The Warren Zevon Stock Market Is Upon Us. How To Approach It.
By now, you have probably read and heard more about this election season than you ever wished to. So, in the interest of brevity, here is a quick summary of what could drive the headlines, and to some degree the markets, through this month and into December.
It can be summarized in the title of a classic rock song by the late, great Warren Zevon, best known for “Werewolves of London.” His 1978 tune, “Lawyers, Guns and Money” was about a fellow who we assume is a spy, a son of a wealthy family, or both. He gets in some trouble, and asks to have those 3 things sent to get him out of the jam.
Anyway, here’s the contemporary investment market version:
There is already strong potential for the election outcome to lead to a legal battle. Even if that is a longshot strategy to contest the election, it’s 2020, so you never know what type of market reaction it could generate. Just one more risk to account for, alongside S&P 500 volatility, interest rates and rising Covid cases.
Regardless of where you stand in your politics, I am confident we can agree that one of the best outcomes on election night was the absence of turmoil in our cities. Let’s hope and pray this is case through the duration of the election process.
The Federal Reserve is THE best thing the stock market has going for it. The level of faith in the Fed is astounding. The belief is that monetary conditions will accommodate whatever ills confront investors. That has produced a habitual level of investor overconfidence.
Easy credit conditions and low interest rates do help. But it is important to remember that the Fed lends money. That can keep the economy from getting worse, more than it can make it better. And what we all want to see in the months and years ahead is that small businesses get a chance to come back, that folks are able to return to work safely, and that career retraining can occur to prepare us for the economy of the future.
After all, that new economy has been thrust upon us by the sudden nature of the pandemic. It is changing the nature of work faster than we would have expected.
For investors, this means that as the rest of 2020 proceeds, and we turn the corner into 2021, the way we approach investing must continue to evolve. Investing needs to be more tactical, to capitalize on the increasingly skittish nature of market participants. And, it needs to contemplate what will be fad versus what will be revolutionary in the types of businesses we invest in.
This is a time where the investor’s best friend is education. Investing has become a very popular “pastime” for many this year. That’s a nice sugar high for some. But to earn sustainable returns as a serious investor, you need to look beyond headlines and develop perspective. Then put it to work as simply as possible.