Why stay invested for the long-term? Why invest in nascent technologies where valuations have been ripped to shreds? What good will come from this entire pandemic ordeal?
Wait, why drop that last question in there? Do I really want to start a riot, as I know that emotions remain high, and opinions (wildly) varied? I dropped it in because I think that answering that question will help us answer the first two as well.
Before I get into that, let’s take a quick look at question #1. I actually set out to write a piece that simply answered that question. I was going to show you my favorite chart – one from our friends at JP Morgan’s “Guide to the Markets” that highlights portfolio returns (stocks, bonds, and both in combination) over various rolling time periods. If I showed it to you (which I have in many financial plans), you would see that a diversified equity portfolio (measured by the S&P 500 Shiller Composite) has never lost money over any rolling 20-year period from 1950-2021. Even the results on a 5- and 10-yr period are compelling (it’s 1-yr where things get dicey, particularly for equities). In light of this, I was going to talk about the importance of understanding your time horizon as you construct a portfolio. But then I came across an article this morning that made me want to change things up a bit.
This is not to say that answering question #1 is not critically important. It’s just to say that what I found was, in my opinion, a lot more interesting than a long write-up on something we all inherently know – a patient long-term investor is usually rewarded. What I found, I believe, helps us better understand why this patience is rewarded, and helps us answer questions #2 and #3 from our intro. Plus, it’s just really cool stuff (that I think you’ll enjoy exploring).
Since I am slow on the uptake, this article was actually published all the way back on May 30, 2022 – eons ago in the landscape of today’s news cycles. It is entitled “The bright side of the Covid pandemic – Validation of a platform with pluripotent potential” and is written by Eric Topol at Scripps Research. As a preview, Topol traces the long history of mRNA vaccines and how they are now being tested on malaria, HIV, cytomegalovirus, rabies, RSV, influenza A, and chikungunya. He also looks at how mRNA therapeutics are being used to amplify the body’s immune response to various cancers and neurodegenerative diseases. It’s pretty incredible stuff (much of which is WAY over my head). For those itching to dig in, here’s the link:
For those wanting me to finally answer questions #2 and #3, I largely already did, well at least #3 (though I think (and hope) the list of positives to come from this pandemic will be even longer). Let’s conclude by taking a deeper look at question #2. Why invest in nascent technologies where valuations have been torn apart this year? Is it a fool’s errand? Account statements this year will try to convince you that’s the case. But it’s evidence like what we see in this article that leads us to believe it’s critical for any long-term investor to have “patient capital” invested in technologies that have the potential to truly change the world. Reading through this history of mRNA vaccine technology helps us see that these changes don’t come easily, cheaply, or quickly – but when they finally come to fruition, history tells us that those who invested their capital are richly rewarded. Patience is key – as our earlier look at 20-yr rolling returns showed us – as is proper diversification and “right sizing” a long-term investment of this sort. Doing all of this should provide investors with the combination of stability, income, and long-term growth potential that they require – all the while providing the added bonus of knowing they helped change the course of history, even in a small and passive way.
That’s it for this week. I hope you enjoyed this little detour into some incredible science, with a little investing context wrapped around. When you’re done scratching your head over all that was highlighted in the featured article, feel free to reach out to discuss. We’re here for just that reason!