability of the short- to intermediate-term economic and market outlook. And we also remind you that not one of you is investing for the next one to four calendar quarters. We say again: you are long-term, goal-focused, planning-driven, patient, disciplined investors. Our focus is on history rather than headlines, and our mantra is from Churchill: “The farther back you can look, the farther forward you are likely to see.”
Finally, we would urge you to think back to January 1 of this year. Have your most cherished lifetime financial goals changed since then? If not, we see no compelling reason to change your plan—and no reason at all to change your portfolio. As we’ve said before, be of good cheer. This too shall pass. Optimism remains, to us, the only long-term realism.