March 23 marks one year since the stock market crashed and bottomed. Compared to 2020, John says 2021 looks favorable, "The stock market is capitalized on corporate profits. If businesses are doing well, prices go up and stock prices tend to follow earnings over time."
John shared what he believes are the key lessons from the past year:
- “Stick to the Basics” — The fallout from the pandemic reinforced Fenimore’s focus on quality companies that are financially durable and generate cash. By investing in quality businesses, you can be ready for a crash.
"In a downturn, those [quality businesses] tend to do better than the market," John stated.
- “Don't Pretend to Know How the Market Will Respond” — "Thinking back to February last year, if I said we’d shut down the economy and have the worst quarter of the economy since the Depression and have a lot of illness and fatalities all around the world, your reaction would be to get out of stocks completely and wait for a better time," John said.
"All of those things with the virus happened and the economy and the market has done well."
- “The Economy Is Not the Stock Market” — "Last May, where the economy was very tough, we were still mostly closed down and the stock market was two months into its rally."
"The stock market is not the economy. The stock market saw the government was putting a bridge under all of us to get through the other side and the market was anticipating where we are today, where things are getting better, we’re getting vaccines and the economy is growing and there’s still a good amount of stimulus."
The article ended with John reinforcing that, of course, there are risks. It will be some time before we know the true cost consequences of the federal stimulus spending including whether it leads to a period of inflation and higher interest rates. Fenimore’s investment research team will be monitoring these risks while staying focused on the positive signs ahead.