By Joe Halwax
Managing Director, Institutional Investment Services
March 11, 2021
Legendary investor Carl Icahn once said, “Don’t confuse luck with skill when judging others, and especially when judging yourself.”
Last week, I was in an airport for the first time in a year, feeling lucky and blessed. The last time I was on a plane was a year ago, for the same annual reunion with college friends of 30+ years.
As we arrived for that trip – on March 4, 2020 – the world was already beginning to shut down. Real uncertainty and fear were setting in on our daily lives. Many in the group had to jump on emergency work calls to discuss their office moving to virtual, and corporate travel was being put on hold indefinitely.
The equity markets were volatile – the S&P 500 had dropped 20% in roughly three weeks, and the U.S. Treasury 10-year yield was falling sharply. Investors were “de-risking” amid real concern that COVID-19 would cause a crippling blow to economic activity in the United States.
And it did.
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. Just five days later, the Wespath office closed to nearly all staff. In a matter of weeks, people were hoarding toilet paper and supermarkets were struggling to keep the shelves stocked – remember that?!
There are a lot of things to reflect on from the past year, but today I want to focus on investment psychology and share some personal, optimistic thoughts as we move deeper into 2021.
In the immediate wake of COVID, we saw major equity indexes post record-low quarterly performance. The VIX, an index measuring equity volatility, hit a high of 82.69, while the 10-year yield hit an unfathomable low of 0.37%. Oil futures traded at negative $40 at one point. If I had told you this in January 2020, you would have likely asked your investment manager to move your portfolio to an extreme defensive position – perhaps even all cash.
Had you taken such defensive posturing, you would have indeed avoided the darkest moment for financial markets since the Global Financial Crisis of 2008 and 2009. However, one year out, we know markets recovered quickly from this volatility – those who moved to the sidelines during the downturn likely missed some of the market’s strongest rebound stretches to date.
But let’s be honest, very few people expected the “V shaped” recovery that we saw. I can understand why some investors de-risked. It was a novel crisis, after all. It is very rare and extremely difficult for investors – and human beings in general – to control emotions in uncertain times.
In a crisis, discipline matters.
Predicting any market crash is virtually impossible, and predicting the recovery is equally difficult. This is where a long-term, disciplined approach to investing is especially valuable. At Wespath, this long-term approach is in our DNA and described in our Investment Beliefs.
So here we now are in 2021, still working from home and following CDC guidelines, but facing what we all hope is the beginning of the end of the COVID era. I am an optimist, and specific to “life after COVID” or the post-COVID “new normal,” I believe we will see resiliency and the power of the human spirit – just as we have many other times in history.
For instance, while the vast majority of COVID-related changes to daily life were negative – isolation from friends and family sticks out for me – there were some positive outcomes. For many of us with office-based jobs, remote work has been a successful endeavor, creating more flexibility for employees and less time spent commuting. We have significantly improved our skills in remote communication, making client communication more efficient. I am excited to see how we might create new in-office and hybrid experiences as folks begin returning to offices later this year.
I think we have also learned a lot about ourselves. Speaking personally, I discovered a greater appreciation for spending time outside and with friends and family. I look forward to balancing the lessons of COVID with pre-pandemic life and approaching my personal and professional relationships with renewed energy.
There is light at the end of the tunnel.
At the start of this blog, I mentioned feeling lucky and blessed to still have an annual pilgrimage with friends of 30+ years. Our recent reunions overlapped with the beginning of COVID – and now, hopefully, it’s the beginning of a new era. In thinking about my recent trip, I saw people visiting friends and traveling with family again. I saw lives slowly returning to normal. I saw resilience all around me, and it supports my optimism for the years ahead.
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