Ready for the economic rebound?

“The future is already here—it’s just not evenly distributed”

I often think about that quote from William Gibson. The sci-fi author used it to describe technology and inequality, but it also aptly describes The Covid Recovery™. The recovery will be uneven, just as the initial economic impact was uneven. Makes sense—it’s not like someone flips a switch and announces the pandemic is over for everyone, all at the same time. (Though that would make for a pretty rad rave).

Besides dreams of flying to exotic destinations and going to festivals, this is also on my mind as an investor: Is my portfolio optimized for the economic rebound?

The National Retail Federation predicts that 2021 retail sales will grow up to 8.2%. That’s massive. But revenge spending will be like a shotgun spray, first benefiting some industries while others risk never returning to pre-pandemic success.

What’s an investor to do? I have some friends going all in on recovery stocks like AMC, GameStop and Nokia. Researching these stocks gave me a sense of FOMO. What if I miss out on an obvious recovery play? What stocks will 10x as a result of Biden’s ginormous stimulus plan?

To sober up, I looked at how I performed against the market.

Picking stocks: not my sport
My own stock bets—mostly tech stocks—have returned 9% compared to the S&P 500’s 62%.

I’m humbled by the Dunning-Kruger effect: I’m not as great of a stock picker as I think I am. While my individual bets are long term holds that may someday provide outsized returns, the fact is that I didn’t beat the market over the past year. Thank goodness I hedged against myself.

If I were to use my trading heuristic of “would I trade my current holding for a recovery stock?” , I’d rather not choose. Giving up something like Square to make a bet on AMC would make me throw up. I’d rather avoid the wolf and the woodsman scenario of not knowing what I’m buying.

It’s in this reflection that lies the non-answer the question posed earlier: a good portfolio probably doesn’t change much.

More stocks = more complexity. Ownership bias means that the more trades I do, the more “productive” I feel—and have an unjustified expectation of higher returns. Yet simplicity, in this case of an S&P 500 index fund, can and often does outperform complexity.

With all that said, my portfolio will largely the same, though I’ll make some Dunning-Kruger adjustments:

  • (New) Rebalance the % of my portfolio from stock bets towards the S&P 500 index
  • (Still) decrease exposure to bonds
  • (Still) maintain weekly crypto buys

My investing is like my writing—exploratory and changing. The more conviction I have, the more long term of an outlook I’ll take, giving me the psychological distance to make less changes to my portfolio.

Don’t get me wrong, I’m jazzed

I hope the gangbusters pandemic savings ($1.8 trillion!) continues. I hope it doesn’t all go towards revenge spending, however well deserved it is. Part of the long game is that it helps to have cash on hand for the next opportunity.

Taking a step back, the big picture is that the recovery is a wonderful thing. I got vaccinated a little more than 1 year after the pandemic started. That’s something to marvel at.

I would gladly trade investment gains for an economy that reopens in a way that surprises me. But not if I could help it.

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