The Biggest Investment Lesson From 2020

There is a famous encounter between JP Morgan and a young investor that is almost certainly apocryphal but is still worth repeating.

Finding himself in the presence of the great financier, the young investor supposedly asked for Morgan’s opinion on the future direction of the share market.

Legend has it that Morgan replied simply: “Young man, I believe the market is going to fluctuate.”

Stating the obvious

The answer may appear non-committal, but it is also wise. The share market has always been unpredictable in the short term, and it is likely that it always will be.

One might say that Morgan was therefore stating the obvious. Yet, people are constantly convincing themselves otherwise.

Anybody who has read or watched the financial news will know that there is no shortage of ‘market experts’ willing to make predictions about where the various investment markets, and even individual shares, are going next.

If 2020 taught us anything, however, it should be little attention we should pay to anybody who thinks they can accurately foresee the future.


Most obviously, nobody making predictions about share markets at the start of the year was factoring in the impact of a global pandemic. Although there was already news of a strange virus infecting huge numbers of people in China, nobody expected the worldwide impact it would have.

However, as one country after another announced lockdowns to protect people from Covid-19, it became obvious that this was going to be the most significant story of the year. All the predictions that had been made about markets were quickly rendered useless.

In those early months, the key lesson for investors was that the risks that have the biggest impact on markets are always those nobody sees coming.

The panicked selling in late February into March came about because nobody knew what was going to happen to economies, individual incomes and corporate profits. It was an illustration of just how powerful a force uncertainty can be.

Perfect foresight

Yet, this was not the most important lesson that investors could learn from the year overall.

Imagine that somebody had, in fact, been able to predict with perfect foresight what would happen in 2020. Not only could they forecast the massive and tragic impact of Covid-19, but also the political upheaval in the US, the brinkmanship around Brexit, and the growing international tensions between China and the west.

Imagine that they presented all of this to one of those ‘market experts’ at the start of the year and asked them what impact all of this was likely to have on investment markets.

No rational person would have taken all of that and forecast confidently that the US share market would end 2020 at a record high, having gained over 16% for the 12 months ending December 2020.

In fact, reporting from Bloomberg in January last year shows that even when the ‘experts’ were expecting a normal, even reasonably positive year, they weren’t predicting double-digit share market returns.

A long-term view

Yet, that is how the year turned out. Despite all the turbulence of 2020, the S&P 500 had one of the 15 best years it has had since 1980.

This truly illustrates the inherent folly in trying to make predictions about the share market in the short term.

Firstly, no one really knows what is coming. Even the most benign market conditions can be completely disrupted by something unforeseen.

But secondly, and even more significantly, even if one knew exactly what is going to happen in the world, there is no way of knowing how the market will react. Markets change as news changes.

This offers a reminder about the risks involved in setting your investment strategy according to the headlines of the day. That is, the only way for a true investor to approach the share and property markets is by taking a long-term view. That is not five years, or even 10 years, but being invested over decades.

Rather than basing investment decisions on predictions of which way debt, property or equity markets are headed, a wiser strategy is to seek advice, ultimately hold and regularly rebalance a range of investments that focus on systematic and robust drivers of returns. Investors who were broadly diversified across asset classes and around the globe are in a great position to enjoy the long returns that the markets continue to deliver. Last year, this year, next year—that approach is a timeless one.

Next steps

To find out more about how any of these measures may be of assistance in your individual circumstances, please contact Gordon Thoms or David Conte at Calibre Private Wealth Advisers on ph. (03) 9824 2777 or email us here.

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