“Far more money has been lost by investors preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.” – Peter Lynch
“Any minute now my ship is coming in. But don’t you understand? I already have a plan. I’m waiting for my real life to begin.” - Colin Hay (formerly of Men at Work)
You hear financial commentators on TV debate day after day as to whether the US economy will experience a ‘soft landing’ (i.e., lower but positive GDP) or a ‘hard landing’ (i.e., some kind of contraction). The anticipation of a recession – or lack thereof – has consumed economists and mainstream investors literally for years. I had clients in early 2021 – as we were just emerging from a pandemic-induced recession – tell me they wanted to hold off investing in stocks until there was more “clarity” in the economy (specifically not wanting to invest for fear of an imminent economic downturn). Today the same commentators who predicted a recession for 2022, then 2023, are now predicting one for 2024.
It is one thing to do your job (even poorly) of predicting future economic conditions, it is another thing entirely to materially modify long-term investment strategies and programs based on the unpredictable. Of course, the irony is that stocks did poorly in 2022 in large part because the economy was too strong (as measured by employment and other factors), the Fed deciding to aggressively raise rates to cool off heated inflation and the economy at large. Not surprisingly, many of the high-quality longer duration stocks like technology companies that got hit hard in the rising interest rate environment in 2022 have come roaring back this year.
Let me tell you a secret: the economy never lands. This is not a plane. The economy is not heading towards a destination. There is no endpoint. There is no single piece of information we are all waiting for that will finally give ‘clarity’. From a BIG picture standpoint, we are all just little specks on a large planet that is itself an even smaller speck flying through space in a universe that is so large it defies comprehension.
This may sound fatalistic or even depressing – how small and insignificant we are, how little control we have over things like the broad economy. But instead, it should be liberating. It should put things in perspective. It should shift your focus from things like watching financial news day after day with the attempt of sifting through all the conflicting information to divine just exactly when the US economy will enter a recession, to what degree, and so on.
It should cause you to instead focus your attention to what ultimately matters and the things over which you have a large degree of control (the future of the US economy not being one of them). Namely, how much are you saving? Is your portfolio appropriately allocated to high quality stocks and fixed income consistent with your investment time horizon? Are you healthy physically, mentally, and spiritually such that you can take full advantage of the money you have accumulated (ask a billionaire on his deathbed if he would trade his billions for 5 years, or even 1 year of great health and the answer would be a resounding “yes!”). Do you have strong relationships with your partner, friends, family, colleagues? Are you ticking off that bucket list?
Dedicate time to these matters, and let the economy do its thing. The economy will do what the economy does, and all the smart PhDs in the world won’t accurately predict the economic future, let alone how the stock market will react to such events (remember, the stock market often anticipates by 6 – 9 months economic events, so by the time a recession is officially announced, any stock market damage will likely be in the rear view mirror and a rebound underway).
In doing so you will save time, reduce stress, and (ironically) very likely improve your investing results.