This is something I have meant to post for a while and was reminded of it yesterday as I went through the closing numbers of what was generally a good day in the market (forgetting all of the news and what it might mean the market was up 2%).Generally the stocks in the portfolio did what they were supposed versus how their sectors did. The financials were up a lot, the resource names were down and so on.
The moment of clarity came from seeing some of the stocks go up and realizing that most of them (hopefully all of them) are the good companies that I think they are. They might be down with the market (or maybe doing worse) but there is not a reasonable risk of a bunch of them going out of business (I don't think any of them will go under).
At some point global stock markets will get right, probably on different time tables, and good companies will start their next bull phase.
This is meant to be really big picture stuff. I'm 42 and hope to do what I am doing now until the end. I hope to never need what I am saving so in theory I am looking at an infinite time horizon for my personal portfolio. If our firm's typical client is 50 or 60 or some other age they probably want to work until some point and then need to plan on their money lasting for many years (retiring today at 60 and living past 90 is not unrealistic these days). Someone who is 75 today and fit enough to exercise regularly should also probably plan long term too.
How old are you? Are you going to retire, if so when? Then how long after retirement is prudent to plan for?
If you fall in here anywhere then, and this is a point I have made before, beating or lagging over some short duration of time means nothing; quick what was your return in 2004? Did that number beat your benchmark? Even quicker, when emerging markets corrected 23.7% from May 10, 2006-June 12, 2006 how much did your portfolio go down in that month?
Over the last 15 years there have been plenty of great companies that have cut in half along the way only to come back. This is also happening now and will happen again in the future.
This sort of big picture understanding is a starting point. From there things like defensive action in a bear market, sector decisions, country decisions, style decisions, market cap decisions, volatility decisions and so on are part of the next level of process. It filters down then to actual stock or fund selections.
At times obviously stocks or funds do need to be sold and new names bought but the need for change is less frequent than many people think.
The picture is from south of Hilo at the Kapoho tide pools. It is a huge area of pools formed by lava. The water is warm, clear and there are no waves in the pools. It is a very tranquil spot and good for clarity.
3 comments:
Roger, I love your blog, but of course all of your comments are biased by your line of work and your need to keep the fish on the hook, so to speak. The US sneezed and the rest of the world caught a cold. All the diversification hooey is nonsense. Europe, the Far East, large caps, small caps, dividend payers etc are all correlated to the point where it made no difference which stocks you owned in this bear market. The only non-correlated sectors (with the SP500)now are commodities( and possibly Brazil play on that) and bonds. So, skip the expensive advisor and buy cheap Vanguard Total Stock (or Total World) and Total Bond in whatever percentages are appropriate for your age. Put non tax sheltered money in tax managed funds . Favor bonds and capital gains payers in the tax sheltered accounts and stop paying for your advisors' house in Hawaii, LOL. Case closed.
VTSMX down 17% in the bear. VGTSX down more than 25% in the bear.
You can read the archives here and look at the quarter end videos and get a sense of how my "keeping on the hook" has done.
I have no idea why you find any use for this blog at all.
Basically buying-and-holding the major US stock indexes has not been a winning move since 1999 (but we're still going to party like it is, oh yeah).
And I note that every bear rally no matter how strong it starts seems to give up the ghost sooner than the previous one so I doubt we're done yet (fading yesterday was a good move).
OT but on theme, this research is both interesting and potentially useful.
In a recent paper (Chen, Rogoff and Rossi, 2008), we demonstrated that a carefully chosen set of exchange rates, those we call "commodity currencies", may indeed offer such an alternative approach to the forecasting of commodity prices.
Using data obtained over the past one to three decades for Australia, Canada, Chile, New Zealand, and South Africa - all small commodity exporters with market-based floating exchange rates - we find that their currencies embody remarkable forecasting power for future global commodity price movements. Individually, these exchange rates can forecast the prices of their country's major commodity exports, and together, they do an excellent good job at predicting aggregate commodity market movements.
Original paper at www.nber.org/papers/w13901
As the paper's discussion notes, commodity prices are difficult to predict and commodity price futures are of little assistance in the prediction project (as Barry Ritholtz has commented there are other futures markets where this is also the case) so anything that improves the resolution of a forward looking image has rather immediate practical value. In fact extending the idea to non-commodity countries to see how commodity prices affect the value of their currencies may also prove valuable.
PS: Blogger won't allow the blockquote tag so I lost the cite for the discussion.
Post a Comment