Investors nerves were tried throughout 2020, yet those investors who avoided behavioral mistakes and didn’t let their emotions get the best of them were rewarded handsomely. The year was full of lessons, but some highlights were:
- Market results are unpredictable- Missing the best market day in March would have cost you 10%. That “lost” 10% will compound over time and never be recovered. Investors that resisted the urge to bet against the market came out ahead, investors that didn’t made a mistake they will regret.
- Stocks prices reflect thoughts about the future- Markets are forward looking, and reacting about “news” that is common knowledge is already baked into stock prices. In other words, making investment decisions about what you see, read, or hear will often have poor results.
- The impact of Washington- Stocks have appreciated almost 15% since election day. The party in power does not drive stock prices. Stocks will find a path to profitability regardless of Washington. This year, many investors realized their predictions on what should happen in financial markets as a result of an election were trumped (no pun intended) by an always unpredictable market.
- Don’t confuse luck and skill- In 2019, nobody would have guessed 2020 would look anything like it did. The few investors that made great timing decisions (got out of the market and back in) or bought any of the large technology stocks early on should know that sometimes bad decisions have good outcomes (i.e. they got lucky). Don’t confuse luck and skill. Buying a winning lottery ticket was a bad decision that had a good outcome and there is no skill in picking winning lottery numbers.