I’m sure that most of us will be glad to see the end of 2020. It has been extremely challenging on many fronts. We started out with bushfires, smoke and then when COVID hit, we all closed our offices, took our laptops, went home and bought pasta and loo paper.
Crazy stuff…and it didn’t stop there.
We had a Conservative Liberal (remember the debt and deficit disaster) government deciding that it was actually a good idea to spend money like a drunken sailor and dwarf the spending that took place in the GFC.
Interest rates went to practically zero, loans repayments on housing were put on hold and banks stopped paying dividends. Businesses received ‘prop up’ money and some even had staff salaries being paid by the government (Jobkeeper). The markets fell over 30% in March and April and then we had the biggest monthly gain for over 30 years in November! The irony of all this volatility was that if you looked at your investment balance in December 2019 and then had a quiet lie down for 12 months and didn’t look again until now, nothing would have changed. The balances would be about the same.
So whilst more than 300,000 people have died in the US and even though the UK and much of Europe and Asia are a mess, the markets are back at or higher than ‘pre-COVID ‘levels. A fair question is ‘how is this possible?’
It does reinforce that business valuations and markets don’t always follow completely logical and rational reasoning. There can be a disconnect and this can last for years. There is a famous quote from Maynard Keynes (the Warren Buffet of his time) who said, “Markets can remain irrational longer than you can remain solvent”. This means even if you were able to correctly predict the market over time, you may go broke in the meantime.
In other words, you may be right about the risks or issues, but it is more important what OTHER people think.
So, it’s OK to take ‘tilts’ (increases or decreases in one sector) but it is extremely courageous (some might say dangerous) to try to time markets completely. Investment professionals don’t do it. You can be lucky sometimes, but you actually need to be lucky both on the way out AND on the way in.
To add to the craziness of the year, financial planning businesses are still dealing with the fallout from the Royal Commission (thanks banks!) resulting in increased compliance and skyrocketing costs. Against this background, the Government has introduced new qualification requirements instead of just adopting the existing recognised ones. So far, only 25% of advisers have left, but many more are expected to depart the industry in 2021. This is increasing the demand of advisers who are left standing.
The good news is we’re still here!
Here’s to 2021!