Now What?

In Rhode Island where I live, we are in the midst of a two-week “pause” which is something just a bit less restrictive than the shutdown of last winter. Much of the country is undergoing their own local versions of this pause. From what I can tell, these times have many of us confronting the edges of our own resilience. Much is required of us emotionally and spiritually as we press on into the dark winter ahead. In my household, we sometimes muse that our two dogs (big, sweet-eyed German Sheppard/Retriever mixes) perceive our dominant moods and mirror ourselves back to us. So how are they acting these days? They’re a mess of neurotic bursts of food lust and high-intensity physicality. But mostly they sleep. If nothing else, they are well-rested. Most mammals know to hibernate when the weather turns bleak. We should probably do our own version of the same.

I don’t mean to minimize the crises of 2020. Rarely, if ever, have we confronted such a collection of nightmares: resurgent global pandemic, economic shutdowns, riots in the streets, contentious elections, colossal federal deficit, divergent income disparity, and the list goes on. These are events of such import and gravitas; it would be negligent to dismiss them or approach them with denial. But as we think about this past year, it might be easy to lose sight of context. I know there are many out there who feel almost overwhelmed with worry, dread, and outrage. We need to rededicate ourselves to practices that will help us stay healthy.

But as investors, we must work to look past our emotions. Emotions distract us and reduce our ability to understand what may actually come to pass in the months and years ahead. Thoughtful investors know to focus on the future. We know to beware and keep guard over our decision-making. Investing is a long-term enterprise: it matters not so much where we are right now, as where we might be in years to come.

As citizens, it is time for us to find some sense of calm and resilience. As investors, it is time to shift our attention from the demands of the moment and back to where it belongs: the long-term.

Boring is Better
When it comes to investing, oftentimes boring is better. The best investors make careful decisions about how to deploy precious resources into a diversity of quality investments. They then hold these investments for long enough to let things play out. Usually, things take time to unfold. Businesses can take years to develop and mature. Likewise, your investments.

Maybe it’s time to remember the magic of compounding. Compounding is a powerful force, which takes years, even decades to have significant impact. If your investments had a good year in 2020, imagine how well you could do if you let your holdings grow for the long-term.
Compounding for two, three decades, and beyond can be transformative. That’s how investors think; that is how investors make money.

Prove this to yourself by calculating how your nest egg might compound with a modest rate of return for say thirty or fifty years. Consistent moderate growth over the course of decades is stunning. And it should also be motivating.

Thinking Long-Term
Another good reason to turn our focus to the long term is that we may well be entering a period of gridlock in Washington DC. Though gridlock might be exasperating for policymakers and activists, the market traditionally likes it. Gridlock can reduce uncertainty and can give everyone time to think, debate, argue, evolve around some very important issues. We face very complex challenges in the years to come, and it may take time to see investment returns become fully realized. Here are some of the challenges worth watching:

• Energy Policy. Millions of jobs and billions of dollars will be affected as we evolve from an extractive petroleum-based economy into something different, renewable, new.
• Immigration. As a nation of immigrants, the opportunities and sins of the large-scale movement of people will be with us always and will certainly continue.
• Middle Class Support/Income Disparity. Much attention is paid to the high and low ends of the income spectrum. This is appropriate and can cause change. Perhaps the biggest challenge lies in the stability of those in the middle. The health of the middle class in the US and worldwide may be the biggest factor impacting all others in our long-term future.
• Climate Change. A hopeful outcome could still happen. Many agencies and corporations are making substantial commitments. But do we have broad enough consensus on the need to act? And if not, what will it take for doubters to have epiphany?
• Trade Policy. Globalism is not dead. But neither is protectionism. The benefits and unintended negative consequences of free vs restrictive trade policies are widely known. And also, easily forgotten by politicians and the voting public. Economists are tasked to remind us about the damage that can be done by over-zealous trade practices of years gone by (remember Smoot Hawley and the damage it wrought in 1930). May we eventually find that policy sweet spot that encourages domestic industry and doesn’t blow up international trade.
• Healthcare Infrastructure. Does anyone think we actually do healthcare the right way in America? In all of the vitriol over Obamacare, have we ever been presented the workable alternative? Apparently, repeal was easier to conceptualize than replace. Call me naïve, but at some point, the politics need to be put aside so we can come up with a viable and pragmatic solution. Think there is middle ground between socialism and chaos? Of course there is.
• Stimulus, Again. Last March/April’s stimulus programs were designed and implemented during a time of near panic. They were necessary but rushed and had very low efficacy. Some sort of stimulus is very likely to be coming. But how, what, and when are very much up in the air right now. This time around, as we confront the pandemic’s second wave, the Fed has pledged to stay all-in. But on the fiscal side, lawmakers appear much more cautious and measured in how they act. Also, it is hard to tell how the regime change in the White House will impact these negotiations.

Careful Media Consumption
If you want to focus on the long-term, you’ll need to find a way to manage or control the news media you consume. News producers want to attract your attention of course, and they do it in ways that often titillate and enrage, rather than inform. You already know this. But it can be challenging to ignore the hype and try to maintain a thoughtful and pragmatic understanding of the important events of the world.

In my view, one unfortunate result of the events of 2020 is that so many of us have become preoccupied with the very short-term. The daily, even hourly developments can become almost an obsession. The news media industry and social media are I think largely to blame. We ought to be deliberate about the way we gather information. For what it’s worth, here’s how I try to gain a decent understanding of what’s actually going on around us:

• No cable news, at all. I feel these outlets, whether conservative or liberal, do more to upset than inform. I think you lose nothing at all in terms of knowledge and understanding if you never again watched a cable or network news program. Say goodbye to their urgent chatter and instead, quietly read.
• Avoid social media. Probably does more to feed/damage your ego than it does to educate or enlighten. Does a well-informed person really need it?
• Delete your news app. Same goodbye goes for the news being presented on news apps. Whatever algorithm they use to select stories doesn’t inform me so much as leaves me vindictive, angry, gloating, etc. News apps are effective at engaging my emotions, and don’t teach me much at all. I felt distinctly more in control after I deleted it.
• Read the work of serious people. Frivolous people rarely write well. Over the years, I’ve found my way to writers and publications that seem to make the effort to be rigorous and intellectually honest.
• Read differing viewpoints, from serious people. It is critical to seek out different viewpoints, well-presented. I understand that the old-school publications have clear preferences and biases. But they also have standards and experience. I read two major national dailies, my local daily (it’s like a gossip rag), and some industry weeklies and newsletters. It is interesting, sometimes distressing, to see the different perspectives on various topics.
• Listen to podcasts. Planet Money, Hidden Brain, Money Talk, and The Future of Everything have taught me a lot and rarely disappoint. Also, I sometimes listen to true crime and humor. My commute is short, so I occasionally look forward to a longer drive, so that I can have more time to listen.

Conclusion
With everyone in the media constantly referring to all that divides us, I often wonder why people think what they do. It seems to me this is about our national obsession with our own personal sense of identity. We Americans simply can’t get enough of ourselves and who we are and how we fit into the world around us. And when we start thinking of ourselves in terms of our group or community, I wonder if we can avoid thinking of other communities as reprehensible. I wish we could focus on all that we share rather than the many ways in which we are different.

The story we are all living in is not yet over, not even close. There are many chapters still to come. There is much that needs our attention right now, especially our loved ones. But as investors, we need to pick our heads up from the trials and challenges of the moment and try to see into the future. I believe that future will be bright. Different, uneven, but bright.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Stock investing involves risk including loss of principal.