Investing Lessons I Learned From 2020's Wild Ride

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The year 2020 has been one of the wildest in history for investors. The market was already at all-time highs coming into the year, and then in February and March the COVID-19 pandemic hit the world hard. Markets crashed and panic ensued, but before long the recovery was on and some stocks shot sharply higher. As we stand today, we’re back to all-time highs despite a terrible economy by many measures. Who could have predicted that? 

As we look back on the year, the winners are starting to emerge, including stocks like Zoom Video Communications (NASDAQ:ZM), Peloton Interactive (NASDAQ:PTON), Tesla (NASDAQ:TSLA), and Shopify (NYSE:SHOP). But there are actually dozens of growth stocks that have wildly outperformed expectations coming into the year.

I’m also starting to see some big, long-term lessons that I’m taking away from 2020. And they’ll hopefully make me a better investor over the course of my lifetime. 

Image source: Getty Images.

Follow the big global trends

This year has been all about big market trends being accelerated by the pandemic. The shifts in business that took place this year aren’t shocking developments in general, but the speed of change has been staggering. Adoption of many products has moved up because of the necessities of working from home for millions of people around the world and the economic changes the pandemic caused. Here are three trends that we knew were happening and I wish I had appreciated more coming into 2020. 

1. Remote work is growing

It’s been increasingly possible for people to work from home over the last decade, but this year we proved millions of people could work from home, and even students could do distance learning. 

Three companies that benefited from that trend are Zoom Video, Peloton, and DocuSign (NASDAQ:DOCU). Zoom and DocuSign were already popular products for doing work remotely coming into the year, but demand accelerated in 2020. Peloton has become the fitness platform preference for over 1 million people, making working from home a little healthier. And all of these companies have had healthy revenue growth to go with their quickly rising stock prices. 

ZM data by YCharts

Remote work is here to stay, at least in some form, and these companies should continue to benefit along with dozens of others, from freelance platforms to virtual meeting apps. 

2. E-commerce is the future of retail

Online shopping is now a multi-decade trend that only accelerated this year because of the pandemic. An online retailer like Amazon (NASDAQ:AMZN) was a natural winner early in the pandemic, but we’ve also seen big gains from Shopify and Square (NYSE:SQ), which enable small businesses to build online businesses with their platforms. 

Even if we didn’t know that a pandemic was coming, we could predict that online sales would grow in 2020 and that’s a trend any investor would have done well following. Next year may not be as good for the industry’s investors, but there’s no reason to think that Amazon, Shopify, or Square are going to lose business to brick-and-mortar retail over the coming decade because e-commerce is the future of retail. Sometimes, investing in obvious macro trends can be very profitable for investors. 

3. Renewable energy is beating fossil fuels

Another trend that’s been coming for decades is renewable energy. The cost of wind and solar energy has been dropping rapidly and is now lower than most fossil fuel sources in the electricity sector. In 2020, the market saw that renewable energy stocks are the new growth sector in the energy industry and investors made a huge shift in where energy stocks were headed. 

The stocks that have benefited are some of the best performers of the year. Tesla is up 660% for the year, one of the best performances of any stock on the market. Enphase Energy (NASDAQ:ENPH) and SolarEdge Technologies (NASDAQ:SEDG), which are solar energy component suppliers, have also done extremely well on projections for future growth in residential and commercial solar. I’ll note that the boom in renewable energy stocks hasn’t been because of 2020 performance, but rather projections that this is the year when the trends driving growth in electric vehicles and renewable energy are really taking hold against fossil fuels. And that’s what’s driving the industry higher across the board. 

There are other trends that have defined some of the market’s biggest winners like food delivery and vaccine development, but the overall lesson I learned in 2020 is this: Understand the macro trends in the market and make them a tailwind for your portfolio. 

Don’t let your imagination limit your portfolio and don’t let valuation get in the way

As an investor, I often limit the stocks I invest in, and therefore my portfolio gains, because I fail to imagine what a company could become. Just think about how companies like Alphabet or Amazon have changed and grown into new markets as they’ve gotten bigger. Some areas where they’re generating billions in revenue are markets you wouldn’t imagine these companies operating in a decade ago. 

My lesson for 2020 is to not limit my view of the potential for a stock because I can’t necessarily see where they’re going to grow or innovate. Good companies find ways to grow and enter new markets and that’s what helps drive outsized gains in the long term. Don’t let your lack of imagination put a mental limit on what you think a great company can become. 

A corollary lesson that’s rather simple: Great companies trade for — and deserve — high valuations that can sometimes look absolutely insane to rational investors. Don’t let your own rationality scare you from buying a great stock that could grow for decades. 

Look for unlimited growth potential

To top off my lessons for the year, I’m going to spend more time investigating and investing in companies that have nearly unlimited growth potential. If investors focus on companies that have macro tailwinds and a history of innovating and growing, they may have the potential for nearly unlimited growth, which makes valuation a moot point in the short term. 

For example, my inability to see how Amazon, Shopify, Netflix, Alphabet, Tesla, and dozens of other stocks could grow for decades has only limited my own returns. These companies are just a few of the companies with the ability to grow into massive markets and then spread their wings into new products that we can’t even see on the horizon today. These are the stocks I want to buy and hold for decades. This year has only reinforced that lesson. 

My 2020 lesson: Look for unlimited growth potential and the companies willing to unlock it. 

Ready to buy in 2021

As well as the market has done in 2020, it’s possible the market could take a turn for the worse in 2021 and some of these high-quality, high-growth stocks could be great buys for investors. If those opportunities arise, I have some great lessons from 2020 ready to deploy in 2021.