This is my 200th blog post! Hard to believe! I started writing these back around early 2019 and have tried to keep them informative and entertaining! Hope you all have enjoyed them!
I have written a lot about the importance of long term strategic investing, diversification, and risk management. I almost always close my blog posts with the caveat that market timing is impossible, except by luck, and it is always best to invest for the long term with a strategy that is consistent with your goals.
In order to celebrate, I am re-posting one of my favorite blog posts titled, “Beats Me! (Again!)”. Though I have many “favorite” posts, I highlight this one because it focuses on risk and the impact of “uncertainty” on the markets and our difficulty dealing with it. In fact, when I wrote this way back in 2021, covid and its growing impact on inflation was the story of the day and there was no Russia/Ukraine war to create geopolitical turmoil in the markets.
Here is my post from way back on November 30, 2021 (before the rapid acceleration of inflation, the Russia/Ukraine war and the weak market performance of 2022 ):
On the surface, there are plenty of positive signs about the current economic situation. For example, in the post-pandemic environment the unemployment rate has fallen from 14.8% in April 2020 to 4.6% in October 2021, a recent low but still much higher than the recent pre-pandemic low of about 3.5%. Economic growth has picked up, too, with real GDP recovering nicely from the pandemic lows with quarterly growth rates of +6.7%, +6.3% and +2.1% over the past three quarters in 2021. So why are we all worried about the future?
Though we live in an uncertain world, the capital markets don’t like uncertainty! The largest uncertainty we all face is the potential for a re-emergence of covid-19 in a potentially more-onerous mutated form. That is still to be seen, but the omicron variant announced last week is certainly causing a stir in the capital markets.
Aside from the externalities like covid impacting the markets, the potential for rampant inflation seems to be on everyone’s mind as they leave the gas station and grocery stores seeing much higher prices! Certainly, inflation has picked up with the Consumer Price Index showing a +6.1% increase from prices a year ago. Even excluding the more volatile prices from food and energy, inflation still shows a spike of +4.1%. As seen from the chart below, after the drop in prices during the pandemic, we have seen a marked increase in prices from the beginning of the year, “transitory” or not!
Just like trying to predict the capital markets, no one knows if rampant inflation is on the horizon. The period after the Credit Crisis back in 2008/09 likewise saw many thought leaders postulate much higher inflation due to extreme Fed easing and fiscal stimulus, which, of course, we never saw! This time there are supply chain issues and other factors that very likely will be solved by market forces and time so there is good reason to be bullish on the inflation front.
This situation reminds me of insights from my favorite Chief Investment Officer at a former employer. At every quarterly investment review meeting he would lead off the discussion with a lengthy discussion about the current economic situation and capital markets telling a good story about where we are. He would close by saying, “So, what is the market going to do? Beats Me!”
Finally, from my blog post, Beats Me!, from way back in August 2019:
As I am wont to say, plenty of reasons to be cautious, but no reason (yet!) to run for the hills. New money should go into the market slowly, since that is ALWAYS the low risk approach to get market exposure. Investors with a long term strategic approach properly diversified and positioned in the risk profile appropriate for their situation should stay the course.