No one who could have accurately foreseen, at the beginning of 2020, that the year would bring a global pandemic and the sharpest economic decline since the Great Depression could possibly have been bullish on stocks. And yet stocks went up anyway.
Now imagine that it's Jan. 5, 2021, and you have a magic crystal ball. It tells you that supporters of Pres. Trump will invade the U.S. Capitol the next day to try preventing Congress from certifying the presidential election results, that at least five people will die and that the House of Representatives will end up seeking to impeach Pres. Trump for "incitement of insurrection."
It tells you: Supporters of President Trump will invade the U.S. Capitol the next day to try preventing Congress from certifying the presidential election results; a police officer and rioter would be killed and three others would die of medical emergencies; and the House of Representatives will end up seeking to impeach the president for "incitement of insurrection."
Now imagine that you are the only person alive who knows all that and you get to trade on the basis of that information.
What would you do?
I think, for many investors, the obvious answer would have been to sell stocks and buy gold. Yet, since Jan. 5, the U.S. stock market has risen 2%; gold has fallen 6%. That's despite all the talk of sedition and civil war.
Some friends and family have even begun asking me how they should hedge their portfolios against the possibility that the U.S. will become a fascist (or socialist) dictatorship or that civil society will collapse altogether.
If that's what you're worried about, the place to hedge against it isn't your investment portfolio but your life itself.
If the U.S. were to sink into anarchy or authoritarianism, having a few winning assets in your portfolio won't provide much consolation — or protection.
If you think the U.S. is doomed, don't bother tinkering with your portfolio. Move to New Zealand or whichever other democracy strikes you as more likely to endure.
As for me, I'm staying put. The harrowing events of Jan. 6 have shredded everyone's nerves and made us all more sensitive to negative information and more vulnerable to conspiracy theories. So I'm on my guard against making any investment decisions on the basis of extreme forecasts about the death of democracy, the outbreak of all-out civil war, the advent of hyperinflation or the risk
of another depression.
I have no idea what's going to happen between now and Jan. 20, let alone between now and Dec. 31. And I'm not going to pretend I have a crystal ball. Some people might find such a confession useless or annoying. I find it liberating.
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