Learn 2020’s Key Lessons, from Fisher Investments

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Video Title “Are There Any Key Lessons That We Learned”.

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Women with grey suit appears sitting in an office.

Banner appears introducing her as “Jessica Smith”- Client Services Vice President

Jessica Smith started speaking

Jessica Smith:

Are there any key lessons that we learned while navigating 2020?

A man with a navy-blue suit appears sitting in an office.

Banner appears introducing him as “Aaron Anderson”

Aaron Anderson starts speaking

Aaron Anderson: 

Last year? Obviously quite a tumultuous year, and I think there's some new lessons we learned. And then I think that there are some things that we've always known that really got reinforced last year. Now, in terms of the new things that we learned, of course we learned a lot about COVID-19, about the virus, about how it spreads, about its mortality and so forth. Hopefully, that's not knowledge that we need to rely on too much in the future. Hopefully we're not experiencing epidemics pandemics with any regularity history suggests that we won't. But of course, those were important lessons that helped us navigate through the course of the year. I think we also learned, though, the extent to which governments will implement lockdowns and prevent travel and just how far they'll go in order to prevent the spread of a virus like that. So should we enter into that environment again, we have a much better sense now of what governments are willing to do to try and contain a virus like COVID-19.

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Aaron Anderson is speaking

Aaron Anderson: 

Whereas coming into this, even though we'd experienced pandemics epidemics before, we'd never seen the types of lockdowns that we saw last year. So predicting that governments might respond the way they did, there's really no historical precedent for that. But now we've got a good sense of what actually governments might be willing to do in this type of situation should it arise again.

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Aaron Anderson:

Now, in terms of some of the things that were reinforced last year, over the weekend, I was watching Jurassic Park with my kids. I've got four young kids. They've never seen the movie, one of my favorite movies. And there was a quote in there that I just think is very appropriate for 2020.

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Aaron Anderson is speaking

Aaron Anderson:

Life finds a way. And when I think about last year, that's all about adaptability. And last year you just saw adaptability everywhere.

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Aaron Anderson:

What I mean is suddenly you had this pandemic, suddenly you had these unprecedented lockdowns. People couldn't travel anymore, they couldn't go to the office, they couldn't interact with each other in normal ways. And yet people found a way to interact with each other without going into the office and going to restaurants and going to bars and doing those types of things. We couldn't travel, but we could use video conferences. Businesses couldn't have people coming into the office, and yet they found a way to do business nonetheless. And so, I think one of the key lessons that we knew, but that really got reinforced last year, is simply that people, companies, economies, markets, are much more adaptable than people usually give them credit for. And so, I think that's one of the key takeaways from last year. Despite all the tumult of last year, despite the terrible humanitarian tragedy, actually, as we look at 2021 now, we've come through this in reasonably good shape.

Aaron Anderson:

Another concept that I think is core to the way that we manage money that really got reinforced last year is the importance of paying attention to the macroeconomic environment, to doing top-down analysis. As I think about all the volatility last year and what drove companies down in February and March, it wasn't that suddenly they become terrible companies and management teams were awful. It was clearly the macroeconomic environment, the politics, the pandemic, the economic impacts of all of that that drove companies down and then all of the uncertainties surrounding that. And then as we emerged, you saw huge spreads

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Aaron Anderson:

in performance between growth and value companies and technology companies versus say, financials and energy companies. And again, I don't think that's because the energy companies had bad management teams and bad business practices and the technology companies had great ones. It was the macroeconomic environment asserting itself.

