The Lessons of 2020
After managing money for 30-plus years, I thought I had seen it all. I managed investments through the 1987 Crash, the 1998 Asian Crisis, the 2000 Tech Crash and the 2008 Financial Panic.
Each of those huge bear markets came with their own set of unique circumstances. For the most part, those bear markets seemed driven by a combination of valuation extremes and panic. In retrospect, they were caused by market fundamentals.
2020 felt different.
We came into 2020 with an economy that was extremely strong in almost all categories. From an investment standpoint, it was going to be a very good year.
Then came Covid-19. Within a month of the start of the pandemic, the S&P 500 lost nearly 34%. Almost every media source I follow proclaimed it was the end of the world. Some even went as far as to guarantee this was the beginning of a depression — perhaps even equal to 1929.
As a general rule, I discount most of what I see in the press.
Historically, whatever the press puts out is negatively exaggerated. When you understand the media business model, it makes perfect sense they would distort a lot of what they report. They need people to pay attention to what they are saying so they can sell advertising. The higher their viewer rating, the more they can sell their advertising for. They don’t get viewers by talking about everyday life; they get viewers by exaggerating it. It’s been their business model for as long as I can remember.
Over the past few years, the model of the press that simply exaggerates to increase ratings has, in my view, morphed into a press that is actively attempting to manipulate public opinion. They simply put a spotlight on something relatively small to make it seem like “everyone” thinks that way. Conversely, they ignore things they don’t want anyone to pay attention to. They create their own reality, which affects everyone who consumes their media.
Thought manipulation has always been most obvious with the national press.
They have an owner, and that ownership group has an agenda they are pushing. Local press always seemed more independent and dialed into the local population. But with local newspaper circulation dying, most of their staffs have been let go. And with a lack of local reporters, most of what we see in our local press is just regurgitated from the national news services.
Follow the money, and you will see that most of the ownership of the national press is tied together, pushing the same storylines. Over my career, I have never seen such groupthink and lack of intellectual curiosity. It makes you wonder what is happening to the “freedom of the press.”
So what does this have to do with investing?
Exaggerated information can destroy you when it comes to investing. Media forecasts usually do more harm than good. During the March meltdown, every single person I saw on CNBC claimed, almost with religious fervor, that this would NOT be a V-shaped recovery. In retrospect, their predictions were completely wrong. If you followed their advice, you lost a lot of money.
The amazing thing is that those pundits and forecasters are all still there. They are still full of advice. They still have zero accountability. It is amazing how they can do this year after year — and even more amazing is that people continue to listen to them.
To successfully invest you must sift through facts and fiction. You must invest based on reality. In our case, we build quantitative models that eliminate much of the noise and opinions and distill the market down to the numbers of what is actually happening. Then we follow those numbers.
Opposite to what the media proclaimed, the major market indexes reversed course right after their initial 30-day plunge. On the year, the Dow Industrials gained 9.6% and the S&P 500 was up 18.4%. What had been “the end of the world situation” turned out just fine. I never heard any retractions from the media.
At Paragon, we were rewarded by ignoring the media, following our models, and using an active strategy. Managed Income Portfolio did its job and held stable, gaining 2.18% for the year. Top Flight Portfolio gained 34%. Fundamental 20 Portfolio gained 16.8%. And Fast Movers Portfolio gained a blistering 138.4%. In Nate’s article, he goes into more detail about our portfolios, along with the required disclaimers. Overall, Paragon provided our clients with outstanding investment performance in 2020.
FOCUS GOING FORWARD
From an investment standpoint, what can you control?
The level of risk you are willing to take — are you taking too little or too much? Whether or not you have a solid investment plan in place. Are you are sticking to your budget. Do you have an estate plan put together? Are you giving compound interest time to work for you? Are you on track with where you want to be financially? Do you have a good investment strategy?
My next thought is not purely investment related. With a new year, It is more about quality of life. In the big picture, quality of life is the most important thing our clients seek.
What you FOCUS on directly affects your quality of life-for better or for worse. Just like with investing, the MEDIA can directly affect your life personally.
My recommendation is to “Live Your Life” Focused on what you can impact and control. Do not live your life based on what the MEDIA tells you is important.
What affects your life but is completely out of your control?
What is said on television. Social Media comments. The daily movement of the financial markets. Politics. People who disagree with you. The weather. Random bad things that happen to good people. Taxes. Whether or not you get sick. When you die.
HAPPINESS is derived by focusing on what you have control over. Spend your time there.
Your plans, dreams and goals. Your relationships. Your experiences. Whether or not you choose to be offended. Your faith. Whether or not you choose to have a good day. “Seeing” the beautiful world around you rather than the problems of life. Living in the present. Focusing on gratitude. Focusing on giving to causes where you can make a difference. Having a victor rather than a victim mentality. “Reacting” positively to the challenges that come into your life. Maintaining a positive attitude and outlook.
My advice for 2021:
- IGNORE the MEDIA.
- FOCUS on the positive things in life.
- REMEMBER, most people are fundamentally good. Spend your time with good people.