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The Returns Of The Jedi


  • Stock market returns come with risk and volatility.
  • Those risks and volatility are a tradeoff for the higher returns.
  • What level of tradeoff you choose depends on your mindset.
  • Would you have taken almost the same returns for half the volatility?
  • Would you want to massively outperform in bear markets? That is what a Jedi would choose.
  • I do much more than just articles at Conservative Income Portfolio: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

Today, we are going to look at the stock market with the mindset of a Jedi. Those fictional knights of the light that keep calm under extreme stress and focus on mastering their emotions. We will break down what strategy we think they would choose and why that is really relevant for your returns today. We will do so by looking at the returns of the SPDR S&P 500 Trust ETF (NYSEARCA:SPY).

Source: ETF.com

This is one of the largest ETFs in the market with an almost $300 billion market capitalization and continues to be the recipient of most passive flows.

“Your Focus Determines Your Reality.” – Qui-Gon Jinn

If you want to try and maximize returns, you can certainly dial up the risk. That comes with a cost of increased volatility and increased risk. But chasing that also often ends with poor returns. Despite a relentless pursuit of risk, the returns for the average investor have been, well, anything but average.

A key reason for this has been chasing stocks at the top and selling them at bottoms. This year has also shown notable volatility. The SPY was down about 30% at one point and has now rallied back up to a 6% gain.

ChartData by YCharts

Many investors panicked and sold SPY at the bottom and are now buying back now as the market has rallied. That will obviously detract from their performance. So, what if you focused on lowering your volatility to the point that you were able to stay invested through ups and downs?

“In My Experience, There Is No Such Thing As Luck.” – Obi-Wan Kenobi

While investors may blame poor returns on luck, they likely did set themselves up for failure by dialing up risk to the point they could not take it. So, what method would

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This article was written by

Trapping Value profile picture
The best way to provide income in today's markets while reducing risks

Conservative Income Portfolio is designed for investors who want reliable income with the lowest volatility.

High Valuations have distorted the investing landscape and investors are poised for exceptionally low forward returns. Using cash secured puts and covered calls to harvest income off value income stocks is the best way forward. We "lock-in" high yields when volatility is high and capture multiple years of dividends in advance to reach the goal of producing 7-9% yields with the lowest volatility.

Preferred Stock Trader is Comanager of Conservative Income Portfolio and shares research and resources with author. He manages our fixed income side looking for opportunistic investments with 12% plus potential returns. 

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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