“We are living in unprecedented times” is a phrase that we’ve all become tired of hearing over the last few years.

I don’t know about you, but I would like to live in some “precedented times” for a little while!

2022 has been a difficult year to be an investor. Economic and political uncertainty at home and abroad has caused a rippling wave of volatility that has touched nearly every asset class. Most stock indices are currently in bear market territory, interest rates have had an historic rise, bond markets are reacting to this increase with volatility of their own, inflation has been consistently high, oil prices are as fickle as ever, home prices seem to be coming down, and cryptocurrency is startlingly erratic!

That’s enough to give any investor heartburn! Okay, deep breath. Let’s put down the Wall Street Journal…and turn off CNBC. Instead, let’s turn to History and Human Ingenuity and let them guide us for a moment.

As humans, we are inherently biased to pay more attention to recent alarms than long-ago news. However, as an investor, if you overemphasize the news that looms the largest, you’re far more likely to damage your investments than do them any favors. You’ll end up chasing hot trends, only to watch them combust or fizzle away. Or you’ll jump out during the downturns, without knowing when to jump back in.

Do you remember what investors were worrying about a year, several years, or several decades ago? If you experienced some or all of these events first-hand, you might recall how you felt at the time, before we had today’s hindsight to inform our next steps:

2021: The Taliban takes control in Afghanistan, while a “ragtag army” of online traders led by Roaring Kitty storms Wall Street.

2020: COVID-19 shuts down economies worldwide. Civil unrest rides high across a gamut of socioeconomic concerns, and a divisive U.S. presidential election looms large.

2018: Two U.S. government shutdowns occur—in January and again at year-end, with the latter lasting more than a month.

2016: The Brexit referendum and U.S. presidential election deliver surprising outcomes.

2015: A long-simmering Greek debt crisis erupts.

2011: For the first time, the U.S. federal government credit rating is downgraded by one of the major rating agencies from AAA to AA+, and the Occupy Wallstreet movement is born.

2007: The Great Recession and global financial crisis begins.

2001: The 9/11 terrorist attacks send global markets reeling. An accounting scandal at Enron culminates in the energy giant’s bankruptcy. 

1999: The dot-com bubble bursts; the Y2K bug spurs massive, worldwide computer reprogramming.

1980: U.S. inflation peaks at 14.8%; Americans are marching in the streets over the price of groceries. Also, the U.S. Savings and Loan crisis begins, ultimately costing taxpayers an estimated $124 billion.

1973: An OPEC oil embargo “fueled bedlam in America.”

In the face of today’s challenges and tomorrow’s unknowns, and in light of the fact that humans have overcome challenging times in the past, we advise looking past the immediate and focusing instead on the power of human ingenuity which is the engine that drives our market.

Human Ingenuity
The stock market is a forum for capitalizing on our collective ingenuity, which has generated amazing advances as well as strong investment returns over time. As Dimensional Fund Advisors’ Founder, David Booth, points out: “(T)he best long-term investing strategy has little to do with prediction or stock picking, and everything to do with investing in human ingenuity. Human ingenuity is the engine that drives the stock market.”

It might help to think of the market as a mighty vehicle, like a train. When you climb aboard, your goal is to reach your desired destination by accumulating miles, or market returns, without derailing along the way. For that, you need a solid, powerful engine of global commerce. But that engine also needs a supply of combustible fuel, which is market volatility and uncertainty. Don’t forget: risk and return are related!

Because we expect the engines of ingenuity to continue chugging along, we have every reason to remain optimistic, and to stay invested as planned. We also understand why diversification remains equally essential to our efforts—because we never know just where the next sparks are going to fly. And, to stretch the analogy to its limit… you have to stay on the train in order to reach your destination!

By embracing the reality that stock market returns are random and robust, you can boost your ability to remain calm (or at least calmer) during the maelstroms, and improve your chances for reaching your investment goals over time.

I’ll close with another quote from Dimensional’s David Booth:
The market can reward us for having faith in our fellow human beings. Investing—like life—is full of uncertainty, but at the end of the day, it’s uncertainty that drives opportunity, and returns. Investing is not about trying to outguess Wall Street or meme investors on which stock will go up or down and when. It’s about choosing to side with human ingenuity and betting on a future that’s better than today—because of the hard work of everyone you know, and the many millions you will never meet.

Wishing you the very best and remaining hopeful for some “precedented times.”
Jonathan Hall, CFP®
President, Director
Warburton Capital Management

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