2020 Midyear Client Letter

The first six months of 2020 saw the advent of the worst global public health crisis in a century— since the 1918 influenza pandemic. In response, the world locked down, putting its economy into a kind of medically induced coma.

In this country, the immediate effects were (1) a savage and nearly instantaneous economic recession, accompanied by record unemployment, and (2) the fastest, deepest collapse in stock prices in living memory, if not ever.

The stark drama of the last half year has been such that we wanted to report to you halfway through this year. We begin with a statement of general principles, especially those most relevant in the current crisis, with a restatement of how we practice out stewardship of your invested wealth. The second is a review of what little can be known at this point, and of how we propose we continue to deal with the pervasive uncertainties of the moment.

Principles

• We believe that all lastingly successful investing is essentially goal-focused and planning-driven. We believe that all failed investing is market-focused and event-driven.
• Thus, we have found that long-term investing success is only incidentally a function of the economy and the markets. It can be a direct function of how the investor reacts—or, more properly, how he/ she refuses to react.
• Long-term, goal-focused equity investors act on a plan with patience and discipline. Acadium is here to help you in the crafting of that plan. Of equal importance is our role in helping you not to react in stressful times like this.
• We continue to believe that the equity market can't be consistently forecast, much less timed, and that the only certain way of capturing equities' superior long-term returns is to sit through their occasionally steep but historically temporary declines.

Review and Looking Ahead

At midyear, the best that can be said is that the first great wave of the pandemic appears to be abating, and the economy is slowly reopening. As it continues to reopen, there will inevitably be some flareup in new infections. The interaction between the pandemic and the economy in the short to intermediate term is therefore perfectly impossible to forecast, as is the timing of the development of a vaccine.

The equity market crashed from a new all-time high on February 19 to a bear market low (so far) on March 23, down 34% in 33 days. There is no historical precedent for this steep a decline in so little time. Confoundingly, it then posted its best 50 days in history.

It is not possible to forecast the near-term course of corporate earnings or dividends, as they— like the economy they reflect— are still largely hostage to the pandemic. That said, we invite your attention to the fact that at June 30 the yield on the 10-year U.S. Treasury note was 0.66%.

Although it is impossible to forecast equity earnings, dividends and prices, we believe that few if any of our clients can continue to advance toward the achievement of their long-term financial goals entirely in bonds or cash, at anything close to today's yields. This is just another reason why we would advise you to stay the course in your current allocation to equities.

It should also be noted that even if the pandemic continues to subside and the economy to recover, investors will still have to deal with what may be the most widespread civil unrest in our country in decades, and what promises to be a bitterly partisan presidential election cycle. Emotions seem likely to continue to run high, with unpredictable short-term market consequences.

The theme of the summary above is the sheer unknowability of the short (say, the third quarter of 2020) to intermediate (say, through the first quarter of 2021) term economic and market outlook. In the next breath, I remind you that not one of you is investing for the next one to four calendar quarters. We are long-term, goal-focused, planning-driven, patient, disciplined investors. Our focus is on history rather than headlines, and our mantra is from Churchill: "The farther back you can look, the farther forward you are likely to see."

Finally, think back to January 1 of this year. Have your most cherished lifetime financial goals changed since then? If not, there is no compelling reason to change your plan—and no reason at all to change your portfolio.

Be of good cheer. This too shall pass. Optimism remains the only long-term realism. By all means, please be in touch with us with any and all questions and concerns. In the meantime, thank you—as always—for being our clients. It is a privilege to serve you.