It’s December 31.
The last day of a year most people would like to put behind them, with very, very good reason.
And, as every year, December 31 brings a raft of retrospectives.
(It also brings an opportunity for income-seeking investors, by the way. I rarely pitch our services in my articles, but we’re opening one, in particular, to new members today that I’m very proud of — and which came through 2020 with flying colours. But more on that at the end, if you’re interested)
But how do you sum up 2020?
(While we’re here, How do you solve a problem like Maria? But I digress.)
One way to sum up the year — at least from an investing perspective — is with a single number. Now, we won’t know the final result until later this afternoon, but as of this morning, the All Ordinaries Index of the top 500 Australian shares was up 2.1% for the year.
Add in dividends, and that’s a pretty respectable result, given what we went through in the health and economic spheres over the last 12 months.
Indeed, ‘respectable’ might be underselling it.
If you’d have described the events of 2020 to me at this time last year, and offered me a 10% decline for the year, I’d have jumped at it!
To finish the year ahead, at all, is a spectacular result.
And I’m not going to go through the year, blow-by-blow, here.
Other than to remind you of the contrast between how March, April and May felt, at the time, and how they feel in reflection, now.
Now that the visceral fear and uncertainty has passed.
Now that we know the market (and the economy) have largely recovered.
Now that time has done its healing work.
Because while you and I can intellectually recall those months, the emotions are hard to genuinely recall.
It’s the way of these things, of course. A coping mechanism, courtesy of evolution.
Which gives us two lessons from 2020.
First: Things are rarely as bad as they feel, at the time.
And second: Unless you make a conscious effort to learn from history, events will overwhelm you.
See, here’s the thing: the COVID recession isn’t our first economic or stock market rodeo.
We know these things happen.
The world looks bleak.
People panic.
The market overreacts.
Some investors swear off the stock market.
Others sell in a fit of pique, just desperate to cauterise the wound.
And then…
The sky brightens.
The economic (and, in this case, health) outcomes begin to improve.
Light is visible at the end of the tunnel.
Share prices start to rise.
And so it goes.
The problem is that, when our emotions are at their height, it can be hard to remember that things improve.
Which is why it’s so bloody important to internalise that lesson, now.
For years — yes, literally years — I’ve been telling our readers and members that a market crash will come.
And that it’ll really, really suck.
It’ll test our mettle, financially and emotionally.
That we need to plan ahead for how we’ll react, so we have a gameplan to follow when the proverbial hits the oscillating.
Because while I said — loudly and often, at the time — that you should keep investing (and at the absolute, rock-bottom minimum, just hold on), it was harder to do if you hadn’t already thought it through in advance.
Again, it’s just human nature.
If you’ve already predetermined a course of action, it’s just easier to do.
Which is — I hope — the value of this reflection. The chance for you to, as we cross into a new year, plan your response for the next time the market swoons.
And by the way, if you can, try to become someone who enjoys — or at least benefits from — market falls. As Warren Buffett says:
“The logic is simple: If you are going to be a net buyer of stocks in the future… you are hurt when stocks rise. You benefit when stocks swoon. Emotions, however, too often complicate the matter: Most people, including those who will be net buyers in the future, take comfort in seeing stock prices advance. These shareholders resemble a commuter who rejoices after the price of gas increases, simply because his tank contains a day’s supply.”
Which, maybe, is the best lesson of all to take from 2020.
Market falls happen.
They hurt.
So-called ‘experts’ will try to tell you to time the market.
(Good luck with that.)
The rest of us — those who want to create long-term wealth through patient compounding — should just keep buying… especially when prices fall.
Now, I mentioned that one of our services is being opened to new members today. It’s called Motley Fool Everlasting Income, and is designed for people who want to turn their nest eggs into a regular, reliable, tax-effective income stream. It’s modelled off the very strategy I used when I did precisely that for my mother-in-law, and is a service offering I’m particularly proud of.
I’ve always been proud of it, because of its purpose and construction, and because we can provide a really useful strategy for those members. But I’m even more proud of it, this year, because — despite COVID and the cancellation, suspension and reduction of bank dividends — the strategy didn’t miss a beat, and the portfolio finishes the year in ruddy good health.
Which was precisely how it was designed, but there’s something very satisfying in seeing it pass a 2020-style torture test with flying colours. We delivered the same steady, monthly, income stream we planned. Our members didn’t need to sweat on share prices or complex options strategies or trading systems. They just had to let the portfolio do its thing, following our guidance as they went.
But no hard sell from me. If that sounds like something you’re interested in, I’d suggest taking a look. If not, all good.
And with that, I will wrap up my last article for 2020.
I know life is busy. And I know you, like me, have no shortage of news and views to read as you go through your day.
So I wanted to say thank you for the time you spent reading my articles in 2020. I hope that, over the turbulent last 12 months, I’ve done a little to deliver on one of The Motley Fool’s old mottos: to educate, amuse and enrich.
Along with our whole team, I’ll aim to continue doing that as we go into 2021, too.
In whatever form your New Year’s Eve takes, I hope you take the chance to reflect on a tough 12 months, and set your sights on a better 2021.
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Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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