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The Only Constant

Things of this world are in so constant a flux, that nothing remains long in the same state. Thus people, riches, trade, power, change their stations; flourishing mighty cities come to ruin, and prove in time neglected desolate corners, whilst other unfrequented places grow into populous countries, filled with wealth and inhabitants. – John Locke, Second Treatise of Government

Predicting rain doesn't count, building the ark does. – Warren Buffett

2020 has been a year of dramatic change.

Change in the economy. Change in the markets. Change in our politics. Change in our institutions. Change in our work. Change in our domestic and social lives.

Many of these changes have been big and obvious, sweeping in scope and swift in speed. Among them is the very way that we, as a society, respond to change: processing and proliferating reactions and opinions in real time through ubiquitous digital networks and devices.

However, as sensational as this year has been, it is worth remembering what Locke and many others have observed throughout history: namely, that change is a central, constant, and unavoidable aspect of life. Indeed, it permeates every sphere of life, both internal (in our heads and in our hearts) and external.

Conceptually, then, change is unsurprising. On the other hand, the specific ways in which the world shifts and evolves often take us completely by surprise. And since the consequences of these changes can have an enormous impact on our lives, it is worthwhile to study them: their genesis, comparable historical phenomena, and their anticipated effects.

Perhaps it goes without saying, but change and investing go hand-in-hand. I don’t have the time or space to outline the multitude of ways that markets fluctuate minute-to-minute, month-to-month, decade-to-decade, but for just a tiny glimpse, take a look at this video charting the top ten companies in the world by market capitalization from 1997-2019. The list is anything but static.

Now, given that the world and capital markets are full of change, what are investors supposed to do about it? I’d like to offer three key suggestions:

  1. Plan for change. If events like the ones we’ve experienced in 2020 (a global pandemic, market volatility, civil unrest, etc.) cause you to take drastic and deleterious actions in your portfolio, that’s probably a sign of poor planning. Either you’ve overestimated your risk tolerance or you’ve underestimated the potential volatility of stocks and other risk assets. That, or you ought to be working with a qualified advisor who can provide better guidance. Additionally, your own life circumstances can and will change (and probably have this year), in predictable as well as unpredictable ways. You have to account for these changes, and their timing, as best you can, while still allowing for a certain margin of error. Notably, it’s important to protect against the low-probability, high-impact changes (e.g. losing a job, sustaining significant investment losses, becoming disabled, etc.) that can do the most damage.
  2. Diversify. It's a simple way to hedge against changes for the worse. Asset classes move in and out of favor constantly. Take a look at the table below, which charts the performance of various asset classes over the last 20 years:As you can see, winners and losers change places at the table all the time. Simply by investing in multiple asset classes, you prevent yourself from being undone by sudden declines in a particular sector or investment.
  3. Pay attention to things that stay the same. Despite all the changes taking place within and around us at any given time, there are some things that don’t change, which can be very helpful in the context of investing and financial planning. For example, compound interest is a mathematical formula. It doesn’t change, nor does its astonishing power to grow wealth over long periods of time. I would also argue that human nature really doesn’t change from generation to generation. While individuals may alter their attitudes and behaviors over time, on a fundamental level, human beings have been, and continue to be, more or less prone to the same emotions and psychological biases. Therefore, a keen understanding of human nature, behavior, and psychology is a great way to increase your odds of investing success. (For more examples of things that remain the same, I would encourage you to take a look at these two articles from Morgan Housel: Permanent Assumptions and Same As It Ever Was).


As Warren Buffett so aptly put it, predicting the rain doesn’t count. Building the ark does. When change happens – and it inevitably will – the key is not whether or not you anticipated it, but whether or not you have a strategy in place to deal with it. So, during these challenging and changing times, ask yourself: Do you have an ark?

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