1987 vs. 2024: yes, there are similarities
1987 vs. 2024: yes, there are similarities
Recent events remind us of why risk management is so important
We decided to delay our usual Thursday evening post until Friday morning, for 2 reasons. First, with the markets ratcheting up and down all week, including yesterday, we wanted to get that “Performance That Matters” table through last night, and Ycharts, our data source, updates over night.
Also, I submitted an article to Seeking Alpha last night that essentially contained the same message that I was going to write here. But the agreement there is that we can use up to 250 words of any article we post there, after it posts.
It posted this morning, so Seeking Alpha subscribers can see the full version. It received an “Editor’s Pick” which was pretty cool, too. The most impactful 250 words of that article are below, followed by the weekly performance chart.
I chose to post the portion of the article that focuses on what I am doing now with my money. This is something typically reserved for our crowd over at SungardenInvestment.com, but I want to make sure our entire audience across both sites has my bottom-line, succinct thoughts at this time of heightened market uncertainty.
Also, note that we will be scheduling a set of live sessions, as soon as next week, for our subscribers. We are aiming for 3-4 over the balance of August. In my experience, August is a great time to prepare for what is often a volatile autumn. And hey, maybe autumn has arrived early this year!
1. Markets are very different now in terms of what influences them
Algorithms, hedge funds, and the fact that so much money is indexed to the S&P 500 all make a 1987-style event at least as likely.
2. We just did this! The S&P 500 fell 33% in five weeks when the pandemic hit.
3. 1987's 22.6% 1-day "crash" was not really a 1-day event
There was a buildup to what eventually shocked the financial markets 37 years ago this October 19. From mid-September through early October, the market ratcheted up, then stopped on a dime. Still, the strong calendar year continued.
Then, it happened. One week in October saw high single-digit percentage losses as had been seen in August, and the next week was a single-day decline of more than 20%. Black Monday, they called it.
How I am positioning in the current environment
The markets have become increasingly "binary" Much of the market is in sync, up and down. Stock picking becomes tougher. I favor total return over chasing dividends.
I am using options as much as ever, but leveraged ETFs are becoming a more viable substitute.
I am still heavily in T-bills but have moved my maturities out a bit, but am still US Treasuries-only in my bond allocation. And I own more Treasuries than stocks, by a decent margin.
Like I always say, I don't care what the market does, and I am not "bullish or bearish." I try to always be in position to win in either direction, and not lose big. Ever.
PERFORMANCE THAT MATTERS
We’ve added several additional performance “benchmarks” to this list, expanding it from 15 to 25. We aim to use this a lot more, in a variety of ways. If you have any feedback on its usefulness in its current form (we update it once a week), or ideas about how we can use it to de-mystify investing (our primary goal here), just let us know at info@sungardeninvestment.com or in the ETFYourself.com chat.
This week’s highlights (in yellow include)":
A first look at both ends of the “leveraged” ETF space. There’s one that aims to deliver triple the S&P 500 return each day, and another that aims to deliver the opposite of that each day. These are so oversimplified and misunderstood, even by the investment and ETF media, that this is a prime “myth-busting” opportunity for us.
For instance, a small position in SPXU carries some risk, but it is hard to find something outside of the options space that has the potential to go up 20% in less than a month, when the S&P 500 drops by 6.1%
The other highlight this week is my observation that Bitcoin ETFs tend to get very highly correlated to QQQ when markets spike or drop a lot. Translation: are investors using Bitcoin ETFs as a leveraged form of “risk on” investing, or because they are true believers in the future of the blockchain and crypto?
