Lessons and Performance through COVID-19

For the past decade or so, investors have become accustomed to – even expected – above-normal returns from their stock investments. At StockShield we have viewed the upward move in equities skeptically, primarily because of the extremely precarious financial health of most Americans, including most American small businesses. It seemed curious – even bizarre – that the stock market continued to hit all-time highs while the economy’s productivity languished, many businesses and individuals had little to no savings, and most Americans were living in the same material conditions (or worse) than a decade or so ago.

During this time, we repeatedly recommended investors pursue sensible risk management strategies such as the Stock Protection Trust, Deferred Compensation Protection Trust, and ESOP Protection Trust. We warned that catastrophic risk to investments had not been eliminated by the decade-long bull market and would likely occur due to causes unpredictable and beyond the control of anyone, including even the most skilled company management.

2020 came and swiftly brought COVID-19, a human and financial catastrophe. Although the precise cause of loss was unexpected, the large losses suffered by many concentrated investors was entirely predictable and avoidable had prudent risk management strategies been established well before the crisis hit.

COVID-19 has revealed – and revealed beyond question – that the financial health of most American individuals and businesses is not strong. If a company like Boeing can teeter on the edge of bankruptcy after its stock declined more than 75% in 2020, any company could suffer the same fate. The current crisis is revealing in plain sight that U.S. individuals and businesses need trillions of dollars in bailouts to survive even after a mere week or two of suspended operations. The entire U.S. economy appears to be a “shoestring economy” hardly of a nature that would give a reasonable investor confidence in long-term viability.

COVID-19 is demonstrating that the past decade’s gains in stock market value were largely the result of the easy money policies and liquidity boost provided by the Federal Reserve in response to the financial crisis. Famed investor Julian Robertson predicted as early as 2008 that (excluding the value of the home) 80-85% of Americans were broke, which would cause a “very poor” U.S. economy for 10 or 15 years. We saw the logic of Robertson’s view then and we do so even more now.

Because of this, we urge investors of the 2020 decade and beyond to implement sensible, cost-efficient risk management strategies to prevent the financial devastation that we are only beginning to preview in the market this year.

As an example of performance of the Stock Protection Trust through this crisis, at the end of December 2020, stock losses are currently limited to 0.00% (referred to as our “Maximum Stock Loss” calculation). For a group of 20 stocks protected since August 2018, 5 have declined while 15 are posting gains. The largest loss – a decline of 45% – is limited to 0.00%, as noted above. Other losses – in the amounts of 44%, 26%, 22%, and 19% – are also “capped” at 0.00%.

As demonstrated above, the Stock Protection Trust substantially reduces an investor’s downside risk without limiting or capping upside potential.