Midyear Review and Outlook 2020

The first six months of 2020 saw the advent of the worst global public health crisis in a century—since the
1918 influenza pandemic. In response, the world locked down, putting its economy into a kind of
medically induced coma.


In this country, the immediate effects were (1) a savage and nearly instantaneous economic recession,
accompanied by record unemployment, and (2) the fastest, deepest collapse in stock prices in living
memory, if not ever.


Though I usually write you an extended personal summary annually concerning the year past—and will
again—the stark drama of the last half year has been such that I wanted also to report to you now.
This letter follows the format of my annual reports to you. It’s divided into two parts, the first a
statement of general principles, especially those most relevant in the current crisis, with a restatement of
how I practice my stewardship of your invested wealth.  The second is a review of what little can be
known at this point, and of how I propose we continue to deal with the pervasive uncertainties of the
moment.

What I Believe - General Principles

  • I believe that all lastingly successful investing is essentially goal-focused and planning-driven.  All failed investing is market-focused and event-driven.
  • Stated another way: every truly successful investor I’ve ever known was acting continuously on a longterm plan.  Every failed investor I’ve known continually reacted to sudden and terrifying market shocks.
  • Thus, I’ve found that long-term investing success is only incidentally a function of the economy and the markets.  It is a direct function of how the investor reacts—or, more properly, how he/she refuses to react.
  • You and I are long-term, goal-focused equity investors, acting on our plan with patience and discipline.  The smaller part of what I do for clients is the crafting of that plan.  However, the much larger part is helping you not to react in stressful times like this.
  • I continue to believe that the equity market can’t be consistently forecast, much less timed, and that the only certain way of capturing equities’ superior long-term returns is to sit through their occasionally steep but historically temporary declines.

Review and Outlook- Midyear 2020

  • At midyear, the best that can be said is that the first great wave of the pandemic appears to be abating, and the economy is slowly reopening.  As it continues to reopen, there will inevitably be some flare up in new infections.  The interaction between the pandemic and the economy in the short to intermediate term is therefore perfectly impossible to forecast, as is the timing of the development of a vaccine.
  • The equity market crashed from a new all-time high on February 19 to a bear market low (so far) on March 23, down 34% in 33 days. There is no historical precedent for this steep a decline in so little time. Confoundingly, it then posted its best 50 days in history.  The S&P 500 closed out the first half at 3,100, which is 8.4% off its all-time high.
  • It is not possible to forecast the near-term course of corporate earnings or dividends, as they—like the economy they reflect—are still largely hostage to the pandemic.  That said, I invite your attention to the fact that at June 30 the yield on the 10-year U.S. Treasury note was about 0.64 tenths of one percent.
  • I infer from the current state of interest rates that though it is impossible to forecast equity earnings, dividends and prices, it can be stated as fact that few if any can continue to advance toward the achievement of their long-term financial goals in Treasury bonds, at anything close to today’s yields.  This is just another reason why I’ve advised you to stay the course in your diversified portfolio. 
  • It should also be noted that even if the pandemic continues to subside and the economy to recover, investors will still have to deal with what may be the most widespread civil unrest in our country in decades, and what promises to be a bitterly partisan presidential election cycle.  Emotions seem likely to continue to run high, with unpredictable short-term market consequences.
  • I’ve very deliberately labored in this summary to convince you of the sheer unknowability of the short (say, the third quarter of 2020) to intermediate (say, through the first quarter of 2021) term economic and market outlook.  In the next breath, I remind you that not one of you is investing for the next one to four calendar quarters.  I say again: you and I are long-term, goal-focused, planning-driven, patient, disciplined investors.  Our focus is on history rather than headlines, and our mantra is from Churchill: “The farther back you can look, the farther forward you are likely to see.”
  • Finally, I would urge you to think back to January 1 of this year.  Have your most cherished lifetime financial goals changed since then?  If not, I see no compelling reason to change your plan—and no reason at all to change your portfolio.
  • Be of good cheer.  This too shall pass.  Optimism remains, to me, the only long-term realism.

By all means, please be in touch with me with any and all questions and concerns.  In the meantime,
thank you—as always—for being my clients. It is a privilege to serve you.

Best Wishes,
Lou Melone, CFP®
Managing Member

Lou Melone

Managing Member

248-499-8704

248-499-8721

lmelone@melonewealth.com

Lou helps clients answer two questions: 1) Do you know exactly how much money it is going to take for you to retire comfortably 2) to remain comfortably retired? As a board CERTIFIED FINANCIAL PLANNER™ professional, Lou provides...

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Branden Carney

Wealth Planner

877-293-5830

248-499-8721

bcarney@melonewealth.com

Branden’s career in the financial industry began with Plante Moran Financial Advisors in 2016, after receiving his degree in Finance from the Eli Broad College of Business at Michigan State University. He then moved on to work...

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Vito Curcuru

Marketing Consultant

248-499-8704

248-499-8721

Vito works as a marketing consultant for Lou Melone's team. His activities include communicating information about financial planning and behavioral investing. He updates the website, manages social media and reviews the data and...

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Cindy Vaccarino

Operations Manager

877-293-5830

248-499-8721

cvaccarino@melonewealth.com

Cindy's career in the financial industry began shortly after college when she moved to New York to work at Morgan Stanley. Her current role includes overseeing administrative functions including but not limited to: operations, client...

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Vicky Berisic

Client Relationship Manager

248-499-8704

248-499-8721

vberisic@melonewealth.com