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2021: Finding The Right Balance

2021: Finding the Right Balance

Dark chocolate with sea salt is a decadent treat.  Before trying it, I skeptically asked, ‘Why would you ruin a delicious piece of chocolate with salt?’  I soon learned that the balance between the extremes makes the taste so exquisite.  The saltiness enhances the sweetness of the chocolate.  Scientifically, salt opens up more sweet receptors in our taste buds.  The extreme of each taste makes the experience.  It’s all about the right balance.

2020 was a year of extremes. I don’t want to minimize the pain or loss that anyone suffered this year.  Instead, I’d like to offer an alternative lens to view a challenging year—the lens of balance.  The pain and hardships we experienced in 2020 allowed us to appreciate enhanced joy and contentment.  The extreme of one enhanced the extreme of the other. 

To counterbalance working from home, many of us enjoyed more time and connection with our loved ones, sometimes with multiple generations were under one roof.  Celebrations via video calls replaced holiday gatherings and other special moments.  At RegentAtlantic, our virtual meetings often included cameos by our co-workers’ children, partners, and pets.  We were alone together – striving for balance.

Political divisiveness and ideological extremism surfaced in 2020 like seldom seen previously. Counterbalancing this was a record number of Americans who voted in November — 20 million more people than the prior record, that sought to have their voices heard.

COVID-19 slowed economic activity and limited peoples’ ability to travel. Yet, this was balanced by the largest decline in Carbon Dioxide ever recorded.

With millions of us sheltering at home, we collectively bore witness to the brutal treatment of people of color through a video of George Floyd’s death.  Our consciousness was raised, we protested, and we made inclusion a priority.    

Globally, the COVID-19 virus became the most extensive health crisis of the last 100 years, claiming nearly 2 million lives and sickening almost 80 million.  Medical science responded with the most comprehensive and collaborative vaccine effort in human history, producing multiple immunizations in record time. 

The economic damage resulting from the pandemic was substantially offset by the swift passage of the largest economic stimulus package ever enacted by Congress, which included direct payments to individuals and aid to small businesses.  With memories of the Global Financial Crisis of 2008-09 still fresh, The Federal Reserve also responded rapidly by cutting interest rates to zero, buying billions of dollars of bonds, and serving as the lender of last resort to corporations and municipalities. 

Capital markets provided a case study of extremes, with equity markets experiencing both the fastest decline and recovery ever.  After peaking on February 19th, the S&P 500 fell nearly 34% over the course of the next 23 trading sessions. By mid-August, the S&P 500 regained all of its year-to-date losses; for the year, the S&P 500 gained 18.4%.

Within equity markets, we experienced extreme divergences between resilient growth stocks, like Amazon, Netflix, and Microsoft, that seemed impervious to the new Work-From-Home environment and recovery (value) stocks that appeared to be directly in COVID-19 crosshairs (e.g., retail, leisure/entertainment, energy, and financials). Regionally, US stocks outperformed International stocks.

Balanced investors were not rewarded by market extremes as the S&P 500 outperformed most other indices.  The S&P 500’s outperformance was paced by its heavy weighting of mega-cap technology companies that were fortuitously positioned for the pandemic.  Investors that were more balanced between growth and value and  US and International did not fare as well.

2020’s extreme market movements led me to revisit our Five Virtues of a Wise Investor.  I firmly believe that exercising the virtues of Courage, Curiosity, Thrift, Patience, and Humility will make us better investors.  Aristotle explains that virtue is the balance between extremes.  Courage is the appropriate balance between the extremes of being fearful and reckless.  Aristotle believed that one must continually assess where the proper balance lies for each situation. 

To understand how we can improve, I have taken each virtue of a wise investor and added a low and high extreme. 

Through this lens, I can evaluate how we performed in 2020 and where we could have improved.  During the first two months of the pandemic, we skewed to the low extreme column, except for humility where we were overconfident.  We did correct ourselves and moved more into balance by adding large US growth stocks to our portfolios in April and September.  However, because the recovery was so swift, we missed opportunities. 

As we enter 2021, our portfolios are comprised mostly of large-cap US companies, with moderate tilts towards Small-Cap, Value, Emerging Markets, and Real Estate.  With a vaccine roll-out underway,  we see markets shifting their collective attention from resilient stocks to recovery stocks.  We will continue to evaluate our balance throughout the year and make adjustments to portfolios. 

We wish you peace, health, and happiness in 2021.

Please contact your wealth advisor or me with any questions or concerns. 

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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