By: Steve Smith
We know the calendar year is a somewhat artificial construct to mark the passage of time. Although it may be arbitrary, having a time segmentation serves a useful purpose; allowing us to measure and compare events over consistent units. Without it, record-keeping would be messy at best.
One obvious area is athletics; how fast can one run a mile or kilometer? Another is investing as yearly returns become the measure of success. But, it would be more beneficial to think in terms of eras or periods. For example, we can think of the pre and post-four-minute mile to distinct periods. However, there again the four minutes is somewhat arbitrary.
Likewise, when we speak about 2021, most of us are thinking about what has transpired since March 2020 when Covid shut things down, some 20 months ago. And, we’re still in the midst of this period and it will only be in hindsight when we know we’ve moved into a ‘post-pandemic’ period.
Anyway, a digression on the semantics of time and space aside, it has been a wild year!
Records have been broken, traditional investing rules thrown out the window, and the very concept of money is being reimagined.
The trend over time has always been towards larger and faster. However, the sheer size and speed of what’s happened in the investing world has been truly eye-popping. From the noteworthy but-mundane fact that the S&P 500 Index (SPY) has hit 69 new highs in 2021 (with a shot at 70 and 71), to the insane valuations that some companies and assets have achieved — seemingly out of thin air —it has left people scratching their heads.
It brings to mind one of the most famous and dangerous statements regarding investing, “It’s different this time.” What I like to say is, “It’s always different.”
Meaning, while the basic frameworks, such as the calendar stay the same, what occurs within them always changes.
What I’ve learned in my 30 years of trading is that for me to be successful I need to maintain a consistent framework. But, I do need the flexibility to adapt to the changing conditions. The bedrock of my framework is risk management. If I can start with that as a sound foundation, then I can withstand, and hopefully profit, from any changes in the landscape, however wild they might be.
Stay tuned, ‘cause the period could get a lot wilder in 2022!