December 22, 2020
On March 17, 2020, I wrote in this newsletter:
"You will probably not exit this crisis the same person as the one who entered. You won't have a choice, so it's best to work toward accepting that now (it's not easy), be nimble mentally and assume life is going to change."
I said perhaps more than I knew.
For just one moment, let's look in the rearview mirror. On the investment side, the idea of a low-cost, well-diversified equity and real estate investment program protected by Treasuries sparkled. In March those Treasuries mobilized and rose, and if they weren't so ethereal, I know more than a few of our clients would have given them a giant bear hug. Then, surprising almost everyone, the equity world reversed and roared out of the bottom with large cap stocks taking the lead. Tech stocks collectively drank a bathtub of Red Bull and blew out the market top. And then in the fall leadership rotated to small cap stocks, and they broke monthly gain records.
It was enough to give you whiplash as an investor. But it proved one investing concept after another. And in that purely financial sense, if you were invested well, it was symphonic.
Each year at the close I write down the biggest lesson I learned. This year there was no contender to the trophy: The Power of Narrative ran away with it. Whether it was medicine, politics, or finance, numbers didn't stand a chance against stories. This is a known characteristic of the financial world: Nobel Laureate Robert Shiller's latest book bears the title "Narrative Economics." (Always good idea career-wise to write a book that might found an entire field.)
The human mind doesn't work on numbers. It works on stories: they are memorable, emotional, and, frankly, partial. Narratives trigger not only interest but fear and greed. They fit neatly into people's pre-conceived notions, giving them fuel to spread. They make the world exciting and maddening. They are Kodachrome.
Folks, 2020 is just about done. 2021, we await you. We anticipate you. We beg you to come.
Shelburne, VT 05482
Burlington, VT 05401