Updated: Mar 2
The year 2020 was one that we will not easily forget. Anyone above the age of reason will recall it for the events that happened globally and personally. Further still, none of us know how long we will continue to deal with the fallout of this year. Truly, these are unprecedented times!
For Alpha Advisors, 2020 provided an excellent example of why we emphasize the management of risk rather than trying to predict short term market behavior. Who would have believed in the beginning of the year that we would experience a global pandemic coupled with the quickest bear market decline followed by the fastest recovery in history?
The very real threat that Covid posed to our economy caused us to focus on the preservation of your capital. Our strategy to accomplish this was to include protective investments to limit losses in your portfolio. While this type of hedging creates a drag on upside returns, it allowed us a degree of comfort through the extreme volatility and managed to produce adequate returns to maintain progress toward your goals.
We believe that the volatility we experienced in 2020 is not completely behind us. The consequences of massive stimulus injected into our economy along with impact of business shutdowns are still unknown. At the same time, the stock market seems to be priced as if the vaccine will cure all of our problems, but real economic issues still exist which represent a lot of risk. We believe the next bear market may be driven by further government actions to stimulate the economy that could have unintended consequences. The recovery from such circumstances would not likely be as quick as the recovery this year. There is no vaccine to cure that.
Therefore, we are concerned by the growing market euphoria, which is what we often see at market tops. While many investors are throwing caution to the wind and partying like it’s (the dot-com era of) 1999, our sober minded, value-oriented approach is structured to keep us from chasing euphoric markets and for you to avoid the inevitable hangover that comes afterwards.
We are dedicated to your success and grateful for the opportunity to address obstacles like the ones described above on your behalf.