Nothing in life is quite as important as you think it is while you’re thinking about it.
It has been almost two years since I was able to complete a paper. I enjoy the therapeutic creativity involved with articulating my thoughts on the mystery of the markets. I am reminded by a period like 2020 that sometimes the game moves too fast to allow you the time necessary to go from brain to paper. Hopefully this explains why I have done multiple webinars in 2020. Some environments reward and facilitate contemplative strategy: chess. 2020 has moved too fast for this: speed-chess. This market has forced investors to respond quickly, trust our gut instincts, and most importantly, remember that markets are driven by human behavioral decision making. They are not driven by a mathematical formula which means at times valuations can change dramatically and seem irrational. Violent, quick valuation shifts are one of the reasons many people are skeptical of investing in the stock market at all, requiring an endless pool of “greater fools” willing to pay even higher prices. This creates a fear that you may buy something just before it falls, which prevents you from making the decision. Never in my career do I remember the word “irrational” or the phrase “this market makes no sense” used more than it has been in 2020. Covid-19 altered the landscape of the world and created a foundation of persistent uncertainty, which has driven human emotions – including disbelief - to extreme levels.
While writing a paper was difficult, trying to come up with a steady valuation mechanism for assets through this uncertainty was also challenging. The world shut down in a way not seen before, leading to US GDP down over 30% in 2Q 2020. Yet despite that collapse in economic output, the stock market rallied 20% in the same quarter and disposable personal income rose by $1.53 trillion dollars (or 42%) while the jobless rate reached almost 15%.
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