OTW #50: Debunking conventional wisdom, Own hard assets now, and more.
Important financial stories to check out over the weekend
Merry Christmas and Happy Holidays, Antagonist readers!
Before we dive into this edition of OTW, I’d like to provide a few updates.
First, this will be the last OTW of 2023 as I’m taking a break next weekend.
Second, you’ll receive the monthly deep-dive and new Blend Portfolio position by Friday. I’m very excited about this stock and its growth potential over the next couple years.
Finally, please share The Antagonist with your friends or even consider buying them a premium membership as a gift!
As a reminder, when your referrals subscribe, you’ll receive credits toward a free premium membership.
Now let’s get to it!
1. Debunking conventional wisdom.
This is a great visual showing the performance and length of bull and bear markets since 1962.
(Source: Visual Capitalist and First Trust)
Antagonist’s take
The average bull market lasted 51 months and returned nearly 152% over that time.
The average bear market was much shorter, lasting just 11 months and leading to a drawdown of 34%.
Perhaps the most obvious takeaway from these results is to simply hold onto your investments, especially if you own an S&P 500 index fund. Indeed, if you have a long-term horizon, you should do very well with this strategy.
There are 2 problems with this, however.
First, human emotion plays a massive role in your investment success. As you can see from the graphic, the S&P 500 will fall sharply from time to time. It’s one thing to observe this on a chart. It’s quite another to watch your account balance fall by that much.
When this happens, investors often panic-sell. Not only does that lock in their losses, but it also prevents them from profiting when stocks reverse their downward trend. Having just experienced the pain of losing a quarter to a third of their portfolios, they are often hesitant to jump back into stocks. Even when they eventually buy again, they will have missed out on substantial gains.
Therefore, individual performances vary widely among those who prefer to load up on S&P 500 index funds. The ability—or inability—to control your emotions can have a far greater impact on your investment performance than your actual holdings.
Another major problem is the flawed notion that experiencing large losses during bear markets is just part of investing.
That is absolutely false!
You do NOT have to suffer through stock market drawdowns to achieve long-term performance. There are very simple ways to not only curtail your losses, but also make a profit when the S&P 500 falls.
The simplest method, and the best option for most investors, is the Papa Bear portfolio by Brian Livingston at Muscular Portfolios.
I’ve written about this strategy many times, but simply put, it’s a way for you to rotate out of stocks during a bear market and dive back in during a bull market. This allows you to profit when stocks are hot (and lose less when they’re not) as well as make money from other assets when they’re performing well.
For more details on how this free portfolio works, check out this article.
Another way to profit during stock market downturns is by leveraging options.
You can use options as “stock insurance” to cap your losses and/or make trades that let you profit when stocks fall. Here are some resources that explain this more.
2. Own hard assets now!
Tavi Costa again showed the importance of owning “hard assets” right now:
This is probably one of the most important charts I’ve seen in the last weeks.
Commodities are the most underweight relative to bonds since March 2009.
It underscores the historical extremity in the valuation disparity between hard vs. financial assets.
The shift back to resource industries may catch many investors off guard as valuations in crowded sectors compress.
It's worth noting that three out of the last four commodity cycles in the past 130 years coincided with inflationary periods.
Against the backdrop of deglobalization, extensive fiscal spending, and labor cost pressures, a broad increase in commodity prices would only add fuel to the inflation fire.
H/t to Ronald Peter Stoeferle, CMT, CFTe, MSTA for pointing this out first.
Antagonist’s take
For several months, I’ve been virtually screaming about the importance and massive potential of owning hard assets and commodity-based stocks.
The results have been outstanding. Our top Blend Portfolio holding, a commodity, has gained 67% since we added it on June 30. The S&P 500 has only returned 7% since that time.
Our next-best performer has gained 62% since we added it versus just 15% from the S&P 500 over the same period. This holding is also a hard asset.
Our fourth top holding, a commodity based stock, has more than doubled the performance of the S&P. It’s up 38% vs. 16% from the broad market index.
If you don’t own any hard assets, I urge you to consider it. This will hedge your risk of a stock market crash. But also, as you can see from our Blend Portfolio results, you can achieve massive gains even as stocks fall or go sideways.
Last thing...
To limit the length of Over the Weekend to 5 minutes, I can only highlight a few stories.
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Thank you for reading, and have a great weekend!
Jason Milton
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Disclosure: Jason Milton owns shares of the positions mentioned in the Blend Portfolio.
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