The Legacy Perspective – January 2021

By Steve Wachs, CFP®


“Stop trying to predict the direction of the stock market, the economy, interest rates, or elections.” Warren Buffett

We have previously used the first perspective of the year to offer our prognostications. This year we are taking Warren‘s advice. Here is the reason why. Let’s pretend we would have shared the following predictions with you in January 2020.

We would have the worst global pandemic in over 100 years. The global economy would be shut down, unemployment would skyrocket, and we would have the worst quarterly decline in GDP (Gross Domestic Product) ever. By the way, we would also experience the worst social and political unrest in the past 50 years.

Who wouldn’t have been ready to significantly reduce their allocation to the equity markets if you were confident our predictions were correct? That action would have resulted in missing out on a double-digit gain in the equity markets. A perfect prediction would have led to a bad outcome.

Even if we can’t predict, we can plan. That is what we did this past year and are doing in 2021. We executed more investment trades in 2020 than in any other year. We took advantage of the worst first quarter decline in stock market history by buying healthcare and technology companies. We added a high-yield bond fund to many portfolios. As the values increased, we used our discipline to capture gains to protect clients planned income distributions for 2021. We continued to diversify portfolios by adding to small company and international equity funds that outperformed in the fourth quarter of 2020 and have continued their run in 2021.

We will never predict when to make the bet to get out of stocks, and when to get back in. The total return for the S&P 500 over the last 30 years (1991 to 2020) was a gain of 10.7% per year total return. If you missed just 24 of the best percentage gain days over the last 30 years (24 days in total out of over 10,000 days), the 10.7% annualized gain falls in half to a 5.3% gain. We are not that smart.

We want to leave you with a potential scenario that was outlined in the Financial Times that we could see taking place beginning the second part of this year. It harkens back to the last time a global pandemic ended. You may recall that time was the Roaring Twenties. The 1918-1920 Spanish flu, that killed over 50 million people worldwide, finally ended. Will a similar economic boom take place? We do not know as that would be a prediction, and we don’t make predictions. However, it makes me smile and brings joy to consider both the personal and economic implications.

“While many people have lost their jobs, more have kept theirs, and have been unable to spend as much as they used to, with shops and restaurants closed and entertainment and holidays canceled. The flip side of the unplanned rise in household savings is a frustrated desire to spend. With the end of the pandemic, much of this pent-up demand will be released. Moreover, the policy support for strong demand growth – government deficit and ultra-loose monetary policy – is likely to stay in place for some time. This is not just a quantitative matter of activity rebooting and purchasing picking up. What people spend money on, too, is likely to carry echoes of the Roaring Twenties. Public health instructions have disproportionately hit the most hedonistic end of the consumption spectrum: what we have stopped doing is eating together, drinking together, entertaining one another and going on holiday together. Vaccine-induced herd immunity will quite literally make it OK to party again. And my goodness will we have a reason to party. It is not just the numbers that point to a consumer boom, behind them lies something less tangible, but yet more convincing. You do not have to be an economist, only human, to understand this desire to let loose, get together, and take risks after a year of cautiously locking down at home and distancing ourselves from one another. Such upbeat confidence is the most elusive ingredient of economic growth, but it is no less fundamental for that. The belief in good times can spur consumers to make bigger purchases, businesses to invest in greater capacity, workers to train for better jobs – and even families to have more children. All these would contribute to a durable pick-up in growth. Financial Times


  • Legacy Consulting Group is registered as an investment adviser with the SEC and only conducts business in states where it is properly registered or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.
  • Information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional advisor before implementing any strategies discussed.
  • All investments and strategies have the potential for profit or loss. Different types of investments involve higher and lower levels of risk. There is no guarantee that a specific investment or strategy will be suitable or profitable for an investor’s portfolio. There are no assurances that an investor’s portfolio will match or exceed any particular benchmark.
Recommended Posts