November 20, 2020

The Virus through our Investment Lenses

Our Specific Experience

In early 2020 we had a unique traumatic experience not seen for over a century : the deadly pandemic of COVID 19. Society, life, the economy and financial markets were shocked. Real pain and fear ruled supreme.

A) The stock market reflecting developments as well as hopes and fears of the economy and the business sector experienced its most abrupt correction in history.

B) Sailing against those kinds winds and waves was extremely difficult. We had to retain our composure while being terrified at the same time. The news in the press and on TV were very bleak. Respected money managers, self proclaimed gurus and the bearish TV darlings were monopolizing the negative news. We were receiving calls from terrified clients willing to sell.

C) We were happy to belong to the small contrarian bullish minority. We believed in the ability of the human race to overcome adversity. We appreciated the tremendous monetary and fiscal packages that were implemented relatively fast. We advocated to stay invested in the market, possibly buy it and to focus on technology. The stay at home trade triumphed as the structure of the economy changed and markets fully recovered.

D) Full recovery is a sweet feeling. Life evolves. However, if the vaccine and the election results create great bullishness and euphoria we will be ready to take a more cautious stance. We respect the wisdom of the crowd but can move against it. Just tactically, at the margin. Not with abrupt,  excessive moves since the market is an excellent discounting mechanism. Not many dollar bills or bananas to step on and fall are left on the road !

E) Let’s remember the tremendous equity risk premium. Stocks vastly outperform treasury bills. Economists are puzzled about its magnitude. We are are convinced more than ever that along with some other factors the fear of losing explain the over performance of stocks.Loss aversion is stronger than psychologists and economists calculate. Speculators and most Investors hate those butterflies in the stomach. This fact allows the brave, systematic and  studious to take advantage and double their equity portfolio over cash about every twelve years.

November 2020

N. Ritsonis

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