Taking my foot off the market accelerator

When reading the news, keep in mind that it is trying to program your brain what to think about. Frequently it tries to program your mind how to think. Social media is a filter and amplifier of both of these effects.

In all of these instances, they do not give you any cues about what is not being discussed. As a result, the potential for availability bias is extreme if one does not have reasonably decent critical thinking skills.

I’ve written before about what it takes to outperform in the markets, and one variable is knowing where your thinking is standing in relation to the competition. Since a good amount of the competition is programmed by media what to think, there is a value in paying attention to the programming, but with keeping your full mental shields on.

Right now, apparently Covid-19 is no longer the scourge of the earth. Businesses are re-opening, a good chunk of the public is in silent defiance of social distancing, and life appears to be slowly getting back to normal, short of the annoying lineups you see to get into Costco.

A safe time to invest back in the markets again? Seemingly yes, but the process of transitioning from a very risky (Covid-19 is going to kill us all) to risky (riots in the name of racism is going to kill us all) to not so risky (normalization of the pre-Covid life) has more or less been priced into the market – the S&P 500 is sitting at about 8% less than the pre-Covid peak.

Short of these headlines (riots, normalization), what is not being discussed? I’ll leave this as an exercise to the reader. Being able to assemble ideas to answer the “not” question is valuable in that it allows you to take a good guess at what might be in future headlines (presumably after you’ve gone long on whatever it is that you’ve thought of).

After things re-open, there is a certain ‘novelty’ factor which will result in an initial boost, but reality will be setting in pretty soon – the Canada Emergency Response Benefit payments will end (the US parallel is the $600/week unemployment benefit enhancement), and then decisions will become tough. This will come with increased risk, which portends to choppy waters ahead.

I’m not saying we’re going to crash back down again, but I am saying that the ‘easy’ gains (at least if you recognized that March 23rd was indeed the bottom) have been made here and things going forward will be much more difficult than the past month. The past month you could throw you money into nearly anything and make profits, while going forward, the market is going to be much more discriminating. In particular, I’d be especially hesitant to be long on stocks that Robinhood investors are bullish on. With record amounts of retail account openings, it gives me caution (although the wisdom of the masses may be correct in that they want to be converting their cash into assets that aren’t going to depreciate rapidly like all world currencies are doing).