Be Timeless, Not Trendy
We are quickly approaching the midpoint of the year, which means we’ll start talking about markets in terms of the “first half” and the “second half” of 2021. This week’s message is one of principle rather than analysis, but I think it’s an important one for investors to remember in the second half.
The rebound in markets from last Spring’s lows has brought about several new trending topics—meme stocks, stay-at-home stocks, crypto assets, SPACs, NFTs, to name a few. These topics have driven media commentary, sparked debates, and importantly, gotten a lot of newer investors interested in markets.
The market is undoubtedly different than it was 10 years ago. Today’s market offers us a number of new asset types where we can invest in things that weren’t available to the average investor before. I think that’s a wonderful thing. I think widespread interest and engagement in investing is critical to this country making a smoother economic transition across generations.
I also think we’ve spent a lot of time talking about the trending topics and not enough time on the cornerstones of investing.
3 Mantras for the Second Half of 2021
Covering all the tenets of risk management, diversification and time horizon considerations is beyond the scope of this piece, but here are some things I want investors to remember in the second half of 2021 when I believe markets will reward fundamentals and diversification over momentum and trends.
There is life outside of large-caps. For many reasons, we’ve focused on the large-cap stocks more than other size categories. But as small businesses come back to life and people return to work, I see good opportunities in small- and mid-cap stocks. Despite underwhelming second quarter performance in small-caps, the rest of 2021 will focus more on fundamentals and revenue growth potential, which should reward smaller-cap stocks.
It was a global crisis; it will be a global recovery. Although it’s completely natural to focus more on investments on our home turf, it’s also important to spread exposures abroad to capture the opportunities that could exist and enhance diversification. Many parts of the globe are behind the US on their recovery timeline, but the second half of this year is when they may play catchup. In particular, I believe European markets can do well as we move through the rest of 2021.
It’s not all supposed to work at the same time. One sign of a well-diversified portfolio is that the assets don’t all behave the same way. That doesn’t mean they’re misbehaving. There should be parts of the portfolio that slink into the background when others step into the spotlight. The former are the ones you’ll be glad you own when the lights go off and fear strikes.
At the end of the day, investing is a marathon that requires planning and stamina. It’s okay to invest in trendy assets, but don’t let them overwhelm the foundation of a durable portfolio, or cause you to redefine your risk tolerance just to “get in the game.”
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