January 2021

A Taoist story tells of an old man who accidentally fell into the river rapids leading to a high and dangerous waterfall. Onlookers feared for his life. Miraculously, he came out alive and unharmed downstream at the bottom of the falls. People asked him how he managed to survive.

“I accommodated myself to the water, not the water to me. Without thinking, I allowed myself to be shaped by it. Plunging into the swirl, I came out with the swirl. This is how I survived."[1]

Think back to March when the government shutdowns were starting. Think about the forecasts and predictions being made. By late March, the S&P 500 had sold off over 30% of its value from its high in the middle of February, and small caps had sold off even more.[2] Looking back on the markets and the dreary expectations, would you have expected global markets to post double-digit returns for the year? Would you have guessed that emerging market stocks would perform in line with the S&P 500 for the year, with both markets up over 18%?[3] What about small caps? Would you have expected U.S. small cap stocks to return 20% for the year when there was so much uncertainty around whether many of these companies could survive the pandemic?[4]

The changing landscape from COVID benefited companies like Amazon and Zoom, so their growth during the year made sense, but would you have expected Tesla to post such extraordinary gains? The stock closed 2019 at less than $84 per share, but by the end of 2020, it was trading over $700 per share.[5] Tesla was added to the S&P 500 in December with a total market value of over $600 billion, making it the largest stock ever added to the index.[6] Looking back, we would like to believe we saw it coming (or at least that the signs were there), but if we are honest - doubling down on Tesla in January 2020 looked like a bet against the ‘smart money.’ At the end of 2019, roughly one out of every five shares of Tesla were betting on the stock price falling, not going up![7]

When I look at 2020, I am reminded that whether we are talking about industries or individual stocks, predicting the market is extremely difficult. Some people get lucky, but the skill to have repeat performance is rare. A recent study performed by S&P Dow Jones found that the top performing funds from June 2010 through June 2015 were more likely to liquidate or change their investment style than to continue to outperform over the next five years.[8] And that is the smart money – these are funds managed by professionals that invest millions in trying to be the best and have the edge.

Depending on your risk tolerance, we advise to design your portfolio to flow with the markets, not to time or try to predict the markets. We invest across hundreds of stocks, dozens of countries and all sectors. Sticking with the strategy that we decided upon before the emotions took over and to stay the course has been our message, especially amidst the uncertainty in 2020. This way when you plunge with the swirl, you are more likely to come out with the swirl.

If you have questions about your investments, need to inform us of family or work-related changes, or want to discuss your progress towards your financial goals, reach out. We are ready to help.

Important Disclosure: Information presented herein is for educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. Certain information may be based on third party data which may become outdated or otherwise superseded without notice. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Performance is historical and does not guarantee future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Total return includes reinvestment of dividends and capital gains. By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party websites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them.

The contents of client letter is for informational and educational purposes only. The information presented is not to be construed as investment, tax, financial, accounting or legal advice. Individuals should make their own evaluation and consult with a professional based on their individual circumstances. The information contained within this presentation is based upon data and information available at the time and may become outdated or change without notice. IRN-21-1695

[1] Taken directly from: http://truecenterpublishing.com/zenstory/goflow.html; Cross reference: https://taoist-arts.com/News_-_ Views/Chinese_Philosophy_/Zen_and_Taoist_Stories/zen_and_taoist_stories.html

[2] From Morningstar Direct. From 2/20/2020 (the market peak) to 3/22/2020 (market bottom), the S&P 500 Index lost 31.8 percent and the Russell 2000 Index lost 40 percent

[3] From Morningstar Direct. From 1/1/2020-12/31/2020, global markets, as measured by the MSCI ACWI IMI index, returned 16.3 percent (with net dividends reinvested). The S&P 500 Index returned 18.4 perc

[4] From Morningstar Direct. From 1/1/2020-12/31/2020, the Russell 2000 Index returned 20 percent.

[5] Source: finance.yahoo.com, historical prices.

[6] Source: https://www.advisorperspectives.com/commentaries/2020/12/17/tesla-the-largest-cap-stock-ever-to-enter-s-p-500-abuy-signal-or-a-bubble, retrieved January 4, 2021

[7] Technically, this is called ‘short interest,’ and it is a measure of the percentage of outstanding shares that are sold short in the market. In December 2019, the short interest in Tesla ranged from a high of 20.1 percent at the beginning of the month to 18.3 percent at the end of the month, meaning that roughly one of every five shares were sold short. Source: Morningstar Direct.

[8] Of the top 50 percent of performing funds from June 2010 to June 2015, 38.6 percent remained in the top half over the next 5-year period, 13.4 percent were merged or liquidated, and 28.1 percent changed their style. Source: U.S. Persistence Scorecard Mid-Year 2020, published