Posts filed under “Asset Allocation”
I am not sure I fully agree with this BlackRock chart — there are times when cash makes sense. However, I cannot disagree with the takeaway that you cannot sit in cash for very long stretches of time (years) and expect any sort of return above inflation.
Click to enlarge
Source: Motley Fool
Morgan Housel has a very insightful column this morning, driven by one of my favorite topics: Taking yourself out of the minute-to-minute, day-to-day time frame and rethinking your investing parameters in terms of years and decades.
That longer time frame is an enormous luxury, a monstrous advantage amateurs at home have over the pros.
“You’re trying to fund your retirement over the next 20 years. Hedge fund managers have to woo their clients every month. You’re saving for your kids’ education next decade. Mutual fund managers have to fret about the next quarter. You can look years down the road. Traders have to worry about the next ten milliseconds.
Most professional investors can’t focus on the long run even if they want to.”
Or to be even more succinct, Henry Blodget observes that professional managers are “thinking about the next week, possibly the next month or quarter. There isn’t a time horizon; it’s how are you doing now, relative to your competitors. You really only have ninety days to be right, and if you’re wrong within ninety days, your clients begin to fire you.”
That is the beauty of the chart above showing (inflation-adjusted) S&P500 returns going back to 1871 relative to various holding periods.
Short term is more or less random; longer term, the odds move in your favor. And very long term approaches 100% positive returns, even after inflation.
“Hold stocks for a year (Wall Street’s territory) and you’re at the mercy of the market’s madness — maybe a huge up year, or maybe a devastating loss. Five years, and you’re doing better. Ten years, and there’s a good chance you’ll be sitting on positive annual returns. Hold them for 20, 30, or 50 years, and there has never been a period in history when stocks produced an average annual loss. In fact, the worst you’ve done over any 30-year period in history is increased your money two-and-a-half fold after inflation. Wall Street would love to think about those numbers. Alas, it’s busy chasing its monthly benchmarks.”
Go read the full piece + see the rest of the charts. Its great stuff . . .
Your Last Remaining Edge on Wall Street
Motley Fool, June 18, 2013
The pushback from the weekend’s WaPo column was surprisingly fierce. If you can tell me what asset classes will perform best each year in advance, than by all means over-weight that sector. But if you are like the other 99.99% of investors, you are probably better off saying to yourself “Why should I guess when…Read More
> My Sunday Washington Post Business Section column is out: Missed the big market rally? Here’s what to do now. In the office, we have been getting lots of calls from people who missed the big move off of the 2009 lows. What should they do in those circumstances? Here’s an excerpt from the…Read More
You probably heard the chatter over the past few quarters: “The Great Rotation” was about to unleash a new leg up in Equities. Bonds were going to be sold, equities purchased, and a new leg up was starting.
The story goes something like this: U.S. Treasury Bonds had enjoyed a 30 year bull market, and it was now coming to an end. Paul Volcker rebooted fixed income, taking rates to 20% to break inflation, and in the three decades since bonds have seen their prices inflate as rates normalized, then fell precariously low, then were driven to zero by QE. That cycle is over, we are told, as rates now have nowhere to go but up, and investors will soon become sensible and rotate into equities.
Except, of course, that it hasn’t.
Why? Perhaps we should consider an alternative explanation to the sector rotation story, which is rapidly being revealed as little more than wishful thinking.
The story that is not getting told nearly as much: The investment community noticed the success of Endowment funds (e.g., Yale’s David Swensen). The monkey-see-monkey-do community, ignoring valuations and prior gains, hired new consultants to shake it up. “Make us look like Yale” they pleaded to the mostly worthless community of consultants. No fools they, the overpaid consultants happily complied, and the next thing we know, these Whiffenpoof Wannabes are up to their eyeballs in private equity, hedge funds, structured products, real estate, and commodities/managed futures.
Gee, late-to-the-party investors in illiquid, pricey investments — who ever could have imagined that this was not going work out particularly well.
Time for a change: Fast forward a disastrous decade. As managers and consultants were replaced/fired, the new guys wanted to start unwinding the work of their priors. Since most of these alternative asset classes are illiquid, there is not a lot of wiggle room without severe haircuts (penalties for early withdrawal). What to do.
One of the few that is not are the Commodities/Managed futures bucket. My guess, based on prices and logic, is that these new managers are selling what they can — and that is commodities.
What do the charts (after jump) say?
Gold and Silver flat for 2 years. Energy for even longer. Agricultural products back to 2010 prices. Industrial metals near 2010 lows.
Commodities started the 2000s so promising — what with rampant inflation and the dollar losing 41% of its value, have since gone nowhere. So the new guys are sellers, and the money is going into less esoteric, liquid assets.
That means traditional assets: Munis, Treasuries and Corporates for the safe money, stocks for their risk assets.
The great rotation is already underway. Just not the way the stock bulls have been hoping for.
Click to enlarge Yesterday, I mentioned that 2 things that led to the chart above: 1) Too many people are looking for a correction for one to occur; 2) Bearish sentiment rises after selling has already occurred. With that as our backdrop, consider what it means in terms of long term swings in…Read More
click for larger chart I am putting the finishing touches on a presentation for tonight in Winnipeg and working in the chart above. It comes from Albert Edwards, the London-based global strategist at Société Générale. “I am starting to think the move by institutions away from equities has gone too far” he writes….Read More
> My Sunday Washington Post Business Section column is out. This morning, we look at Ritholtz’s rules of investing (part II). Here’s an excerpt from the column: “This week, we’re going to pick up with my rules for investing. These rules come from 20 years of experience – or 20 years of learning from my…Read More
Category: Asset Allocation