Broker Check

What Happens When the Dust Settles?

James C. Denton, CFP®, Managing Partner


November 16, 2020


Got an email this morning from a close acquaintance who, it happens, is not a client.  Just someone looking for some free advice.  Not that anyone reading this would know him, but to preserve his anonymity, we’ll call him “Ricky”.  I had been pondering on whether I wanted to publish a post-election newsletter, but was really struggling with what I could say that would be meaningful without aggravating half of my audience with comments that could be perceived as pro- one or the other of the less-than-inspiring characters we had to select between last week.  Ricky’s very succinct question gave me the opportunity to respond in uncharacteristically succinct terms.

Ricky asks, “What are your thoughts on the markets when the dust settles?”

Hi Ricky,

To what specific dust are you referring?

  • Covid dust?
  • Election dust?
  • Trump?
  • Biden?
  • Something else?

Can you recall any time in your life when there was no “dust”?

Are you asking me to predict the future? 

I think the economy is in pretty good shape, considering all of the “dust” in the air.  But it’s hard to see through all that dust as to what it’s likely to look like when – and if? – the “dust settles”.

My suspicion is that there is going to be a lot of artificial dust in the air for an awful long time. 

As for my fortune telling prowess … My experience is that …

  • There is almost always some dust in the air, and the market tends to do just fine – in spite of? because of? eye-of-the-beholder stuff, but when there is a combination of fear and greed.  This is where we are right now; a fine, evidently, in fact, an optimum mix of fear and greed. We’ve had a more than comfortable amount of volatility perhaps, but on balance very good market performance.
  • The problems begin when there appears to be no dust. Those times when market participants – or perhaps their advisors – seem to be saying, “I can see clearly, now”.  What happens?
    • EuphoriaGreed sets in, the market goes up radically for a period of time, and you want to be in it when this happens.  But then …
    • Exhaustion … the rally runs out of fuel, market starts to go down, there’s a brief period of “buying on the dips”. Greed continues to prevail and assert itself but fear starts to creep back in.  And then …
    • Exit behavior. Profit taking … no buyers, lots of sellers, market goes down, fear reasserts itself and it gets ugly.  You don’t want to be around for this.  But it’s really hard to foresee and avoid these periods.  By the time most of us recognize it for what it is, a substantial amount of the damage has been done.

So what to do?

(To Ricky. I know I don’t have to say this to those of you who follow my advice every day.)  Go back and read our previous newsletters … take your pick, they all say the same thing.  I can’t predict the future other than to say … the market has good days, the market has bad days, and the market goes up.  So you build a portfolio that will stand up to the fear-driven trade when it comes and also will benefit from the greed-driven euphoria – the dust free days when the market makes most of its profits.  Consistent successful market timing is impossible.  Period.  But disciplined all-weather asset allocation has yielded pretty good results historically, at least for our paying customers.

What is your advisor telling you?


The opinions expressed in this commentary are those of the author and may not necessarily reflect those of LPL Financial.  This material is for informational purposes only.  All performance is historical and does not guarantee future results.  This information is not intended to be investment advice for any individual.  You should consult with your personal investment advisor before making any decisions based on this information.  The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.