The holidays are over.  My kids have opened all their presents.  I don’t know why I tend to dwell on things toward the end of the year.  I assume it’s natural to reflect on the past year.  Of course, 2020 has been pretty crazy.  Time magazine said 2020 was the worst year ever.  Sounds about right.  I try not to classify things from a linear point of view.  I like to look at the past year for both the positives and the negatives.

So, I’m going to look back at 2020 and reflect on the things I’ve learned, or relearned:

  • The future is always unpredictable.  Who would have predicted the coronavirus pandemic a year ago?  Truly one of John Ashcroft’s, “unknown, unknowns”.  On top of that, who could have predicted the Federal Reserve’s subsequent reaction and stimulus?  Even if we knew the future with 100% certainty, it would likely do us no good because of my next lesson relearned.
  • The markets are unpredictable.  For anyone that was awake during March or November of this year, this one is obvious. Even with the warnings about COVID, who would have predicted that the markets would have dropped so sharply in March and then reversed back so quickly in the following few months?  Who would have thought the election would have been as close as it was?!
  • News driving investing: impossible and easy at the same time.  No one wants to invest during a crisis.  But investing in one proves to be one of the best times to invest.  One of the greatest examples is unemployment.  Investing when unemployment is high is frightening.  The thought of your neighbor and friends out of work is nerve wracking, to say the least.  You might be thinking “I could be next!”  However, investing during peak craziness has worked out quite well.  The chart below shows the returns investors would have received if they invested during various unemployment situations.  Investing during bad times continues to be a winning strategy.
  • Markets are getting faster.  As an investor that has been investing for almost thirty years now, I feel like this is something I can say every year.  Market forces are getting faster and faster.  Be it new sources like CNBC or Twitter, or computerized traders like hedge funds and high-frequency traders (HFTs), markets are moving much faster than ever.  This trend is highly unlikely to stop.
  • Buy and Hold is difficult, but it still works.  Long-term investing in companies with a strong competitive advantage and a solid balance sheet still works.  March might have been painful, but healthy companies tend to bounce back faster than overleveraged ones after a crisis.  And crises are not planning to go away any time soon.
  • Humility is key.  Let’s be honest.  The market is probably smarter than all of us.  So back to number one and two.  I think of Mike Tyson’s famous quote, “Everyone has a plan until they get punched in the mouth.”  Recognizing we are not in control of everything is the first, and arguably the most important step.  The big question is, what do you do after that first hit to the face?  Will you call it quits right there?  Or will you get back up?

Who knows what 2021 will bring?  Hopefully none of the craziness of 2020, but that’s being too optimistic.  2021 will surely bring us events that will leave us scratching our heads.  And just because we are in a new year, the coronavirus doesn’t care.  The COVID situation is not yet resolved and the political environment is as toxic as ever.  The amount of debt outstanding is eye popping.

What I do know is that investing in well-run companies will be rewarding over the long term.  I don’t know if you’ll reap those rewards this year or the next.  But well-run companies with a solid competitive advantage and a healthy bottom line have a better chance of making it through the storm in contrast to companies that run on hope and luck.  That’s why we stick to our process.  2020 was a stellar year for the companies we have invested in.  I hope for the same in 2021.  Markets come and go, but the great companies we invest in should stand the test of time.  It doesn’t mean that our companies won’t get hit in the face.  That’s impossible to predict.  And all companies, even great ones, face challenges no matter where they are in the business cycle.  What it does mean is they’ll have a better chance of getting up off the mat and fight on.  So get up, brush yourself off, and let’s get going.  The fight is certainly not over. 2021, what are you going to teach me?