Lessons from Florida and California's response to Covid-19 and how that applies to financial investments.

As we prepare to resume a much more normal lifestyle in the weeks/months to come, now might be a good time to reflect on what we might have learned from this experience. It strikes me that one lesson in particular seems to be easily transferrable to the investment classes I teach young scholars each year.... 

Before revealing the lesson, lets compare two states approaches to dealing with the pandemic over the past 12 months. They happen to be two states that I know well, that get a lot of media coverage, and that that have followed vastly different approaches to dealing with the Covid-19, namely Florida and California. Let's look at one metric, deaths per capita, although similar conclusions can be drawn should we use others as well. Despite relatively loose restrictions in Florida, it's performance has been relatively average at 158 deaths per 100,000, just slightly above California's 152 per 100,000 and both are lower than the US average of 170 per 100,000. Florida opened up much earlier than California, and yet it has continued to perform just about averagely on most metrics related to the spread of Covid without major sustained spikes, as has California, which has been much more cautious on its reopening of businesses and return to in person education.

Enlarging our scope to other parts of the country, some Republican governors such as Dewine (Ohio), Baker (Massachusetts), and Hogan (Maryland) haver made decisions that were not very stereotypical Republican, while on the flip side Polis (Colorado) has kept things a bit more open, not in keeping with what we would consider a typical Democrat response to the pandemic.

One final point on our country's Covid response: much of the reaction to the public health response has been just that, "reactive" without a very scientific basis for the conclusions that were reached. Think back to masks, which were initially not thought of as being effective. Then it became one of the one of the key mantras of keeping us safe. Why did they make the initial decision? It was made to save the stock of available masks at the time for front line workers, rather than based on any scientific reason. Another example, such as the 6 foot rule of social distancing was actually just a midpoint of the distance that the medical community was examining (between 3 feet and 10 feet) rather than it being an effective distance to reduce the risk of infection. 

So, how does all of this relate to making investing decisions? A couple of things. 

1. There isn't a one size fits all to decision on what to buy, sell or hold. Each state responded to the pandemic differently, and vastly different approaches often led to very similar results. The same applies to investing your money. There are many different approaches that can work, the key is to stay disciplined.  Some like fundamental analysis, others like technical trading. Holding periods aren't always the same across investors. Many other differences exists. Bottom line, stick to one or two things you really enjoy studying and get at it, reading everything you can, practicing by putting actual money to work, and perform post-mortem analysis on what actually occurred.
2. We need to make decisions based on impartial information ALL OF THE TIME. The idea is to gather as much data as you can, run it through the "investment model" that you have chosen from the point number 1 above, and then decide wether or not to invest. Evaluating risk versus return is paramount and try to tip the balance in your favor, such as the casino's in Vegas and Macau have done so successfully,
3. Don't always trust the so called "experts." Read, listen, talk to and watch what they might have to say but realize that just like the scientists who tried to lead us through the Covid pandemic, investment professionals often make statements and draw conclusions that are convenient, rather than grounded in solid investment fundamentals. But DO YOUR OWN WORK and make a decision that you can live with and sleep well at night.