The year 2020. It was a year that tested us all, and as much as I’d like to type some endearing quote about darkness cometh before the dawn, I don’t like to lie to my readers. This past year was an eye-opener in many ways. The fragility of life and our modern ways was put on full display, and big lessons were doled out that would have otherwise floated by in utter normalcy. Good investing requires hyperawareness, and no year pulled the curtain back harder than 2020. New trends developed, some became more obvious, and some came to a halting stop. That being said, with the help of the Fed, a bag of rocks could have made a profit in 2020. The S&P finished up 16.3% for the year with the NASDAQ up 43.6%. My portfolio returned 175.04% for the year 2020. No trading, no options, just holding what I consider disruptive high quality companies. Let’s lake a close look into how I was able to have the year I did.
I attribute the large gain in the general market to two factors, COVID-19, and the Federal Reserve. In the beginning of the pandemic, there was limited information on just how dangerous the virus was, which caused uncertainty and fear. As people sold, the market fell to levels not seen since December 2019. This large fracture created a massive opportunity to buy companies at a fraction of what they were selling for just a few weeks prior. When the panic subsided and the market began to stabilize, people began to pile back into the market. Think about a rubber band being pulled and pulled before it finally snaps back. That’s how the market reacts to extreme forces. And it wasn’t just investors and traders, the Federal Reserve expanded its balance sheet buying roughly three trillion in assets. So, we had people piling back into stocks bidding the prices up, as well as the Fed pumping trillions into assets. If you were brave enough to hold through COVID, or smart enough to buy during the panic, these two forces rewarded you greatly.
Below is a chart from the Federal Reserve’s website showing the expansion in their balance sheet. Notice the similarities to 08′.
Disregarding COVID and the Fed, I do my very best to own forward-looking companies. It was no secret that a large portion of each industry was moving to the internet. People are buying and selling just about anything online. Banking, entertainment, and education were all slowly moving towards “online” before the pandemic hit. Who knew a pandemic would accelerate these trends? The answer is no one. You do the best you can, and owning the companies of the future today is the safest bet against outside forces you can’t control.
I remember reading about a dangerous virus in Wuhan during early February 2019, and then looking out my window and watching all the inbound international flights landing just twenty minutes from where I live. I had a feeling it would be here sooner rather than later, but no one seemed to care. Every response I got sounded something like “thats all the way in China.” I considered selling, but decided against it. And looking back, I’m glad I held. Market timing, especially in extremely volatile events is difficult and psychologically draining. This is why owning companies you understand and have confidence in, regardless of external events is so important. Investors who did not panic sell (and believe me it was hard) were rewarded heavily. Better yet, those who patiently held cash on the side were given a generational buying opportunity. I attribute my performance in 2020 largely to the fact I held all my positions through the COVID crash, and was able to do so because of my confidence, and understanding of the companies in my portfolio.
Below is a chart courtesy of FundSeeder showing my portfolio down 33.7% during the crash.
My month to month performance for 2020, also courtesy of FundSeeder.
I’m going to end with an old investing quote. It goes like this,“strong opinions, loosely held.” Well, this year that quote was about as useful as that new dress you bought to wear out. If you have a strong opinion, back it up. Weather the storm, and when the crowd runs panicked, remain stoic.
Below is a list of stocks I owned through the COVID crash along with their % loss during that time. All stocks rebounded and returned well over 100% in 2020.
This blog is based on my own personal opinions and views, and should not be taken as professional investment advice. Market speculation is very risky, and you should do your own research before deploying capital. Any action you take upon the information provided on this website is strictly at your own risk.