– Scott Reed
I didn’t play any April Fools’ jokes on anyone this year. I guess I just wasn’t in the mood.The equity markets had plummeted in the first quarter thanks to the coronavirus, social distancing (which I think should be renamed physical distancing since I still want to be very social even if it is from six feet away), the closing of restaurants and bars as well as retail stores, and the order to “Go home and stay there!.”
Depending on which equity index you follow you would have seen a decline between 35% and 40%. I just didn’t feel like playing a joke on someone.
But, if I had tried to think of something that just seemed ridiculous, I guess I could have said, “Hey, did you know that even though COVID-19 cases are increasing every day, we have just surpassed 60,000 deaths in the U.S., and 30 million people have lost their jobs, we are going to have the best month in the equity markets in 33 years based on the S&P 500 returns?” and “You need to put a bunch of money in the S&P 500 and let it do its thing!”
That would have been crazy, right? Except that it really did happen. The Dow Jones Industrial Average had its best month since October of 2002 and the Nasdaq composite beat them all with a one month return of 14%. It is a great reminder of why you should run from an investment professional who says they know what is going to happen to the markets in the short-term.
They are either lying or they are delusional. They may guess and be right, but they can’t know because short-term fluctuations in the markets are based on the collective emotional responses of all the investors in the market. Greed and fear overcome reason. You may know someone personally that is predictable in their emotional response to things but to predict the collective response is a sucker’s game.
To make it more challenging, the access to information today is immediate, and information that is opinion-based looks very much the same as information that is evidence-based. People hear what they want to hear and that shows up in the price of the markets just the same as the reaction to good solid information. And it is immediate.
In March, there was a great deal of fear about what might happen with COVID-19 and what it might do to the economies of the world. The markets dropped to reflect the worst fears of investors. In order for the markets to have the kind of April they had this year, investors don’t have to have good news. They just have to have news that is less bad than they feared and that is certainly what happened.
Congress responded, people began to shelter, and, even though there was terrible news coming from the hot spots, much of the country found things to be better than they feared. Less bad news, and it got us a huge rebound in the markets.
Emotional investing is the enemy of successful investing. Don’t let it happen to you. John Prine, one of the greatest songwriters ever to live, died at the hands of the coronavirus this spring. He had a song entitled, “Everybody” with the lyric “Everybody needs somebody that they can talk to.” If you need help getting off the investor’s ledge, find someone to talk to.
