Real Impact, Real Returns ^SM

When markets closed on September 30th, they were ever so slightly in what is called a “pullback,” or down 5% from their recent highs. I thought it might materialize into something worthy of writing about, but then, true to recent form, they quickly recovered. However, since I broached the topic, let me give it some context before moving on. From 1946 through the 3rd quarter of 2021, the market has seen 126 pullbacks. Of those, 29 went on to a correction (-10%), 9 declined into a bear market (-20%) and 3 went off the rails (-40%). The conclusion? Most pullbacks are just noise and only few go on to be something more than that. So, while “buy the dip” is a bit of a complacent investment strategy, it is somewhat rational, in my view, if paired with the mindfulness that there will come a day when the market does not bounce right back.

Stock indices grinded higher in the 2nd quarter, although the most speculative corners of the market have come under pressure since early June. In the crypto world, Ethereum was flat during the quarter, bitcoin was off 40% and the basket of 37 meme stocks tracked by Goldman Sachs has recently entered bear market territory, having given back more than 20% since peaking in June. The retracement in these speculative assets is not necessarily a cause for immediate concern, however. I believe that a strong economy supported by pent up consumer demand and fiscal & monetary stimulus, lowers the chance of contagion, though it bears watching.

ESG investing is all the rage these days. That is, investing that includes the non-traditional environmental, social, and governance factors in the investment process. Its appeal to the broader investment industry is twofold: 1) The writing is on the wall: as wealth is passed down to younger generations who in the aggregate care more about values alignment, the asset management industry does not want to lose the assets and the fees they generate. 2) Thematic investing is popular and ESG is one of the hottest themes. Wall Street is not going to miss out. Much like crypto is too good to pass up.

When we started the year, I was optimistic about the post-pandemic world that was, and is, still some ways off; a sentiment I shared with many. That optimism does not seem to have been misplaced thus far. Vaccination rates have far exceeded early predictions and herd immunity in the United States is a mere 3months off, according to Bloomberg’s Vaccine Tracker. At the same time, we should bear in mind that many countries, including India and Brazil, are far from out of the woods and 2021 might well end up being deadlier than 2020was, from a global perspective.

I feel optimistic about the future. To be sure, that is no reflection of what is today, but of what is possible. Almost every holiday card I received, hit 2020 with the door on the way out. Although the personal and collective tragedies of this past year will not soon recede from memory, hopeful seeds are sprouting.

2020 will come to an end, that is one of the few certainties we have as we are nearing the election and a fall wave of the pandemic appears to be materializing. For many folks I speak to – and I share their sentiment – this year will not be missed. So, what of the election? What is an investor to do? Though a fair question, I cannot really line up behind a better strategy than to not do much or nothing at all. Whatever action one takes, has an unpredictable outcome, so could potentially do more harm than good.