Sowing the Seed

Pandemics, riots, looting, extreme partisanship, this truly is a period unlike any other. It’s hard to remember the last time our country was faced with so many challenges at once. In many ways this situation is unprecedented, but in many ways its not. For instance, did you know that in 1968 the world was struck by a flu pandemic known as the ‘Hong Kong Flu’ that killed approximately one million people world-wide and one hundred thousand in the U.S? On top of that, both Robert Kennedy (Who was running for President at the time) and Martin Luther King Jr. were both assassinated that same year. Don’t forget that 1968 was also the peak of the Vietnam war, which sparked a vast array of riots and protests in dispute of it. I mention this not to remind you of our troubled past, but to inspire hope. Despite the setbacks we have faced, America has always stepped up to the plate and overcome its challenges. As a wise man once said, “Every adversity brings with it the seed of an equivalent advantage.” In the moment things may feel painful, but over time they will improve, and we will grow stronger from it.

Clearly, from a cultural and societal standpoint, we face a myriad of issues. While it may seem cold to ask right now, as investors, what does this mean for our portfolio’s? Our answer, probably nothing, nothing bad at least. To provide some historical context, we looked at past periods of civil unrest within America to see if they resulted in any significant and persistent drawdowns in the market. Provided below is a chart detailing the annual performance of the S&P 500 during the calendar year in which a negative event that led to civil unrest took place. These events include the assassination of JFK in 1963, the 1965 civil rights march in Selma, the infamous Vietnam protests of 1967, the assassination of Dr. King in 1968 (As well as the Hong Kong Flu) and the Rodney King riots of 1992.

From our findings, these events have led to nothing more than a few short-term blips in performance and in every case the S&P 500 finished the year higher than it started. The annual returns range from a low end of 4% in 1992 (Rodney King riots) to a high end of 20% in 1967 (Vietnam protests). Why is this the case? In my professional opinion, its not that the unrest directly caused the market to go up or down, it’s that the market simply shook it off and did its thing. Remember, the S&P 500, our favorite barometer for the U.S. stock market is a collection of 500 real operating businesses that aim to generate profits for investors. While the unrest hurts our psyche, it has little to no impact on the strength and prosperity of these underlying businesses. In fact, the short-term emotional swings that occurred in the days and weeks following these events were likely taken as strong buying opportunities for investors. Just like we said earlier, “Every adversity brings with it the seed of an equivalent advantage.”

With regards to our current portfolio positioning, these events will likely have no impact on our decision making. As long-term oriented investors, we do not see the unrest having any significant impact on the underlying fundamentals of the companies we own. Along with that, given the rebound in markets that we have continuously alluded to, we’re finding it difficult to spot quality businesses that are selling for a discount. Knowing this, the activity in your accounts will likely be tempered for now, but please remember, we’re always on the lookout for new opportunities.

To wrap things up, we would like to express our gratitude for your support, and we hope you and your family stay safe during these challenging times. Regardless of which side of the political spectrum you fall, it is now more important than ever for us to come together and lift each other up. So, leave the investing to us and find something positive to do today.

Please be on the look out for an invite to our next virtual event, where we will be diving into the details of our investment process. In the meantime, feel free to reach out with any questions or concerns. We’re here to serve.