The gentleman above is François-Marie Arouet, who's better known by his pen name, Voltaire.... You may have heard of him. One of Voltaire's most famous works, Candide, is characterized by a sheltered young man's initial indoctrination into an overly optimistic outlook before the darkness in the world shows itself to him. His initial optimism is as a result of his mentor, Professor Pangloss, and his unrelenting optimism. First I mentioned Ross Perot and now Voltaire?! What a weird newsletter.... So why am I bringing this up? Because there's a healthy dose of "Dr. Pangloss' Optimism" swirling around in the stock market these days, and unchecked optimism can be dangerous. Before I go further, I should note that I started writing this blog about 10 days ago and I'm just now finishing it on Tuesday, Sept 8th. Over the last 3 trading days there's been a pretty significant selloff of some of the market. Perhaps pricing in a bit of skepticism or caution... Nonetheless, I hope this section presents at least some insight.
Don't get me wrong, I'm am optimist and I was pretty loud and pretty consistent about that through the downturn earlier this year. I also just finished telling you not to be scared solely because there's an election on the horizon. Also, to be clear, investing is always about making decisions in the face of uncertainty. It is how one deals with the uncertainty that distinguishes the good investors from the bad. Further, doubt will always be a byproduct of the presence of uncertainty. At the time of my 'middle-of-chaos optimism' I had no idea what the market recovery would look like, but I wasn't betting on the end of the world or the second-coming of the Great Depression (as a few pundits were advocating). I was only assuming that people would want to continue doing business with other people. Sometimes when things get REALLY complicated, we have to dial back our thesis to something as simple as possible. All that said, I definitely didn't expect the rapid rebound we've seen. It's been fast. Going forward, I have no idea how difficult it will be to get back to the prior low unemployment numbers. I don't know what a second wave of Covid-19 will do to the economy or what policy will follow. But we do know that these questions exist and that this uncertainty should be baked into the price of the market today and reflected in the approach you take going forward. I'm optimistic, but I'm also a realist who's spent a lot of my bandwidth understanding the tendency of the mob to euphorically flood into assets while creating an unsustainable growth trajectory. Red flags started to go up in 1999 when your cab driver started talking about hot internet stocks.... In 2020, I'm sure Uber drivers were licking their chops at the Tesla stock split. (Nothing against cab drivers or Uber drivers... This is more just about "stocks" being a topic of casual conversation amongst relative strangers. Also, with the benefit of witnessing the last few trading days in September, we're seeing stocks like Tesla come back down to earth a bit.) Maintaining my cautious optimism, I'll continue to review our allocations and survey the global landscape, but just remember the following: 1) The ENTIRE U.S. stock market has not recovered from the lows. The big tech stocks are leading the way and there are still plenty of places with potentially attractive entry points. 2) If you have time on your side, it is much easier to ignore these short term issues and simply keep your money invested in an aim to grow or at least outpace inflation. If you have enough time on your side, the entry point matters very little. 3) Much of the U.S. stock market rally has been fueled by the fed and by fiscal stimulus. Simply put, it's been about liquidity creation and low interest rates. This has been the justification for the U.S. reaching lofty valuations (i.e. stock prices relative to the earnings of those companies). Conversely, many foreign markets have also dropped interest rates and created liquidity, but haven't seen their stock market valuations rise like the U.S.... This is a big reason why I believe in global diversification. So while everyone seems to be caught up in Dr. Pangloss' optimism, I'd encourage you to remember this other Voltaire quote: “Doubt is not a pleasant condition, but certainty is absurd.” - Voltaire
Get comfortable being uncomfortable. | 
