- Sector Rotation Out of Tech Remains the Dominant Trend.
- Financials and Oil Are Favored.
- US Government leadership lacks substance.
“Avoid big losses. That’s the way to really make money over the years.” Julian Robertson
The investment community is full of really well paid people who are very intelligent. The vast majority have the highest academic credentials, and at the biggest firms Ivy League is what is required, nothing else will do. When you work at firms worth billions of dollars, from a stability point of view, your not worried about the check bouncing. More important, especially if you are just starting a career, or maybe even the highest priority if you have a family, is not losing your job. Of all the considerations, continuing to have employment lands at the top of the list for financial professionals, especially at big name firms. Naturally, as an extension of this mindset, the approach towards investment of capital can be affected. You see, as opposed to making money, in many respects, avoiding losses takes a higher priority. Quite understandable if you are the one recommending investment positions and have plenty of capital relying on your asset allocation. The quote from Julian Robertson, who incidentally is one of the legends of investing, sums up the attitude quite nicely. Of course, Julian is a billionaire, so don’t you worry about the big J. Julian, like many others who are quite wealthy, don’t want to lose their assets (eliminate the last three letters if you like). However, this mindset simplifies the reality of investing. Let’s investigate this a little bit more, shall we?
For the vast majority of people who invest, preparing and planning for the future is why they have exposure to markets. As such, stocks historically have the highest return over any long period of time as compared to any other asset class. There are some important distinctions involved. When we specify long periods of time, we are talking about ten year periods. In some cases stocks will do nothing for a decade, meaning your return will be minimal, or maybe negative. The period after the internet bubble, from 2000-2010 would be the best example. The good news is that after these kinds of periods, the following ten year period often sees much better returns, which was the case from 2010-2020. It is why advisers emphasize sticking with your plan and not panicking in the event of a market selloff. So time horizon is quite important. The next distinction we need to mention is how your investments are structured. Most advisers emphasize the importance of diversification, and rightly so. Not every specific investment is going to work during each time period, and they probably shouldn’t. As an example, over the last ten years, technology has been the source of much outperformance. Historically, the next ten years will see a different market leadership group, probably in an area which under performed in the last decade. Some capital in a variety of asset classes like commodities, real estate, utilities, very small companies, different kinds of bonds, private equity, venture capital, and cash gives you exposure to areas which may be the big winner, and they can more than make up for losing segments. Over a long period of time, you only need a few big winners to help accomplish your goals. The reality for most investors is you are going to have unrealized losses on some of your investments at any time. If your portfolio is well structured, as time marches on, the losses will be more than offset by your winners. The key with this is not selling your losers and having the patience to hang in there when markets turn tough. It is easy to say don’t lose money, but the financial world is very complex and having a realistic mindset about what you are going to have to handle is my advice, so take that for what it is worth.
In the markets last week, Fed Chairman Powell and Treasury Secretary Yellen testified in front of the Senate to comment on the state of the economy and progress on Covid recovery. Clownonomics anyone? With another 3 trillion dollar stimulus on deck, infrastructure spending is the focus, aka green projects as far as the eye can see. On the earnings front, Tencent met, Adobe beat, and Gamestop missed, while Restoration Hardware and KB Home exceeded expectations. The housing sector remains a place where the supply demand dynamics are advantageous for investors. On the global stage, a large ship remains stuck in the Suez Canal, causing a huge backup for global shippers trying to move goods through this critical logistical area. It highlights the importance of logistical analysis for investors. Tied into this is the announcement today that China and Iran have signed a 25 year agreement for a partnership to help improve economic development in both countries. Hmm, China needs oil, Iran has oil, wonder what might happen? Here in the US, our clown leader had a press conference where he hand picked only friendly journalists, read prepared answers off note cards, and still couldn’t come up with coherent sentences. Jumbled Joe’s plan for oil is to spend billions on electrification, and not one journalist asked about the China-Iran deal, or the stimulus programs, or energy policy, or Tara Reid, oops, sorry about that. On that high note, spring is in the air, and I hope you are having a nice weekend.
On that note, thank you for reading the blog this week, and if you have any questions about investing, please email me at email@example.com.
Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog, Investing in securities involves risk and the potential loss of ones principal. Past performance is no guarantee of future results. All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one's overall financial situation. The fact that Yale Bock has earned the right to use the CFA designation does not mean Y H & C Investments will outperform broad market indexes.
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