Declaring independence!
From the classic Wall Street experience
A very happy Independence Day from all of us at Sungarden! This is a favorite holiday for many here in the US, whether it is the fireworks, barbeque, beach time, or whatever they like to do.
I’m all for that, but there is also a memory I have going way back to when I was 12 years old, growing up in New Jersey and attending the 200-year anniversary of US independence. That was 1976, and it encouraged me to learn more about the history of that era. Movies, books, touring Philadelphia where it all happened. I can’t get enough of the unlikely but successful process that led to the birth of a great nation. So however you enjoy the holiday, we wish you the best.
In 2012, Dana and I declared our independence in a different way, when we started Sungarden Investment Management, the investment management firm that we eventually sold and pivoted to semi-retired life as a research/publishing firm. One thing that has been consistent throughout my career: I am addicted to trying to devise the smoothest path possible to grow wealth while not hitting major speed bumps along the way. “Avoid Big Loss (ABL)” we call it.
Our CORE portfolio (at SungardenInvestment.com but also what the 7-ETF model in ETFYourself.com is based on) is on a nice run. Note that as usual, I am not picking a point in time, since that’s what sales and marketing people do to convince investors that they are great investors. All we’re trying to do here is to show that “a nice run” to us is about consistently outperforming bonds in our conservative portfolios, looking a 6-month “rolling” returns.
June marked the 12th consecutive period in which CORE’s 6 month return was ahead of the AGG bond index ETF. This is about controlling volatility to create long-term returns with less emotion. THAT is what we try to teach our subscribers to do on their own, following our lead as much or as little as they wish.
Another way to look at how a consistent, lower-volatility approach can be helpful is by comparing CORE’s 6 month rolling returns to a conservative mix of 30% stocks/70% bonds (ETF symbol AOK). The bottom line here is that the purple line occasionally spikes higher, but doesn’t spike much lower than about 7% in a 6 month time frame.
This is past performance, and our subscribers probably know by now what I think of that: it is in the past, so you can’t have it, so don’t dwell on it. BUT, where past performance is helpful is in analyzing the PATTERNS of that performance. Like volatility and consistency.
We think that the more investors embrace that approach, the more likely they are to achieve their own version of investing independence!
PERFORMANCE THAT MATTERS
Smaller stocks have been in a rut. Actually, that doesn’t do it justice, when as shown below, they have not made money in more than 3 years. That’s not a rut, that’s a drought. And it impacts the bonds of smaller companies, which is what the high yield and convertibles segments of the bond market are primarily comprised of.
I don’t know what it will take to turn this tide. Small caps were for decades thought of as the “smart” way to diversify, based on their long-term outperformance of large cap stocks. But after underperforming by so much in recent years, they are forgotten, and in many cases, maybe gone too.
2025 ushers in the first big year of the so-called “debt cliff” where many small company bonds are due to be refinanced at higher rates than when they were issued, rates too high for many of those companies to stay in business. As I noted in Tuesday’s commentary, it doesn’t matter who the US President is, who has the majority in Congress, or how many concerts Taylor Swift does to boost a local economy. There is a dead end for many small fry businesses. At some point, that will either be a great long-term buying opportunity, or another aspect of investing that worked for decades, but succumbs to the way modern markets work.