Market & Investing Wisdoms For 2020

Last week, I posted our 2020 Outlook, which focused on the futility of trying to predict the future and the understanding of the current market risks headed into the next decade:

“The reality is that we can’t control outcomes. The most we can do is influence the probability of certain outcomes through the management of risks, and investing based on probabilities, rather than possibilities, which is important to capital preservation and investment success over time.

So, as we head into 2020, here is a short-list of the things we are either currently hedging portfolios against, or will potentially need to:

  1. China fails to comply with the terms of the “Phase One” trade deal, which reignites the trade war.
  2. Earnings growth fails to recover, and valuations finally become a concern for the markets.
  3. Corporate profits, which have been essentially flat since 2014, deteriorate due to slower economic growth both domestically and globally.
  4. Excessively high consumer confidence converges with low levels of CEO Confidence as employment begins to weaken.
  5. Interest rates rise, which trips up heavily leveraged consumers and corporations.
  6. Investors become concerned about excess valuations.
  7. A credit-related event causes a market liquidity crunch. (Convent-Lite, Leveraged Loans, BBB-rated downgrades all pose a potential threat)
  8. The Fed’s “repo-crisis” continues to grow and turns out to be something much more significant.
  9. Similar to 2016, a shocking election result.”

However, while the media looks to every headline as a reason to buy stocks, the reality is investing is about both the buying and the selling.

As an investor, advisor, or portfolio manager, it is important to become divorced from day-to-day headlines, and focus on the investment process and risk management of portfolios. A good place to start is by looking at the wisdom of other successful investors and learning from their experience.

These wisdoms were born out of years of mistakes, miscalculations and trial-and-error. Of course, what made them all successful was the ability to learn from their mistakes and capitalize on that knowledge in the future. Experience is an expensive commodity to acquire which is why it is always cheaper to learn from the mistakes of others.