I argued in a previous column that financial success in life is far more a function of disposition than intellect.
But in fairness, I must admit I didn’t always believe that. I recall being that 21-year-old Milligan College (now University) graduate who was, for the very first time, meeting a whole new cast of business characters. At the time I was a sponge that remained in a state of perpetual observation of those in this new world of business. It seemed reasonable to me that all these people, whom I was calling on and who were all older than myself, must have had their financial lives put together neatly. They spoke in a crisp and educated manner. They dressed nicely. They held respectable positions as pharmacists, teachers, and so on. Yet, as a newly minted investment professional — with a standard-issue amount of youthful naivety — I learned the truth was anything but.
This realization taught me two things. One, I had better start finding clients with money to invest or my career would soon be over, and two, one’s level of financial security can’t be reliably determined by mere appearances. Fast forward 20 years and the “behavior trumps smarts” idea has become ingrained in my professional psyche.
And the onset of the Great Pandemic did a most wonderful job of exploiting this unyielding truth. What we witnessed in 2020, in a financial sense, was nothing less than a raw and unfiltered scene of investors being taken to the woodshed by Benjamin Graham’s Mr. Market, whereupon he delivered three painful lessons.
Lesson One: Never Time the Stock Market
I would like to indelicately point out that on March 23, 2020, the S&P 500 bottomed out at 2191. As of this writing, the index is now hovering at 3974. Now for the fun part: the disciplined S&P 500 investor, during that period, would have enjoyed a trough-to-peak return of 74.3%! This massive — and I do mean massive — return was achieved by ... wait for it ... doing exactly nothing. Once again, the highly effective practice of long-term stillness was handsomely rewarded, despite the great reasons our illustrious experts and pundits provided — including, but certainly not limited to, a contemptuous election, immense civil unrest, and surging unemployment — for withdrawing from stocks.
Lesson Two: Have a Rainy-Day Fund
No surprise here. Grandmothers throughout time have handed down this self-evident life principle. When businesses are closing their doors all around you, it’s a dark place to be knowing you only have enough money to survive for a week or two. Yet according to Reuters, that’s the reality that many of the 22.2 million out-of-work Americans faced as a result of the pandemic.
A wise person always assumes that trouble is coming. No one’s job is ever 100% safe. Death, disability, or pandemics can emerge without a moment’s notice. And yes, you can save, no matter how little you earn.
Lesson Three: Speculating is Not Investing
Of the three lessons, this is the most serious and, if not heeded, the most potentially disastrous. COVID created the ideal scenario for market volatility (i.e., sharp moves up and/or down, in a condensed period of time). This modern-day “Tale of Two Cities” posed — and continues to do so — near perfect conditions for highbrow gamblers and the like. And boy oh boy, did they come in droves.
While one can certainly make a quick buck speculating, let’s not fool ourselves into believing that this is investing. I recently had a client tell me that his brother, an anesthesiologist, has gone all in on the GameStop fiasco. This guy is certain that it’s his ticket to an early retirement. And I’m sure it will work great. I mean, obviously he’s smarter than everyone else. Just look no further than his methodology. He’s following a sports personality on YouTube who regularly provides investing tips to his subscribers. You can’t make this stuff up.
Wild and uniformed speculation is always, in my experience, a trademark of the narcissists. And this fellow’s hubristic creed goes something like this: “I’ve got it all figured out. I see things that others do not. And this is because, of course, I’m smarter than the collective wisdom of the free market.”
Undoubtedly there are endless other articles on the lessons learned from the COVID era. And we would be wise to absorb many of their points. Because it’s coming again. Maybe not in the form of another virus. But times of economic uncertainty will darken our door sooner than we may think. As it says in Ecclesiastes, “What has been will be again, what has been done will be done again ...” It’s how we prepare and respond — or, in some cases, don’t respond — that makes all the difference.
Matt Trivette is a certified financial planner and head of Trivett Wealth Management in Johnson City.