I look out my office window as I write this and we finally have a sunny day—and it’s 82 degrees. And on top of that, it’s a Friday afternoon! A perfect day to ramp-up your vitamin D levels. So let’s get into this letter and get it done.
Regarding the markets, April had an excellent rebound from the horror show that was March.
March 31 April 30 Difference
DJIA 21,917 24,345 +2,428
S&P500 2,584 2,912 + 328
NASDAQ 7,700 8,889 +1,189
Halfway through May, there has been a lot more said than done. We’ve moved up, we’ve moved down, and in the end, we’re about level. After March, merely level is a plus. We’re still collecting dividends.
We just completed our second quarter rebalancing, so if you see some small trade confirms come through, that’s what they were. We generally let dividends and distributions dump into the money market account until we gather enough cash to make a meaningful trade. We look at our target percentages for your portfolio, compare them to the current actual percentages, and then we buy into the position(s) that are the furthest from our targets. We do this quarterly in February, May, August, and then in November. (FYI, trades are cost-free to the client in managed accounts.) The rebalancing process forces us to buy positions that are down.
We want to be disciplined enough to buy the funds or ETFs that are doing poorly today because we know (intellectually at least) that they will eventually exceed today’s front runners in the future. Emotionally, it’s rather difficult to buy the runt of the litter when the show-dog puppy is sitting right there. But we know that successful investing must be dispassionate. We save with our hearts and invest with our brains.
In the economic world, March and April were about as bad as it could get. Short of Godzilla wading ashore from Tokoya Bay, it could not have been must worse. But during May, our Country and the World have at least started to re-open. The overall economy must improve in May over April—it could not get any worse; it was closed, and now it’s a little open. And June will be better than May since June will be more open than May. We are hopeful that we’re going to look at each subsequent month and say, well, at least it was better than last month. Incremental improvements over the next 12 months would be just what the doctor ordered.
However, there is a fly in the chardonnay. Until we find a vaccine and a cure, Covid 19 will be lurking long into this year and next. Many businesses that turned the office calendar page to January 2020 will not turn it to January 2021. It is breathtakingly sad to see an owner of a business pour their heart, soul, and money into an idea and then see it fail. Words are inadequate to describe the pain. It’s one thing to have a poor business model, and it’s quite another to have an outside force torch your business while you helplessly look on.
My only advice to those business owners who don’t make it is to ask them to please try again. Sometimes the three best words in the English language are “maybe next time.”
To our clients, it looks like we’re on the road back. We have no idea how long this recovery will take or how many s-turns the way holds. In the long run, it is a road we’ll just have to drive because intellectually, we know, the market always comes out ahead. The history books are full of free-market set-backs, but it has never been held down for any real amount of time before, and this time, it will be no different. Thank you for reading. MK
