The recent great crisis reminded us of certain truths and lessons.
A) Do not bet against the human race.
Progress of humans in science has been tremendous.
Anything humans undertake together can be achieved.
It is no surprise that the vaccine, tests and drugs are on the right tracks.
It is true that wars, political and social accidents have taken place for extended periods. However, the recent experience did not belong to these cases.
B) Do not bet against the USA.
As Churchill said, ‘it will eventually do the right thing’.
For business the US is the king/queen. Not necessarily for life style, cafes, discussions on existentialism and socialism or vacations.
Europe is not so friendly for business. Emerging markets are promising but still emerging. Relative Stock performance reflects these facts.
C) Optimists eventually triumph.
‘Park Avenue apartments belong to optimists’. Voltaire type misfortunes can happen but we should fight in a clever way and never give up.
D) ‘Do not fight the FED’ , ‘The FED writes the market letter’
To this old Wall Street wisdom we should add to fight even less when the FED, ECB and other central bank act together. If, in addition, Fiscal policy is on their side then ….just join them ! These institutions came with huge ammunition in spring 2020. We had to be on their side !
E) Government intervention in extreme disequilibrium conditions in production is not necessarily inflationary. Let’s have another look on Keynes.
F) Disequilibria in the economy and the stock market are possible and not uncommon. In markets, liquidity will allow the investor to keep positions. During corrections try to add rather than to reduce positions. The market is not a hotel : we will enjoy later when we feel uncomfortable at our purchases !
G) The alphabet has many capital letters depicting economic and market activity. Letter V should have not been dismissed so easily by most commentators.
H) ‘Regression to the mean’ rules in biology but also in life, economics and finance. The harder and faster prices fall due to external shocks and technical characteristics the stronger they recover.
I) Market speculators selling during panics will be deprived of stocks during recoveries. Have never seen panic sellers buying more lower ! If you do not own stocks at the bottom you will not own them at the top.
J) USA Market tops keep appearing at higher levels.
Have witnessed the DJ 15 times higher (!!!) since the mid to late eighties. Europe is struggling with the late century and 2007 tops. Greece as well. Japan with the late eighties top….Ride the correct market wave for business. Do not keep digging arid land !
K) ‘Do not try to time the market’,
‘The graveyard of speculators/investors is full of market timers’
Market timing is a fun game. In addition it is good for brokers.
However, try only marginal, not radical portfolio changes. Against the mood of the consensus. ‘Be fearful when others are greedy and greedy when others are fearful ‘
L) Great pros are not market timers, amateurs are.
We wish we could time the market but we cannot do it consistently.
As Newton said when he tried to speculate ‘it is easier to forecast the movements of celestial bodies than the madness of the crowds ‘.
M) Try to surf the large waves of changing patterns in the economy.
The recent new way of life, working from home and the role of technology are good reminders. New themes emerge. We should try to buy them at the right price.
N) ‘Diversification is the last free lunch ‘. Engage professionally into it.
It allows higher expected returns for each level of risk.
O) Long term strategic allocation among assets is key. Short term tactical deviations should not be extensive and important.
Good diversified business creates more wealth than lending. As a result,
Market exposure with well calculated risk and covariance characteristics is amply rewarded.
P) Should have respect for market wisdom and for the 5-6 pct US equity market premium. It is a great gift ! Try to stay invested.! The Stock portfolio will double in value compared to the short term fixed income one every twelve years.
The ideas kept on coming. Apologies for the length !