A decade of growth

By David B. Armstrong, CFA | Feb 03, 2020 | Weekly Market Commentary

In last week’s blog, “Debunking Standard Finance Theory,” I wrote:

Theory is great in the classroom and for an academic discussion where assumptions have to be made to intellectually work a problem, but in reality, I believe that probabilities, possibilities, simplicity, patience and discipline are the real fundamental blocks of investing.

I’m pretty consistent about the mantra of probabilities, possibilities, simplicity, patience and discipline, so I’ll share some graphs from YCharts that shows S&P 500 returns in the context of a decade, rather than a week, quarter or even a year.

I get it—weeks, quarters and years are part of the investing vernacular and that makes them INTERESTING…but a decade, well, that’s IMPORTANT.

Here are the S&P 500 returns of each month over the past ten years. Traders or investors who tried to avoid losses were probably unsuccessful. Those investors who exercised patience, discipline and simplicity were probably afforded very solid returns. Seven out of the ten years had returns greater than 11%, two were greater than 20% and one was greater than 30%.  Of the three years that were less than 10%, two were positive at 2.11% and 1.38% while only one was negative at – 4.38%.

Now take a look at the growth of the sectors over the past ten years. All the sectors are notable, but the three that should really stick out are Communications Services (bright purple), Consumer Cyclical (bright pink) and Energy (orange).

Communications and Consumer Cyclicals both grew impressively over the past ten years, while Energy shrunk the most.

Communications makes sense since they broadened the constituents to include the social media stocks and Consumer Cyclicals is most likely a function of consumer sentiment and a solid economy with low unemployment.

As for Energy, here’s what I’m thinking has had the biggest impact: U.S. crude oil production has dominated for half the decade.

While it’s important to recognize the performance over a decade, there is a lot going on right now…there always is. Trying to navigate investing around uncertainty is a lot like trying to solve for gravity….you can’t. The market hates uncertainty (and viruses).

To that note, Heaven Goodwin, who started full-time at Monument today, was an aspiring epidemiologist–turned–Monument–Paraplanner. Today at lunch she pointed out that “19 million people have come down with the flu this season and it has killed over 10,000 people in the U.S. alone. The yearly vaccine rarely gets it right.”

You are only pissed about the S&P 500 erasing the calendar year gains if you needed to liquidate assets today to pay for something this month.  We have obviously seen some of the inputs into our MONCON Recession Plan Model elevate, but we are NO WHERE near the readings that would move us from the current reading of MONCON 5 to MONCON 4, and even if we did go to 4, that is a “no action” level.

My trip last week was what I’ll consider a total success.  I met with 20 special operators from all the big units they make movies about and it’s hard to believe they have spent the past 20 years in and out of combat deployments–essentially their entire careers. Their biggest fear? “Will I get a job when I retire?”  It’s hard to believe that is what’s scaring them.

This is a picture of a memorial that has been built by each participant bringing an individual rock from the Gallatin River up about 1500 feet on the mountain to the memorial site.

Each rock represents a personal memory of a fellow fallen warrior.  They were covered with snow, but most have something personal that is written, painted or glued to the rock as a memory.

There are a lot of rocks there…and yes, the big rock with the painted star was carried up to the memorial.

Help out if you can. You can learn more about The Station Foundation here.

Keep looking forward,

Dave

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