TrendCalc Market Insights
Weekly Review Feb. 15-19, 2021
Any significant and growing outperformance of what we classify as wealth creation model portfolios doesn’t surprise us at TrendCalc as we see the dividing line between yesterday’s negative and positive performance comes down to the employment of conventional wisdom’s don’t-put-all-your-eggs-in-one-basket asset diversification. Let me explain.
One of the ways that we define and divide model portfolios and portfolio strategies is based on the level of employment of conventional wisdom’s asset diversification. We feel that any investment, investment model, portfolio strategy or approach that utilizes asset diversification as a sizeable means of managing and minimizing risk, to be incorporating some or all of the various principles and/or beliefs of what is considered today’s popular conventional wisdom.
Even people who do not know much about investing or haven’t even done any investing are familiar with conventional wisdom’s most esteemed and honored commandment, thou-shall-not-put-all-your-eggs-in-one-basket. They might not know or be able to describe in detail what that full investment parable actually means, or its purpose in the world of investing and investment management, but they know it, everyone repeats it, and it sounds smart. We define anything that employs conventional wisdom’s asset diversification as a primary means of risk management, as being concerned or focused on Wealth Preservation first, regardless of its stated investment objective.
On the other side, we classify anything that tends to avoid conventional wisdom’s asset diversification as a primary means of risk management as Wealth Creation. In other words, Wealth Creation strategies and portfolios are tossing out that most prized and repeated theory of risk control and replacing it with some other form of risk management. The result is that you can have very high-convection, high-concentration portfolio allocations that tend to be more actively dynamic in managing the portfolio and the portfolio’s risk.
You can think of Wealth Preservation as mostly comprised of investing’s conventional wisdom, while Wealth Creation as what the 1%ers, the 5%ers or whatever you want to label as the best of the best do when it comes to the most successful of investors. (By the way, all of TrendCalc’s Wealth Creation model portfolios have an overweighted allocation to both the banking and the energy and energy services sectors at this time.) If you or your source of advice don’t fully grasp that investing distinction between what it truly takes when it comes to achieving wealth preservation vs achieving wealth creation, then maybe it’s time to work with a true market professional who does.
Philip S. Hammond, CFP®
Managing Director/Chief Portfolio Strategist
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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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