The Jared Dillian Letter

The Happiness Explosion Is Here

Good news—I’m sure you heard that Pfizer has developed a coronavirus vaccine, and it’s reportedly 90% effective.

The market has been waiting for this for a while. I’d heard rumblings that we would have a vaccine within weeks of the election, and here we are.

This has big implications for the market, and for you as an investor…

The Catalyst

You’ve probably heard of “stay-at-home” stocks. These are the stocks of companies that actually benefit from everyone being stuck at home—like the videoconferencing company Zoom (ZM), or the exercise bike maker Peloton (PTON).

No surprise, stay-at-home stocks sank after the positive vaccine news come out last Monday. Zoom and Peloton both made double-digit nosedives.

Meanwhile, the stocks that have been hammered by the pandemic—like airlines, cruise lines, retail, and energy stocks—they all shot up. And I think that’s going to continue. I am very bullish on retail and energy stocks…

But the biggest story here is that value stocks massively outperformed growth stocks. And I think this signals the reversal of a longstanding trend.

See, value stocks have been underperforming growth stocks for many years. We’ve talked about this a lot on the radio show.

You’ll recall that value stocks trade at relatively low prices compared to their fundamentals. Think Walmart (WNT) or Johnson & Johnson (JNJ), for example. And growth stocks are stocks that are generally expected to grow faster than the market, like Amazon (AMZN) or Facebook (FB).

Growth stocks have been outperforming value stocks for a long time. And the vaccine announcement turned out to be the catalyst that turned this all around.

I think you can expect value stocks to outperform growth stocks for years to come.

The Mood Shift

The other story unfolding is the massive shift in social mood over the past couple of weeks.

I kept reassuring people that human happiness would explode after the election, and that’s what is happening. Not because of the election results—roughly half of Americans are happy with the outcome and half are not.

The social mood is improving because the election itself is behind us… and because we now have two coronavirus vaccines. (In case you missed it, on Monday, the biotech firm Moderna (MRNA) announced that its vaccine is 94.5% effective.)  

The doom-and-gloom days are finally over—and the uptick in mood is going to power big gains in the stock market for a long time to come. But on this leg of the journey, value stocks are going to outperform growth stocks—not the other way around.

How to Invest in Happy Times

Does this mean you should pour all of your money into the stock market?

No!

The fundamentals of investing for the long-term haven’t changed. You still need to check off a couple of boxes before you invest:

  1. Establish an emergency fund with at least $10,000 or enough to cover six months’ worth of living expenses, whichever is greater.
  1. Tackle debt—pay off your credit cards and car loans before investing. And take a chunk out of your student loan debt and mortgage.

And you still need a balanced portfolio with a lot of assets other than stocks.

Yes, everybody loves stocks. And, yes, I just said that I expect big gains in the stock market. But that does not mean you should put all of your investments in the stock market.

Instead, you want to hold some stocks (with an emphasis on value stocks), some bonds, some cash, some gold, and some real estate.

Regular readers will recognize this as the Awesome Portfolio.

A lot has changed in the past few weeks, and most of those changes are for the better. But the best way to steadily grow your wealth over time, with minimal risk and minimal volatility, is still the same. If you haven’t picked up a copy of The Awesome Portfolio yet, click here.

Jared Dillian
Jared Dillian