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Aaron Anderson is speaking

Aaron Anderson:

So, I think last year was a great example of just how important the macroeconomic environment and applying top-down analysis, trying to focus on the categories of companies first and the individual companies later. I think that was one of our keys to navigating through last year and then a point that's been made already but

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Aaron Anderson is speaking

Aaron Anderson:

I think is an important one is you really see from an investor psychology standpoint what investors react to. And I'll use just COVID-19 over the course of last year as an example when markets were most volatile was at the onset of COVID-19 back when we didn't know anything about it. We didn't know how quickly it would spread. Was it going to be like the flu or much worse? We didn't know about mortality. At one point you might remember they were talking about double digit mortality rates. Turns out it's much, much lower than that. We didn't know if we'd be able to develop treatments and vaccines and those types of things. All that uncertainty led to the huge volatility that you saw early in the year. But as we got through the year, even though we had resurgences, in fact, I can say even as we're sitting here today, you've got many higher numbers of cases, more hospitalizations, unfortunately more fatalities and so forth and we're in the middle of renewed lockdowns again and yet the market is behaving very differently. And I think that's simply because we know so much more about the virus today than we did back then. The uncertainty is what was driving the volatility then. Now we've got some similar conditions and arguably in some ways worse conditions, yet the market is behaving much better because we know so much more about things. So, I think that's an important lesson about investor psychology. You'll hear us talk all the time about how uncertainty, rising uncertainty is bad for the market. Falling uncertainty is good for the market. Last year was just a very condensed version of all of that extreme uncertainty hitting people very quickly and then the relief from that uncertainty improving clarity over the course of the year really benefiting stocks.

Ken Fisher wearing a navy-blue suit with a golden tie and glasses adds a point to Aaron’s comment.

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Ken Fisher:

To add a point to Aaron's comments, as in this group, ever the old goat on adaptability, which everything that Aaron said is right. There's the age old saying that necessity is the mother of invention and last year was just a year that pushed that point hard. Secondarily, not just being the old goat, but also being the jaundiced old goat. My view is that investors normally, don't learn so much when they don't make a lot of big bad mistakes. The worse the mistakes, the more you can learn. The bigger the mistakes, the more mistakes, the more you can learn. Finally, to add one more point to what Aaron said, I'd like to make the point that in a differentiation from the way most investors think and most investors believe about the market, our long held view, which is consistent with theory but not with common practice, that the markets a pre-pricer of all widely known information on the one hand, and that that which the market is pricing typically in the approximate next three to 30 months and never the very long term and rarely ever on the very shy side of that three months. And that the more it's on the shy side, on the short side, it can't hold it there for long. Hence you get that big down, short term perception of the panic of COVID in February- March, and that extreme panic can't be held long and the market then shifts off to the far side of that three to 30. That's not a lesson, but in a sense it's a lesson because it's perhaps in recent decades, the most extreme example of that 3 to 30 framework working perfectly. And it's a point that we've used often and long that others just don't seem to fathom. That the things that people are often concerned about what's going to happen ten years from now and what happened yesterday and what's going to happen tomorrow, markets just speed bump right on past all that stuff or they ignore it. They're in that 3 to 30 month almost all the time.

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Michael Hanson wearing a navy-blue suit with red tie starts speaking

Michael Hanson:

 Yeah, I think one of the things that we've been thinking about for years and 2020 was just really starkly showed us how potent this could be, is something you've heard from us a little bit here and there over the last few years called ABCD or Anybody Can Do It. This is getting exactly to what Aaron was talking about, and I think Dr. Ian Malcolm would agree it has to do with adaptability.

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Michael Hanson: And one of the most interesting features about how markets price things is that information that's widely known or widely discussed gets priced in instantaneously. This is what Ken is getting to as well. And that has very odd and interesting features at times. It means that things that seem readily apparent or that things that people really know, even if and especially if they're very data driven, actually get digested in this market very quickly because we're living In a world, a technological age where many people have access to the same types of data. And because a lot of folks are trained in the same way I find in this industry, they tend to come to similar conclusions. Well, that's the great humiliator at work. And when folks come to similar conclusions, especially when they tend to be data driven, that gets priced in very quickly and the market adapts. And something else happens with prices because the way a price moves ultimately is the difference between expectations and reality. And when things get priced in, it means that which surprises actually moves the stock market. I think one of the most surprising things about last year is just how well ABCD worked. How well the adaptive mechanism worked, how well the pricing mechanism worked. And in fact, the markets, being cold hearted as they are, saw COVID panicked initially, but understood and saw a recovery in a brighter future somewhere into that 3 and 30-month future and in fact, priced that in very quickly.

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