Gil’s Musings

Playing the Stock Market Long Game

2020 was certainly an interesting year for stocks.

We are glad it ended on a high note in the face of very challenging economic conditions. One reason for the divergence is that the markets are always forward-looking, and 2021 is likely to be a much better year for the economy. The market’s current action is now dominated by companies that benefit from us living more virtual lives. So even though some industries struggled, most stocks did well, and some did exceptionally well.

There are four primary contributors to 2020 being our best year ever for client results:

  1. Longstanding overweight to stocks
  2. Overweight to technology
  3. Underweight to energy
  4. We bought the March dip in many accounts

The biggest change in the markets this year is the surge in trading from a new set of investors in their twenties and thirties, the Robinhood traders. Robinhood is among many apps available on your phone to trade stocks for free. Having new money in the markets typically leads to stock frenzies driven by investors who are more speculative and short-term oriented. In a recent IPO, a company called that trades under the ticker “AI” sold shares to the public at $42. It opened for trading at $100 on December 9th and hit a high of $183.90 on December 23rd, before falling back to $150. At its peak, the company with $160 million in sales was worth $17.5 billion. There have been many such speculative rallies this year and likely many more to come next year.

At Segment, we study virtually everything, and who knows, we might even be buyers of someday when there is better earnings visibility to justify the valuation. In the meantime, we stick to a different kind of knitting. We do follow trends, but we do not chase trendy things. That game is fickle, filled with tax traps, emotional traps, and requires flawless execution in a string of parlays, which in the end, has befallen many generations of “investors.” This is not investing; it’s Vegas in a different form. We are happy to see a growing interest in stocks and ETFs and enjoy watching these stock moves.

We will always play the long game without worrying about shorter moves up or down since most of the market-moving news is just noise. We did not sell when the market hit its lows in March, and we will not buy frenzied stocks now. We do own some higher growth companies, like Taiwan Semiconductor (up 92% this year) along with other consistent performers like Walmart that gained 23%. We continue to stick to a diversified portfolio of companies that have a proven track record of revenue growth and profitability, along with ETFs of the same ilk.

There are two ways to grow a million to ten million. You could find the next Tesla and bet all your money on it, which would have taken slightly over one year to achieve. Or you could play the long game in a diversified portfolio; a million invested in the S&P 500 about 25 years ago would be worth ten million today after reinvesting dividends. While the shortcut sure seems great in hindsight, we know it’s not easy and relies much more on luck than skill.

The skill is in truly understanding the market psyche and following a long-term disciplined approach with no exceptions. While we certainly hope to find the next Tesla, we will be sure to own it as one position among many.

Above all, we hope that 2021 allows us to return to life as normal.

Read More: Staying Power

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