Following the 2008 Financial Crisis, investors all over the world were introduced to the acronym ‘TINA’, which stands for ‘There Is No Alternative’. It was meant to signify to investors that purchasing stocks was likely the best alternative for long-term meaningful returns on their investments. After all, global equities reached valuation levels that were last observed in the late 1980s and the opportunity was one for the record books. It is always easy, of course, to play Monday morning quarterback with such analysis and claim that stocks were the best choice for the long-term during the worst financial crisis since the Great Depression. Be that as it may, the fact remains that investors despise the idea of buying stocks when they go on sale. The notion of purchasing equity market exposure when the economic backdrop looks dire, weak, and dismantled is not something that triggers positive thoughts. Yet, historically, and empirically, the absolute best time to buy stocks for the long-term is when everyone else is selling stocks. When peak negativity has settled in, that is often the time to jump in with both feet. Our emotions as human beings are often the main thing that stand in the way of our ability to achieve long-term financial freedom. This is a proven fact that has led to an entire field of study dedicated to pinpointing and addressing the issue – behavioral economics. The psychological nature of our decisions is often notably more amplified than our rational decision-making capabilities. After all, the field of economics was firstly derived by philosophers and psychologists attempting to quantify what the appropriate rational behavior should be. Despite that, we often confuse the field of economics as having a similar feel as that of physics. We assume that there must be an immediate and quantifiable explanation for all observed outcomes. That is simply not true.
On the topic of ‘TINA’, I want to stress the fact that the recent COVID induced bear market produced a similar undertone as that of the 2008 financial crisis, which resulted in the majority of investors failing to capitalize on purchasing stocks in the midst of mass panic. Our message from March 2020 stressed the immediate need to consider increasing equity market participation and our advisors remained committed to objectively spreading the word. For many of you reading this, you likely had that conversation in March or April. We have not deviated from such a stance because the notion of ‘TINA’, in our view, is alive and well when we look at the next 3-5 years. I want to challenge you to think of an economic backdrop that is not guided by a presidential term, nor a pandemic cycle. The forward-looking improvements that are often accompanied in the years following a severe economic downturn, which is what we experienced in early part of the year, have historically been associated with renewed growth, a strong labor market, upbeat consumer sentiment, and a vibrant small business resurgence. This is likely to occur irrespective of who sits in the White House! The reason ‘TINA’ is so important in the current environment is the same exact reason why it was important 10 years ago, 20 years ago, and even 50 years ago. Global equity markets are a function of long-term economic prosperity and consumer behavior. They are not short-term indicators of doom. Equities have also historically shielded investors from long-term unexpected inflationary expectations better than any other asset class, including gold. We understand that it is not emotionally easy to accept a higher, or increasing, level of equity market participation in the current environment. The perception is one that may favor near-term volatility. Even if that occurs, however, we want to challenge you again in questioning what the long-term impact may be due to short-term volatility? You may find yourself to be more long-term oriented, which may often be a recipe for success, especially when coupled with an objective multi-strategy investment platform.
Edison Byzyka, CFA – Chief Investment Officer – Credent Wealth Management
Investment advice offered through CX Institutional, a registered investment advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. The economic forecasts set forth in the presentation may not develop as predicted.
All return data sourced from Bloomberg.
All other data soured from Bloomberg, through the release of monthly figures from the Department of Labor, Bureau of Economic/Labor Statistics, U.S. Census Bureau, or from the Federal Reserve and any of its affiliated regional locations.
Small Business Optimism sourced through NFIB. Small business hiring plans sourced through NFIB. Consumer sentiment sourced through the University of Michigan.
Earnings data sourced through Bloomberg Intelligence and through Bloomberg’ earnings analysis composites. Interest rate cut/rise probabilities are sourced from Bloomberg’s tracking of futures contracts tied to the Federal Funds interest rate.
Manufacturing data – Markit PMI – Bloomberg