TrendCalc Market Insights
Conventional Wisdom vs Market Professional Wisdom
Yesterday, the S&P 500 again advanced +0.70%, bringing the 2021 total back above 5% for the year. Assets classes and sectors were mixed. Computers (+1.21%), Semiconductors (+1.73%), and US long maturities (+0.99%) are where we saw exceptional gains.
TrendCalc’s strong wealth creation models mostly were in decline for yesterday, as the three high-conviction/high-concentration positions (gold, banks, energy), which have built such a large gap between conventional wisdom’s passive buy-and-hold, were all down significantly. But in spite of this, they all still have very solid YTD numbers and maintain a significant performance gap over benchmark indexes.
F1 and TC TINS continue strong performance leadership with year-to-date returns of +12.73% and +12.13%, respectively. 2 months and 22 days into 2021 doesn’t prove anything, but we are pleased in our defined process producing (exceptionally) successful returns vs benchmark indexes and Conventional Wisdom’s passive BaH (buy-and-hold) average-averaging.
Our macro concerns remain the same:
- Fed (and other central banks) action and manipulation
- Government leadership and ridiculous stimulus overspending
- Increasing inflation that could get wildly out of control.
A lot of people like to cite the statistic that the stock market goes up 64% of the time, while declining 36% of time, as THE evidence that you should just buy and hold. After all, that means that it is increasing in value twice as often as it is declining. And this is absolutely true. But it can be misleading.
Here is maybe a better question that virtually all investors and financial professionals never ask and get completely wrong (and you might find the answer a bit surprising and sobering, especially for those that bought into the popular wisdom of passive buy-and-hold pundits that seem to dominate a lot of investment discussions and debate):
How often is the stock market actually creating new wealth for investors?
A lot of people would cite the prior statistic, concluding that the answer is 64%. But am I asking the same question and expecting the same answer? Think about it. It is very true that the market is moving up in value 64%, but it doesn’t mean that it is creating new wealth 64% of the time. What almost everyone fails to recognize is that a lot of that 64% time of up bull market performance is time just trying to climb back to even, getting your head back above water. Here is the sobering, and maybe scary, reality:
the stock markets spent around 75% of the time suffering through losses and recovering from those losses (financially drowning under water) and only 25% of the time actually creating new wealth.
This is what pundits and advice professionals are truly selling when they sing the virtue(s) of conventional wisdom’s passive investment strategy of buy-and-hold. Think about this, some financial professionals want you to buy into a long-term track record reality that 75% of the time you will be underwater and having to hold your breath trying to get back up to the surface of even. This is one of those inconvenient truths about conventional wisdom’s passive buy-and-hold.
One of passive buy-and-hold primary issues is that it is an incomplete strategy for investing, creating wealth, and then preserving wealth. A complete investment strategy always involves a disciplined Buy-Hold-Sell decision-making progress that (pre-)defines when investments are to be bought, when they are to be held, and when they are to be sold. This can go a long way in limiting the depth and duration you are underwater.
If you need to sober up from your Buy-and-Hold binge drinking, served by your source of financial advice, and want to spend less time underwater holding your breath, then maybe it is time you talk to a true market professional who knows how to build and manage complete investment strategies for your investment and retirement plans and accounts. This sobriety (as with all sobriety) will help reduce your stress and struggle, financial or otherwise.
Philip S. Hammond, CFP®
Managing Director/Chief Portfolio Strategist
This material is not a recommendation to buy, sell, hold, or roll over any asset, adopt an investment strategy, retain a specific investment manager, or use a particular account type. It does not take into account the specific investment objectives, tax and financial condition or particular needs of any specific person. Investors should discuss their specific situation with their financial professional.
Except where otherwise indicated, the views and opinions expressed are those of TrendCalc as of the date noted, are subject to change at any time and may not come to pass.
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