One Year Later…

At certain anniversaries it can be helpful to pause and reflect on what happened over the past year and what, if anything, we can learn from and improve upon going forward.

We are now one year after COVID was recognized as a global pandemic, the market dropped off precipitously and, unbeknownst at the time, but the bottom in the market had already been made. Looking back, there are three takeaways that can help us going forward.

Three Takeaways

  1. Crazy things happen. Sometimes things happen we could never have imagined. Due to the pandemic and subsequent lockdown of the world, the price of oil actually went negative and airlines cut routes by up to 95% in just weeks.
  2. Mistakes are made. Many costly errors are made when we act hastily. Even the greatest investors are not immune to mistakes in judgement or impervious to fear. Warren Buffett sold his entire position in airline stocks in April 2020 after they had gone down 50%. The stocks he sold, as a group, are up more than 100% since he sold1.
  3. Take a long-term view. Crises often influence us to become quite myopic. Even long-term investors are influenced to make changes based on unexpected events, especially significant ones such as the financial crisis and COVID.

Looking Forward

During difficult times, whether the market is selling off significantly or future expectations are negative, it is helpful to consider why you invested in the first place. A good investment strategy should take into account negative shocks. We have always had them and always will. So, the question is: Do you have conviction that your strategy is right for you? If not, then we may want to reconsider your strategy. If so, then the best thing to do is hunker down and remain disciplined.

– Jonathan

©2021 The Behavioral Finance Network. Used with permission. CRN202304-281020

1. Source: CNBC. Negative performance from Jan 1, 2020 to May 1, 2020 of United, American, Southwest and Delta Airlines, which comprised Buffett’s portfolio. Positive performance from May 1, 2020 to Mar 25, 2021. Past performance is not indicative of future results.