2020 Third QUARTER COMMENTARY

​Covid, economic conditions and the election have made analyzing investment prospects as challenging as ever.  Because the Federal Reserve proclaimed near-zero short-term interest rates until 2023, injecting trillions of financing into the investment markets, to keep them buoyant, the stock market went up.

Over the long term, returns on stocks over the past century annualize to around +7% per year.  However, there have been 10-year periods when overall real returns have been negative for stocks, and 20-year periods when returns were nearly zero.  Is the market nearer its +7% long-term average with regard to its future returns or will it test its -2% annual return boundary over the upcoming decade?  At current benchmark prices, the market appears expensive.  Given all that could happen, i.e. tax increases, economic recession and numerous possibilities we cannot yet imagine, low stock market returns ahead seem quite possible.

In many ways, our portfolios don’t look like the overall stock market as reflected by its broadest benchmarks.  Within the sub-benchmarks, large stocks have out-performed small stocks by 21% on the year.  Expensive growth stocks have out-performed cheaper value stocks by 32%.  These two characteristics have factored into our portfolio performance, for better or worse.

As Ray Dalio, the legendary investment manager behind Bridgewater Associates, says about both investing and for living a good life: 1) determine what it is you want, 2) determine what is true, and 3) focus your energy on making #1 happen in light of #2.

What we’ve been living within is an Age of Illusion.  It won’t last.