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Top Five Investment Lessons Learned in 2020

Updated: Jul 12, 2023

Summarized transcript of video below:

Hey what's going on everyone. First and foremost I want to wish you all a happy and healthy new year and welcome you to the first in a series of videos from One-Up Financial geared towards helping you retire with more money and less stress.

I think I speak for most of us when I say I want to completely remove 2020 from my memory bank! But as bad as last year was, it's important to reflect on what we as investors can learn from the calamity that was 2020. In this video, we're going to go through the top 5 investing lessons learned from 2020 and how to apply them in the new year. Let's get into it.

1. The stock market isn't the economy. I can't tell you how many times investors last year asked me, "How is the stock market going up when so many people are out of work and businesses shut down?" I wrote a post about this a few months back which can be summed up into one word: technology! Apple, Amazon, Microsoft, Google and Facebook represent nearly 25% of the S&P 500 and were, in large part responsible for the roughly 16% return on large-cap stocks last year. The rest of the 495 companies either had a mediocre year or experienced significant losses. Not to mention the hundreds of thousands of small, privately businesses who had to shut down due to COVID.

Technology also made it easier for newbie investors on apps like Robinhood to take their stimulus money and start day-trading. So now we have this new wave of millennials and Gen Zs entering the market with a penchant towards high-flying tech stocks, bitcoin and self-driving car companies.

So for me, the big takeaway here is that the economy does not reflect what's happening in the stock market. Be prepared for more of a disconnect between the real world and the market in 2021. And remember, just because you own an index of 500 different companies like the S&P 500 doesn't necessarily mean you're diversified.

2. Stock picking is fun, but REALLY HARD! According to a recent Financial Times article, nearly 70% of all active, professional mutual fund managers failed to beat their benchmark, the S&P 500 through the end of June last year. And if you look at the results over a longer period, the percentage of underperformance only rises.

So forget the people bragging about how much they made in Tesla or bitcoin or Zoom. What about the other thousands of investors who lost money trading stocks?

Finding undervalued companies these days isn't easy. With social media and news outlets all fighting for your attention, the volume of information is overwhelming! And the movement of information is so quick it's difficult for the average investor to get an edge on the competition.

It's also becoming increasingly difficult to decipher between fact and fiction. And investors seem more concerned with future expectations of a company, user base growth and total addressable markets than some of the more traditional factors for valuing stocks such as price to book value or free cash flow.

If you're the kind of person who's into learning about the markets and researching companies, I think it's a great idea to have your own individual stock account. The best way to learn is by doing so I'm all for it. But please, don't fool yourself into thinking you can time or much less beat the market.

So if you're going to be picking stocks and investing on your own in 2021, have fun, but know that the chips are stacked against you and make sure you're investing for the right reasons.

3. The Government Safety Net: Last year the federal government injected trillions, that's "trillions" with a "t," into the economy to combat the effects of the coronavirus pandemic. Since then, (I believe the low was March 23rd) the market has pretty much gone straight up.

This is important to note because it demonstrates just how large and powerful our government is and its ability to provide a buffer for downside risk in the markets. The recession of 2020 was the most short-lived in U.S. history with the market getting back on track within a few months.

This unbelievably quick turnaround may help explain why bad news, i.e. a rise in COVID cases, riots on capitol hill, blue wave, etc., doesn't always translate to a decline in the stock market. Does the market really care anymore about the news, good or bad now that it knows the government will step in and do whatever is necessary? I don't have the answers, but have learned that you should never make financial decisions based on how you think the news may impact stocks or the broader market.

4. It Pays to Know Your Taxes: CARES Act, stimulus money, PPP loans, small business grants, unemployment income, oh my! When the CARES Act was released, I reached out to three local attorneys as I had questions pertaining to the PPP loan as the verbiage was confusing and contradictory. Not surprisingly, I received three different interpretations and a variety of interesting curse words describing the nearly 250 page document!

RMDs were suspended, meaning lower taxes for people in some cases. Penalties were waived on early withdrawals from retirement accounts, potentially saving people thousands of dollars. Certain unemployed workers bypassed paying social security and medicare taxes by staying home and collecting unemployment which, in some cases was more than what they'd earn actually working.

While all these stimulus efforts were more than warranted, they came with the unintended consequence of making the tax laws seem more complex than they already were. And I suspect that with the Democrats holding a majority in the House and Senate, we're only going to see more changes and possibly more complexity coming.

So if you're not a tax expert and prefer not to spend your time dissecting 300 page documents of drab nonsense, do yourself a favor and find a good CPA immediately!

5. Experts Can't Predict the Future! Remember at the beginning of last year when the coronavirus was limited to China and everyone predicted a global pandemic would decimate stocks for 3 months, then result in one of the best years for the market in recent history? Yeah, me either.

Truth is, no one knows what's going to happen tomorrow. Not your neighbor who thinks Tesla is going to the moon (Even though Elon may), not the talking heads on CNBC who tell you Nvidia is a buy, NO ONE!

Just because Jim Cramer owns Lululemon in his charitable trust or Dave Ramsey recommends mutual funds doesn't mean you should blindly heed their advice and follow suit. Both aforementioned TV personalities are multi-millionaires. They could afford to stuff cash in their mattresses for 40 years and still have money left over. And most of them made their fortunes taking risks starting businesses, not foreseeing what Amazon stock would do in 4 months.

No one investor is exactly the same as the next. We all have different goals, different risk appetites, different saving habits, different jobs, the list goes on. Know what makes you different and seek out a variety of opinions and advice from experts who've walked in your shoes, or who have experience in dealing with investors like you.

We really appreciate you taking the time to listen to this video. Please let us know what you thought in the comments below, subscribe to our channel, and let us know what's keeping you up night. Our content is literally derived from the problems and pain points of investors nearing or recently entering retirement. We want to hear from you. Thanks again and we'll see you in the next video.



Image by Aaron Burden


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