This article summarizes key observations made during the fifth and final session of the Sept. 21, 2021 “Your Money Your Health” virtual conference, a discussion of “Investing Through the Pandemic: How the Pandemic has Changed Investor Behavior and Impacted Global Markets.” The conference was a collaborative effort between Investopedia and a fellow member of the Dotdash online publishing family, Verywell.

In this session, Investopedia’s Editor-in-Chief Caleb Silver spoke with Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., Inc. For background to their discussion, Investopedia previously published an article on investing lessons learned from the pandemic.

‘Speeding Up of Trends’

Caleb Silver observed that the last 18 months has been “a time of extremes: extreme losses at the start, extreme government intervention, extreme gains, extreme trading.”

He then asked Liz Ann Sonders what surprised her the most about investor behavior, and she responded that it was the “speeding up of trends we saw before the pandemic,” such as the holders of new investment accounts skewing younger, due to free trades, trading through mobile devices, remote work, and a pause in sports betting.

Noting that “rapid trading” has been on the rise, she said that her colleagues and she “worry about really speculative end of spectrum and hope to transition them to more traditional investors.”

Four Phases Since the Pandemic

Sonders finds that there have been four phases in the market since the end of the brief but sharp bear market in early 2020. First, the recovery in the S&P 500 Index through September 2020 was driven by a “big five” group of stocks. Second, there was a “choppy phase” in November and December 2020 that coincided with political uncertainties around the U.S. elections. Third, there was a period of renewed confidence in February and March 2021 after the rollout of COVID vaccines. Fourth, there has been “speculative froth” outside traditional investments, with assets such as cryptocurrencies.

Right now, she believes that the market is “digesting uncertainties” and becoming more “fundamentally-driven,” though volatile.

‘The Idea of Diversification is to Smooth the Ride’

Observing that “the idea of diversification is to smooth the ride,” Sonders added that “rebalancing among sectors is under-discussed.” In particular, she warned that too many investors “let the winners run to become an outsized proportion of their portfolio,” despite that fact that these investments may be the most likely to experience downward corrections in their prices.

“Boring is tough for many people,” Silver commented, as Sonders emphasized that a disciplined approach to investing is critical. She noted that there are “many shiny new objects” in the investing universe, that too many people have a compulsion to “get rich quick” and that falling into this mindset “typically ends badly.”

No Simple Answers

SIlver asked Sonders what she would advise an investor with a ten-year investing horizon. She responded that there is no simple answer to such a question. The answer depends on the investor’s personal situation, encompassing factors such as age and risk tolerance. Moreover, she added, “financial and emotional risk tolerance can differ.”

“The reality is, there is no one silver bullet that’s an answer for everyone,” she asserted. It is critical, she emphasized, to set a plan appropriate to one’s personal situation as a starting point. She also worries that the current low-yield environment “pushes people out on risk spectrum,” looking for higher yields without recognizing that high yields may be the result of “underlying weakness.” Indeed, she emphasized that “you must do your homework” in selecting investments.

‘Gambling, Not Investing’

Sonders noted that, whenever the market suffers a sharp decline, she is likely to be asked by financial news anchors and reporters whether it’s time to get in or get out of the market. She asserted that this is a foolish question. “Neither get in nor get out is an investing strategy, it’s gambling,” she said. Rather, she counsels investors to follow “tried and true disciplines.” Indeed, she also observed, “It’s not what you know that matters, but what you do that matters.”

‘Cockroach Theory’

Regarding the Evergrande matter, she said that the “cockroach theory” may apply here. That is, Evergrande’s problems may be indicative of wider issues with “leverage and concentrated positions.”

The Wild Card

Silver asked, “What is the wild card? Is it COVID, Fed policy?” Sonders believes that the biggest danger may be if a COVID variant arises that is resistant to vaccines, becoming a “gray swan” that spurs new lockdowns.

Regarding Federal Reserve policy, she cited a speech some time ago by Fed Chair Jerome Powell in which he drew a distinction between financial market volatility and financial system stability. Protecting the latter is the Fed’s role, and the former only becomes a concern if it threatens the latter.