Welcome to another edition of “Ethel’s Diamond Post.” Thank you for your patience in receiving this overdue editorial regarding the capital markets and the reopening of America. Doesn’t it feel good to receive smiles, hugs, and laughter in person as the country unthaws from this prolonged pandemic environment? We went from a robust, healthy economy to an overnight pandemic lockdown due to a mysterious virus that changed our lives – forever. Who could imagine that the devastating effects would close businesses, send employers and employees home, and require mandatory remote classes for students at schools and colleges. The entertainment community, domestic and international travel vendors, and restaurants turned off their lights completely. At times, it felt like a hostile takeover – living, eating and breathing from our makeshift offices, working remotely, and attempting to keep fellowship through Zoom.
Before the medical community could rollout the vaccines by Pfizer, Moderna, and Johnson & Johnson, we lost 600,000 American lives to the raging virus. As I reflect upon my journey with COVID-19, the most daunting part of it was the unknown and the long-hauler effects of the disease. Yet, compared to others who lost their lives, I was fortunate to come back stronger than ever. Thank you for all the beautiful greetings and kind gestures. My condolences and sincere wishes go out to each family member who might have caught the virus or experienced employment or financial hardship from this unprecedented time in our history. Plus, a huge thank you to Nikisha L. Johnson who filled in the gaps throughout my journey to recovery. With that said, I hope and believe the worst is behind us if we continue to roll up our sleeves and receive the shots so we can fully regain our independence and put this dismal season behind us.
Fast forward, we are halfway through the year and anxiously unthawing from the pandemic to some sense of normalcy like that before the calendar year of 2020. The pent-up frustrations are encouraging more shots in the arms so we can leave the confines of our homes and do things like vacation or visit loved ones. As we came through the year 2020 the downturn in the equity market came and went. The S&P 500 delivered an outstanding return of 16.26 percent for the year. Many analysts will tell you that “price is nothing more than a reflection of the ‘psychology’ of market participants.” Wall Street loves categories, and, therefore, when the market declines more than ten percent it is considered a correction. We define a “bear market” as a decline of more than twenty percent. In this case, the market bounced back remarkably so we did not remain in correction territory but ended on a high note.
When the market is growing, we label that as a “bull” market, and the psychology of risk and speculation is overlooked and replaced by greed and instant gratification. Professionally speaking, it is difficult to determine when the market is changing from bullish to bearish. We witnessed Reddit become a gathering place for novice investors who scrambled to chase popular high-risk companies versus fundamentally solid investment opportunities. We saw retail investors becoming overly optimistic about the future and bid up prices beyond the practical aspects of the intrinsic value of such companies. The Reddit portfolio managers taunted non-profitable tech and retail stocks, cryptocurrencies, and the many “meme” stocks. A meme is a stock that has seen an increase in volume not because of the company’s performance but rather because of the hype on social media and online forums. The supporters of meme companies are similar to gamblers. They have an antiestablishment mindset, enjoy zero-commission trading and use numerous social media platforms to communicate with each other. The most popular companies that fall within such categories are GameStop, AMC Entertainment, and Clover Health.
In early November 2020, the “u-turn” started when the vaccine development news initially hit the media community. As a result, the stock market transitioned from growth-oriented companies into cyclical, value-oriented sectors.VZD Capital Management, LLC does not believe in investing in “shiny new objects” or a game of “hot potato, “musical chairs,” “cat-and-mouse,” or “pin the tail on the donkey,” which is why we utilize fundamentals, and bottom-up, growth-at-a-reasonable price methodology to support buy and sell decisions. As fiduciaries, we put our client’s interest first versus our compensation. Our success depends on your success, which is why we do NOT participate in trendy investments. We are optimistic about the stock market with a combination of growth and value in our portfolios. Investing based on fundamental economic indicators, technical analysis, and broad-based evaluations will never go out of style. However, please remember that past performance is no guarantee of future results. Unfortunately, in some cases we have had to back out of investments prematurely becausee the earnings have been all over the place due to the inconsistent reporting from the pandemic’s aftermath.
In summary, we have seen more investors reentering the market but rotating into defensive sectors like health care, technology, and consumer staples. Value stocks are more sensitive due to their nature being amongst industrials, energy, materials, and small-cap companies. We do not get distracted by the noise within the equity markets or lose sleep over the many aspects of inflation or rising interest rates. Instead, we look to the economy and the historical patterns to guide us through this transitional, unprecedented environment. We are constantly checking the temperature of the economic climate and taking profits when positions become overweighed or have seen a substantial gain in a short amount of time. We have had more turnover due to profit taking but don’t believe that 2021 will be a repeat of 2020. Sometimes it is prudent to reduce exposure to highly overvalued companies by initiating positions in other undervalued stocks or add to existing holdings to increase our ownership by utilizing dollar-cost averaging principles. Thus far, 2021 is tracking to be a 20 percent plus year, and the S&P 500 is up 14 percent year-to-date as of Friday, June 25.
We are back in the saddle for reviewing portfolios and accepting new clients with a minimum of investable assets of $200,000. Please tap into your mental Rolodex to refer your family and friends who could benefit from our high level of attention to all economic cycles. We love referrals because we appreciate working with like-minded individuals and multigenerational families. We help prospects define wealth by helping to grow assets organically through customized investment management, employing estate planning strategies, and incorporating tax planning ideas. We enjoy working with your other professionals to ensure we align with your wealth accumulation and preservation goals. Given the current political climate, the odds are in favor that this year will be a prime time for clients to maximize the benefits of Roth conversions and amended estate planning principles. VZD Capital Management, LLC predicts some income tax increase in 2022, especially with the economy rebounding on vaccine effectiveness. Fortunate clients might even see an increase in income in the coming months. Our goal is to work with your existing professionals or bring in ours to ensure we are collectively minimizing your income tax liabilities and preserving your legacy with advanced estate planning practices.
Thank you again for the trust and confidence you have placed in us. Please be advised that we sent the 2021 Compliance and Due Diligence requirements through electronic communication and “pony-express” mail. We ask that you sign and return the Acknowledgement Form and the Compliance correspondence to ensure you have received and review the material changes. If you should have any questions or concerns, please do not hesitate to send an email to email@example.com or call (816) 726-7066.
Ethel J. Davis, Nikisha L. Johnson and Michelle Boyd