Meme Society
A meme almost always intentionally leaves the facts shattered if you let it into your head. You can believe something to be true if you see it enough times. Factual and intellectual rigor is hard. Succumbing to the memes is relatively easy, and your brain likes easy. It wants to spend its energy keeping you alive.
There certainly was a mess of noise surrounding Taylor Swift and Jason Kelce. There were many who allowed themselves to be triggered. A purported CIA “psyop” to “fool” voters into choosing Biden? She’s a golddigger trying to her hands on Mr. Kelce’s $70,000 playoff check and potential Super Bowl money?
The prospect of Swift endorsing President Joe Biden a second time has sent some allies of former President Donald Trump down a conspiratorial rabbit hole about a Democratic plot involving Swift.
Uh…
Taylor Swift's net worth is massive, and it's largely because of what one of her frenemies said it best: "Taylor Swift is a major corporation." And just like many major corporations, Swift's net worth can be tallied as high as a billion-plus dollars.
Jealousy? Grift? Retaining swing voters? Attracting young voters? Positioning to claim election fraud?
Noise. Damned Noise
Noise. The highest probability is that this is noise (Note: I started writing this several months ago, right before the Super Bowl, and my premise has proven true, so while this sounds like it has been written in hindsight, that is not true). The origins of noise are most often to foment a “sale” of whatever the noisemaker wants to sell, whether that be a narrative, a product, or a vote.
It’s now April 26. Hear anything about these two anymore? No? Noise. Bigly noise.
This happens in the world of investing. Every day. Market forecasts. Stock recommendations. To the moon. Number go up. Who is making the statement? What narrative or product sale benefits them? Is it possible that their goal is the driver?
When it comes to investing, well, this is one place where “do your own research” can matter. If you know what you are doing. Keep in mind that you are competing against professionals who are researching and trading all day, every day. And at least as far as most fund managers are concerned, they are not winning at the game. Reading someone’s narrative and investing based on that? Even more dangerous. Those folk are just as susceptible to faulty thinking as you and I are.
For this trade to be profitable, your timing had to be pretty, pretty good.
Same with this one:
No meme here - just a boring fastener company. And look, it is really easy to find these in hindsight.
Here’s Dominion Energy, a great stock for something like 30 years. Since then, in order to earn a decent ROR, you better have excellent timing.
Picking the individual winners in short and long-term periods is hard. So let’s talk funds and a more diversified approach.
Looking at the one-year, three-year, and five-year best performing funds, what do you see?
No one-year performer is on either the three- or five-year list. Or vice versa.
Shorter-term high performers tend to be concentrated in an asset class or sector.
If you are looking for one-, three-, or five-year performance, you better get the right narrative and macro-view correct. How likely is it that you are going to, in advance, identify the high performer(s) for the coming year?
For reference, here is the S and P 500 over the last 5 years.
The underlying reality is that the great majority of fund managers do not consistently outperform their benchmarks. This data (from SPIVA) is large-cap. The other asset class fund managers look similar.
Guess what? Fund underperformance gets worse over time.
Noise Abatement
Longer-term, fund, sector, or stock picking is best done through diversification. As we can see above, investment selection (getting the right fund, for the right period of time) in your portfolio is doggone difficult. So what is reliable?
The asset classes have, long-term, clear performance ranges and volatility. Diversifying across multiple asset classes produces the most reliable returns. Note that I did not say the highest returns. I said the most reliable, or said another way, least volatile, returns.
If you want the highest returns, the most probable way to achieve that is to choose the asset class with the highest compounded returns over a long period (60+ years, per Kenneth French) and pour your dollars there. That might not be the best thing when you want to withdraw funds, though. It will be volatile. Volatility is the price you pay for the opportunity to get return.
For most of you, a simple 60/40 (declared dead in 2022, the 60/40 is now a phoenix), 70/30, or 80/20 (the / represents the blend of stocks and bonds) approach will work. This approach is much more easily sustained, as you have fewer decisions to make. The key is to avoid flight/going to cash when you experience volatility. And you will experience volatility - just look at the 1 year range of returns. Also note the range of returns compresses dramatically the longer you stay with a strategy.
Just like your exercise program and diet, the longer you stick with it, the easier sticking with it becomes.
When you are attracted to a narrative, look for disconfirming evidence. There is a reason why you find the story compelling. You will be inclined to look for confirming evidence, which is confirmation bias. If you do this, and do your own research, and determine an allocation mix designed to not follow an index and generate high returns, be prepared for long periods of time when your investments underperform the markets. You have intentionally designed a portfolio that does not look like the markets. Therefore, it has significant tracking error, and by definition will follow its own path. It may be termed “error”, but it is not necessarily a bad thing.
(source: https://www.visualcapitalist.com/10-year-annualized-forecasts-for-major-asset-classes/)
This graphic is a forecast, and those of you who read me often have heard me say The Forecaster’s Hall of Fame has zero members. However, this data is based on history. History tells us that Emerging Markets, Small Cap, and Mid Cap stocks have the highest compounded returns. You will note that the expected volatility for the highest returning asset classes is equally high.
Your brain will likely experience risk aversion when you are “underperforming”. You have to fight the desire to make changes. The data says it will work over long periods, and while this time may be different (which is the usual narrative, one that is often designed to trigger your risk aversion and/or flight mechanism), at least, to date, we have no evidence of that being so.
So, beware the story, the attractive narrative. It is not likely to be accurate. It is not likely to be useful for you. It is highly likely to be designed to generate rewards or returns for the narrative teller.
Sundry
Prettiest song of the week
Most moving song of the week
I am astounded that the Supreme Court of the United States would even consider hearing a case considering anyone’s immunity from our rules of law. And in my view of how our country should operate, a president should want to be the person most accountable. This is not a red versus blue thing, this is a best country in the world thing.
Shadoobie.