As we wrapped up the first quarter of 2021, David Booth, executive chairman and founder of Dimensional, reflected on this time a year ago, as the markets were reeling from the effects of COVID-19 on the global economy. He noted that many financial pundits at the time were making predictions for the future, and if you recall, many of the predictions seemed dire.
A year later, we realize that the “experts” who, like Chicken Little, thought the sky was falling, were way off base.
Booth, in an article entitled “The Next Normal,” gives a shout out to those who held their ground as the markets turned topsy-turvy in the spring of 2020:
“There was pressure to ‘do’ something, to make changes just for the sake of reacting. People might get out of the market in an effort to reduce uncertainty because it can force investors to make a difficult decision: choosing the best time to get back in.”
We couldn’t agree more.
Now it’s 2021, and Q1 continued the positive trend of the previous three quarters. And wouldn’t we all like it to continue?
We’re seeing similar pent-up yearnings in an array of analysts’ second-quarter financial forecasts:
- “Open the Door to Optimism for 2021” — BlackRock
- “S. Will Be Ready for Liftoff After Mass Vaccination” — Morningstar
- “Outlook 2021: Things Can Only Get Better” — Commonwealth Financial Network
- “2021 Global Outlook: The Second Coming” — Russell Investments
A second coming? That last one may take the prize for being the most aspirational of all.
This year, we’re seeing many of those same “Chicken Little” market players chasing all kinds of hot holdings, as they now succumb to the absence of fear. Consider these quarter-end headlines:
- “Institutional investors putting risk back on the table” — Pensions & Investments
- “Family Offices Like Archegos Take Big Risks Like Hedge Funds” — The Wall Street Journal
- “Robinhood Trader’s Battle Cry: ‘It’s All Just a Game to Me’” — Jason Zweig, The Intelligent Investor
In its quarter-end recap, The Wall Street Journal summarized similar sentiments as follows:
“If there is a unifying theme to all this, it is that investors big and small showed no fear of risk-taking to start 2021. In fact, they embraced it.”
Sometimes, an extra shot of bravery is just what the doctor ordered. “No fear,” you tell yourself, as you enter your first marathon. Or launch a new business. Or hug your college-bound child farewell.
That said, to all things balance. No fear can be at least as damaging as an excess dose. That’s often true in life. It’s true in investing too, where it’s always best to maintain an accurate assessment of the potential risks and realistic rewards involved in any given approach. As David Booth says in his article, “This highlights something I’ve longed to be true: while all investments have risk, many people who think they’re investing are actually gambling. It is a really simple distinction for me; if you’re trying to time short-term market movements, you’re gambling.”
We hope favorable markets continue. But investing is no game of chance. If you were a client of ours last April, we were honored to be by your side, to remind you that your disciplined investment strategy was already in place. Your globally diversified portfolio was already structured to help you maximize expected returns while minimizing the risks involved.
At the time, we encouraged you to stick to plan. Today, we encourage you to do exactly the same. Markets may run hot or cold. The scenery may be different. But your financial journey remains the same.