Predicting Rain Doesn’t Count, Building Arks Does

Predicting Rain Doesn’t Count, Building Arks Does

2020 was a year of unparalleled uncertainty. As the pandemic evolved over the months it created massive disruption to economies, politics and people’s lives.

The first half of the year produced more worries than the second half. From February to the beginning of March 2020, the financial markets crashed. In a matter of weeks, the S&P 500 dropped 34% from its record high to reach a low of 2237.40 on 23 March.

As borders closed and countries went into lockdowns, governments started to roll out stimulus packages and emergency budgets to support their economies. The stock market then began a remarkable run that saw the S&P 500 finish 2020 with a gain of 16.26% for the year.

We’ve studied the major stocks that moved the markets in this highly fluctuating year and found that the recovery has been uneven. Companies that are not profitable have seen stock prices returning more than 100%, while companies with a strong balance sheet stayed stagnant. Markets such as Europe and Singapore remained negative while the Nasdaq was soaring through the roof. When we discover such erratic stock behaviour, it calls for caution.

We saw a lot of speculative trading driving stock prices in 2020. Unfortunately, many amateur investors who formerly had professional careers such as airline pilots or engineers turned to trading stocks as their main source of income. They unknowingly made risky bets on companies without understanding risk. They bought into something with the hope that the next person will pay more. It’s another sign telling us to be rational.

On the positive side, we identified companies that are relatively safe and undervalued. These are companies with strong financial statements and excellent business models, so we were pleased to be able to pick these up at a very attractive price.

Looking back at 2020 overall, we witnessed incredible resilience of the human spirit. We valued life more than the economy and we adapted pretty well according to the circumstances. While the wealth gap remains, with the Federal Reserve reporting that the top 10% richest households in the US control 87.2% of the equities at the end of the Q1 2020, we have also seen many humanitarian efforts to help reduce inequality. For its part, Eu Capital has been supporting a charity dedicated to helping children and youths from less privileged backgrounds, while it has been humbling and inspiring to learn how millennials – some of the hardest hit financially during the pandemic – have proved some of the most active givers of all during this crisis.

As we begin 2021, we can look ahead with hope and optimism. With the roll out of vaccines and the joint efforts of the global community, we will move from a period of great uncertainty to one of less uncertainty. While we don’t try to guess the stock price of tomorrow, we are confident that the companies we own will continue to flourish.

To quote Warren Buffet, “Predicting rain doesn’t count, building arks does.” Our ark is built, we look forward to welcoming our clients aboard to continue getting the best long-term asset growth.