Aggressive Balance Newsletter with Dennis Morton

What I Learned in 2023

Dear Reader,

Looking forward, I am an optimist. Looking back, I am a historian. It’s what I am in the present that has helped me become a better investor: Unemotional.

For investors, the last four years have been historic…and exhausting. We had the fastest recession, fastest recovery, fastest inflation, and the fastest interest rates. Not to mention a bear market starting in 2022 that took down both stocks and bonds. By October, we were hearing in client conversations consistently: When is this going to end?

We did not have an answer.

Then the 4th quarter of 2023 happened. Just as balanced portfolios were languishing with limited gains over the last three years, almost everything popped to the upside. Stock indices, large and small, rallied double digits. Bonds leaped due to a dramatic drop in interest rates. And then, a sigh of relief; 2023 was a good year with a 60/40 stock and bond portfolio returning over 17% (after only being up 4.5% two months earlier) [60%Russell 3000 / 40% Bloomberg US Agg; Source: Morningstar Direct]. That’s almost two years of historical returns in eight weeks. Blink and you missed it. Try and time the market and you probably missed it as well.

what the end of 2023 has reminded me about good investing

We must be INFORMED about the past, UNEMOTIONAL about the present, and OPTIMISTIC about the future.

There is no shortage of information about what happened in the past four years. As observers, we can look back on the pandemic, policies, and geopolitics to see the march of history. We want to avoid using that information to help predict the future. Investors are often caught fighting the last war, so to speak, through the phenomenon of recency bias. Instead, being aware of the past reminds us that anything can happen in the short term, both good and bad. Plan accordingly.

In the present, situations can remain painful longer than we feel like tolerating them. Our emotions kick in when negative events occur like the sudden decline in stocks and bonds in 2022. Things can get worse when we let those negative emotions become entrenched through habits of reinforcement:

  • We check our balances frequently
  • We chase short-term performance
  • We tune into the noise of the markets

If these temptations sound familiar or have even been put in place in your financial life, we should talk.

The end of 2023 taught us the reward of stoic, unemotional investing. An investor who stood by a diversified portfolio was rewarded. Not through action, but through patience. Rarely does positive performance come predictably and steadily. Often, it arrives at emotional lows and rewards us for the habits of positive emotional reinforcement:

  • We use our financial plan as a guide.
  • We lean on trusted advice, not talking heads.
  • We trust that diversification is more sustainable than market timing.

why I reach for optimism

If we can stay unemotional and patient in the moment, then it frees up energy to think about the future with something that is notably lacking in 2024: Optimism. I am not advocating Pollyannish, ostrich-head-in-the-sand naïveté. I am only asking us to look back and see all the reasons to be positive about the future.

Look at all we have been through in the last five years, 10 years, 50 years. As investors, there were always reasons to let pessimism take hold, but not investing based on a negative outlook would have had potentially catastrophic consequences.

We should also be heartened by all we have learned through the ups and downs of the markets. If you kept dollar cost averaging into the lost decade of the 2000’s in U.S. stocks, congratulations! Your unemotional actions in the present are benefiting you now.  If you held onto your diversified portfolio when the pandemic news was most bleak in early 2020, pat yourself on the back. You have navigated a very challenging environment. And you know what? You can do it again.

While the world digests the past and projects the future, you know your superpower is your unemotional approach to the present which will result in the reward of patience.

~ Dennis

Dennis Morton sitting on a bench with a notebook and pen

Aggressive Balance is a biweekly e-newsletter authored by Dennis Morton, Co-Founder and Principal of Morton Brown Family Wealth.

A gifted storyteller and financial advisor by trade, Dennis explores topics of leadership, finance, and the human condition in his writing as they relate to curating a life worth living.

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