Everybody is aware of that markets have been within the dumps this 12 months.
However do you know in the event you look again on the trailing 12-months from the top of November (11/30/22), the Dow was truly up 0.31%?
Whereas we all the time appear to deal with the calendar 12 months as a begin/cease date when evaluating efficiency, it’s considerably irrelevant to an investor who’s seeking to develop their wealth.
However earlier than I dive in deeper, I’ve two housekeeping notes:
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#2 – Our Podcast has taken off. I’ve all the time cherished podcasts, however I by no means anticipated how standard the medium would turn into for Monument. The suggestions we get is that our OFF THE WALL Podcast is attention-grabbing in a method our weblog isn’t – it’s conversational and offers not solely a possibility for us to have visitors however to additionally enable listeners to ‘sit in’ on conversations we’ve got as a Group. As a Group, we’re speaking in regards to the markets and constructing wealth on a regular basis, so we determined to easily begin recording these conversations and sharing them.
We’re at present aiming to do one asset administration/market overview matter with Erin, Nate and myself as soon as 1 / 4, however we will additionally document and rapidly publish one if there’s a well timed matter to debate. They’re enjoyable, simple and, for some, extra entertaining than the weblog. Backside line is, we’re actually specializing in delivering you the very best content material expertise in 2023. Remember to see the Podcast web page and use the hyperlinks to subscribe to one of many standard podcast gamers – Apple, Google, Spotify, we’re there.
Okay, so again to the markets….
As of 11/30/22, the Dow was down -4.81% YTD. Now evaluate that to the Nasdaq, down -26.70% YTD. If the 12 months ended on 11/30/22, this may have been the SECOND largest constructive unfold of the Dow to the Nasdaq since 1973 (the 12 months the Nasdaq began publishing information).
That’s a giant distinction…a couple of 22% unfold. And that’s simply value returns which doesn’t account for including in dividends.
The most important constructive unfold passed off in…drumroll…2000.
How in regards to the reverse?
The 2 largest years of outperformance for the Nasdaq over the Dow got here in 2020 and 1999, the place the Nasdaq outperformed by 36% and 63% respectively.
Okay, so right here’s the “So what?!” half…
Think about this…
Meta: 52 week excessive $352.71, at present $122, wants to extend 187% to get again to the excessive
Google: 52 week excessive $152, at present $101 and desires to extend 51% to get again to the excessive
Apple: 52 week excessive $183, at present $147 and desires to extend 25% to get again to the excessive
Amazon: 52 week excessive $177, at present $92 and desires to extend 94% to get again to the excessive
Netflix: 52 week excessive $632, at present $318 and desires to extend 99% to get again to the excessive
With that in thoughts, two issues matter: Diversification & Shares
First, diversification issues. A very good portfolio has a number of pistons within the engine and collectively, they go up and all the way down to make the automotive go ahead. Proper now, traders who overconcentrated in large standard tech names are hurting far more than traders who for instance, maintain a portfolio of dividend paying shares. That pendulum will swing backwards and forwards however generally the very best time to make a remark about diversification is when that pendulum swing is at its apex.
Second, shares matter. Simply as I noticed in 1999-2000, quite a lot of particular person traders begin catching FOMO (worry of lacking out) and begin shopping for or over concentrating within the highflyers. I get it, it’s not simple to observe shares you don’t personal hold going up and it’s even tougher to half methods with them once they hold going up. Like diversification, that pendulum will swing backwards and forwards however generally the very best time to make the remark about overconcentration (and admittedly overconfidence) is when that pendulum swing is at an apex.
Level – it’s simple to get overconcentrated when shares are going up 1) overtly by falling in love with them and loading up or 2) covertly by way of regular development inside a diversified portfolio.
Have a strong, unemotional plan and course of to take care of that.