There’s No Way I’m Investing in this Economy!

On August 18, 2020, against all odds, the S&P 500 hits a new all-time high. Almost exactly six-months prior, the voices of consternation—from all corners, mind you—are inciting fears of Depression-era financial instability in the global economy. Well-minded folks are selling equities for gold and cash, and the more troubled are lining up at the bank, six feet apart, to withdraw their money. Much of the devastation of the pandemic hasn’t changed, yet the stock market is back on top. Or is it?

What in the hell is going on, and should you be a part of it?

Let’s go!

Is Now the Best Time to Invest?

In the early days of the financial instability beginning in February of 2020, I’m putting the finishing touches on a post about my own investing dilemma. I’ve been (truly) gifted an incredible severance package as part of a company buyout. That same company buyout is putting a really nice bow on my “early retirement” plans, which were to occur at roughly the same time.

I told you I’m privileged. And it’s true.

The bottom line is that I’ve got a lump sum of cash to invest in mid-February, but the ground is starting to shake.

So, what do we do when we want to start investing but things feel so incredibly uncertain? Despite what you might have heard me say before, is now really the best time to start investing?

How is the Economy Doing, Really?

On a quantitative basis, the economy isn’t doing as terrible as it seems.

Surely, in March and April, the economy takes an inconceivable nose-dive. Unemployment skyrockets, thousands of businesses are shuttered, and many of those that remained open are hanging by a thread. However, by May, businesses are beginning to rehire and unemployment claims—while still quite high—begin to quickly dwindle. The trend continues for June, July, and August.

Is this event simply an incredible summer monsoon of nightmarish economic contraction, powerful and terrifying, yet over as soon as it begins? Karsten of Early Retirement Now does a fantastic job in highlighting why this might be the shortest recession on record.

Even housing, which was devastated and closely tied to the 2008 financial crisis, has been left almost entirely unscathed throughout this crisis. One could argue that many of the unemployed are lower-wage workers in the service sector (restaurants, retail, etc), perhaps less likely to own homes. Furthermore, once lockdowns are ordered and many experience only the inside walls of their condominium or big-city apartment for months, the desire to hit the suburbs or smaller cities is through the roof. However, most folks in the suburbs and smaller cities aren’t moving, and inventory stays tight. Prices remain strong.

Here’s the story of how we recently sold our house in August, pandemic be damned.

So, though feelings of a housing bubble are simmering prior to the pandemic, to date, the housing market remains resilient. Will it last?

The Stock Market and the Economy

How about that stock market, eh? In March, I write a series of posts here, here, and here about the coming and evolving crash. We all see it coming, right? In the comment threads and real-life conversations I have with folks, the sentiment is the same from those around me:

No way I’m investing in this market.

Well, in hindsight…you should have.

The market bottomed out on March 23 and returned to all-time highs in less than five months! Those investments made in late March and April, when so many were running for safety, have probably generated a pretty nice return! Who saw that coming so soon?!

Now that the market is back on top but the pandemic persists, you know what I’m hearing again?

No way I’m investing in this market.

A Reminder That the Economy is Fluid

Perhaps I should set a calendar to write a similar post every six months. It will be titled:

Remember When Things Looked Scary but Then Turned Out to Be Okay?

Ok, I’m being a bit of an ass, but it’s true. Now that we’re at all-time highs, will the market fall again? Of course it will! We absolutely will see another market collapse; something described as a crisis. We almost surely will see the government prop the economy with stimulus and bailout money, and we without doubt will see families struggle and jobs evaporate.

Will that happen in 2020?

I don’t know.

Is someone predicting that this will happen in 2020. Yes, yes they are.

Are they sure about that?

No, they most certainly are not.

The Recession Predictors

I had a buddy in college who viewed dating as a statistical endeavor. If he hit on enough women—with little regard for compatibility on any level, mind you—he would be successful eventually.

Hey man, if I talk to 100 girls, someone is going to leave this bar with me.

Well, the type of loud-mouth economists who go on the evening news and talk with their hands are sort of like my well-intentioned college buddy. If they warn of a looming recession enough, once in a while they’ll be right. And then they can say they predicted a recession! Never mind that they also predicted seven others that never materialized.

Bad news sells.

One of the many reasons why market timing still doesn’t work.

But What Do I Really Think About the Economy?

My honest thoughts?

Here it goes: A lot of the stock market is overvalued right now. Many restaurants, cafes, and bars are bound to contract and fold as fall and winter temperatures become cold and miserable, forcing people indoors. Any businesses that rely on a crowd are going to suffer. I predict many of the over-leveraged and super-hip climbing gyms, breweries, and urban hipster malls will close. Airlines are hanging by a thread. The end of mortgage forbearance may reveal a shocking number of underwater homeowners, impacting the housing market across the nation.

Of course, I could be 100% wrong on all of the above. And let’s not forget: the S&P 500 (and probably your favorite index fund) is largely driven by the performance of five companies: Apple, Amazon, Facebook, Google, and Microsoft. Those companies are crushing it, making up for all the despair witnessed in small businesses.

Are We Changing Our Investing Strategy in this Economy?

Am I changing anything about my investing style or frequency?

Absolutely not.

My wife continues to work, which frees up a small sum of cash for investing. We dollar-cost-average each month, and we will continue to do that every single month until that job ends.

Our investing strategy, Part 1 and Part 2.

On the Economy: Be a Short-Term Pessimist and a Long-Term Optimist

To be a successful investor, Morgan Housel tells us it’s best to be a short-term pessimist but long-term optimist. We must understand that every five or ten years, on average, a trap door opens up on financial markets and the bottom falls out. There will always be a looming correction, bear market, or recession. However, over time, the market always goes up.

Why?

Humans are incredibly resilient and creative creatures. Out of the ashes of failure and decimation always comes growth and prosperity, at least at the macro level. We see it across thousands of years of human existence.

With that said, I won’t be surprised to see stocks fall again in the next year or two. It might come soon; it might come later. But we’re still investing like we always have.  

The sooner an investor comes to realize that great, often-calamitous, and unexpected events occur with semi-regular frequency—world wars, the Great Depression, Kennedy assassination, Civil Rights movement, 70s hyper-inflation, Black Monday, Dot-Com bubble burst, 9/11, 2008 financial crisis, and Covid-19—the better the investor is able to shrug off all the short-term pessimism and snuggle up to the down blanket of long-term growth.

So, yes, I’m investing today. If you want to build sustainable wealth, there’s no better time to invest than now.

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What do you guys think? Are we headed for more prosperity, or economic dread? How are you feeling about investing these days?

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