Updated: May 9, 2021
Jamie Dimon, the CEO of banking giant J.P. Morgan Chase, believes the U.S. economy has been split into those benefiting from thriving corporations and those who are left behind. “It is absolutely obvious that a big chunk of [people] have been left behind,” Dimon said. “Forty percent of Americans can’t afford a $400 bill, whether it’s medical or fixing their car.”
Dimon was speaking at a company event to boost job prospects in underserved communities. But here’s the problem: the event took place in March of 2019. Dimon spoke these words a full year before the pandemic would bring the country to its economic knees.
And those left behind in Dimon’s 2019? Crushed in 2020. More than a third of the lowest wage earners saw their jobs evaporate in the spring. Those $400 savings accounts have been replaced by mountains of debt and eviction notices. In November, 26 million Americans said they didn’t have enough to eat.
I bring this up to shine a light on an uncomfortable truth: we each live in a house of cards. One moment, everything seems fine. The walls are sturdy, we’ve got 140 channels on the television, and we’re buying green bananas. The problem is we can’t see around the corner. We don’t know what our income will be in six months. We don’t know when the furnace will stop working, when the car will break down. We don’t know when a health crisis will come, and if it will cost us our savings, our house, or worse.
Indeed, our society is a house of cards. Let’s not forget the early days of the pandemic: pilots were flying empty jets, crowded cruise ships couldn’t find a dock, fistfights were breaking out over masks, and people were hoarding ammunition and toilet paper. And even now, in the richest nation in the world, the lines for food donations stretch for miles.
I can’t do much about society’s house of cards. But on a personal level, there are lessons I’ll remember from a year I wish I could forget. For starters, if 2020 has taught me anything, it’s this: set your sights on financial independence - and work like the devil to get there as fast as you can. While not a cure-all for everything that ails, financial independence can take the sting out of losing a job by removing the need for a job. It can fund an education, a retirement, a lifestyle. It can help shore up that house of ours with something more substantial than Las Vegas playing cards. It can empower us to live a more meaningful life.
- Always be prepared to adapt to change. Always.
- Work smarter.
- Think more creatively.
- Make peace with hardship and challenge.
- If you’ve procrastinated working toward a dream, stop that. Get to work on it.
- Finally, spend time with family and friends when you have the opportunity. Because, you never know.
We’ve Been Fortunate
We’re closing out the year with substantial gains across all the strategies. We’ve been fortunate. But for investors in general, it’s been a wild ride. From record highs in February, to the fastest 30% crash in history, to a record-setting recovery out of bear market territory. If we ever needed a reminder, 2020 provided it: the market is a beast. Expect the unexpected, and have a plan.
As noted before, long term, the strategies will get the trends right. Short term, there may be a miss or two as the market juggles conflicting signals. So keep allocations of strategies reasonable within your portfolio, and remember that protection[1 - see below] remains paramount.
Best always, David
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 What does protection look like? At the extreme, it’s cash. As I mentioned last month, it’s OK to hold some cash. Cash is, in fact, a position. It means you’re prepared to act when circumstances better align with your risk tolerance. Protection can also mean an overweight position in a model built for protection (i.e., Bond Bulls, The 12% Solution). It can mean putting multiple strategies to work in a portfolio, especially when those models tend toward an inverse relationship with each other, or focus on different asset classes or market sectors. Think Bond Bulls and American Muscle. Or Global Trader and The 12% Solution. Because each strategy uses a slightly different mechanism to identify market risks, and because each can employ different funds representing different market sectors (although there is obviously some overlap), there is beneficial diversification at work when using multiple strategies within a portfolio – helping to reduce volatility and max drawdown. Finally, protection can mean keeping an eye on the provisional picks during the month. These can provide a heads-up on potential trends -- and breakdowns of existing trends. Look for asset class shifts that hold up for a few days. Not every such move is a trading opportunity or justifies a rebalancing, but information is power.