Jessica Gibbs [0:59]
Welcome back to Off the Wall. I’m Jessica Gibbs and this is our quarterly market recap episode, where we are going to break down everything that happened Well, maybe not everything, but most a couple interesting things that happened in the market in Q1, 2025. There was a lot, you know, as I think everyone knows. Before we jump in, I do want to note that we are recording this episode on April 3rd, so things may have changed by the time you listen to it. So, I’m going to be the plain language voice here and say, if I were to bottom line, what happened in Q1 in the market in plain language. I think Q1 was characterized by slowing growth, market volatility and policy debates which influence both investor sentiment and economic forecasts. But we’re inquisitive people here at Monument and we know our listeners are too. So, to that end, let’s dive deeper into what happened with my co-host, Dave Armstrong. Hi, Dave.
David B. Armstrong [2:02]
Hello, I’m also joined by lovely Lila in the background here.
Jessica Gibbs [2:05]
Oh yeah, for those of you who aren’t in the video.
David B. Armstrong [2:06] Yes, so hopefully she won’t be snoring throughout the episode. We’re not that boring, but yeah.
Jessica Gibbs [2:09]
Yes, this is Dave’s dog, for those of you who can’t see. And then we also have Monuments Portfolio Managers Aaron Hay, hi Aaron. Hello guys. And Nate Tonsager. Hi Nate.
Nate Tonsager [2:22]
Hey everyone, Happy April.
Jessica Gibbs [2:23]
Yeah, all right, let’s jump in. There’s a lot happening, so lots of headlines. As I said, I think it’s been really hard to figure out with all these headlines. What do they mean for the economy and my portfolio? So I want each of you to give me a headline that stuck out to you and tell me why it stuck out to you and whether that’s because of the impact that it had or, you think, the impact that it’s going to have. Aaron, I want to start with you.
Erin Hay [2:57]
Well, I don’t think we can start any other place outside of the talks about tariffs and implementation and calculations. We are recording this on April 3rd, so stocks generally are down across the board. Huge moves, three, four, 5% depending on the index. So I mean it’s going to start and end with tariffs, which the things that are interesting here and this is how I sort of look at the world, and I talk about this with Dave, both you and Natal there’s so much, so many headlines.
Erin Hay [3:35]
Of course, this is the elephant in the room, but I think, for listeners, if you’re wondering about potential implications of headline A, headline B, headline C, whatever it is, I think a lot of this and basically everything can, or economic growth goes both ways and how it’s going to affect interest rates and inflation. So any sort of combination of headlines, policy changes, you name it, how you get from point A to point B is sort of irrelevant, as long as you can classify them into those two broad buckets of risks to a portfolio. And clearly the market’s showing us right here. We’re kind of getting it with both barrels, both in terms of concerns about economic growth and inflation and with a lot of different headlines that have come out just as early as this morning that we can talk about, like how they’re arriving at these tariff implementation numbers, some of the other reactions across other asset classes. I’ll leave it up, dave, to you and Nate where you want to go on it. If you’ve got any other comments to add to the tariff discussion, I mean.
Nate Tonsager [4:59]
I think, Erin, like you just said, I struggle to find headlines, whether it’s Q1 specifically, or going back decades. It really boils down to those two prongs that you brought up is what’s going to happen with economic growth and what’s going to happen with inflation, and I think we can look at it. Tariffs are a broad topic, but kind of narrowing in on just one that really jumped out to me is the tariffs on automobiles and cars specifically. I think a lot of people know there’s the big auto manufacturers here in the United States of Ford, gm, stellantis. They really do a great job of driving that American industry, let’s call it.
Nate Tonsager [5:37]
However, just because something is made in America or an American brand, they have significant implications coming from the tariffs that were enacted. You know, a single automatic transmission for just a single car, if you take it from scrap metal all the way through construction, crosses the border seven separate times. What that really means, then, is there’s seven separate times where we have to figure out what are the tariff impacts, how are the prices going to add up and are there going to be exemptions that are filed? You know there’s just so much uncertainty around just a single automatic transmission, one piece of a car and when you look at it, it seems like there’s going to be some carve-outs for different kind of areas of trade-compliant agreements the US-Mexico-Canada trade agreement that replaced NAFTA a few years ago, so that’s going to hold up maybe, but really I think we’re seeing that there’s going to be.
Nate Tonsager [6:28]
If bringing it back to what could happen is when you look at inflation, these tariffs, specifically on cars, are expected to add 6% to their prices. So what that means to me is, when you break it down, it seems like inflation is more likely to be coming back from these kinds of headlines. And again, this is just one example of using the cars as where the prices are going to go up. But yesterday so on Liberation Day, as it’s now being called we saw announcements of tariffs across the board, and not just tariffs on individual countries and their imports. What now is a term that I learned this quarter was secondary tariffs, which I’ve never heard before. So if you buy Venezuelan oil, now you’re getting tariff because we don’t want you to do that. No longer is it just because of what you’re bringing in or out. It seems like this is a plan that we’re going to have to deal with, and how long it stays in effect will be really interesting to me.
David Armstrong [7:21]
Yeah, I wouldn’t, you know, I I wouldn’t call what I want to talk about necessarily a headline, as much as it is a fact. But look, if you’re listening to this, the Q1 was rocky, I get it. You know, up until February 18th, we were sitting on like a positive 4.5% return in the S and P 500 for the year, right? So first six weeks, everything was great and then, since then, we’ve seen a relatively dramatic, drastic sell-off to the tune of around let’s just call it between 11% and 12%, depending on where we are today. So, okay, that is a correction. That is a serious year-to-date pullback in the market from the February 18th close and that increases a lot of very understandable anxiety. But, as I will hit on a little bit later as well, if you take things in the context of the last two years or specifically since the low of October 2022, there’s been a really serious run in growth of stocks. So this is where I come back to my constant messaging of look, you have to be able to control what you can control, because what you can’t control is the market going up and down. You can’t control the economy, but you can control your emotions, which is hard, I get it. I’m a victim of it as well, and you can control your cash stockpile to weather these kinds of storms, because they have always happened and they always will happen, and it’s more about being prepared and getting through them. So, as a point of reference today, there’s like Aaron said, we’re looking at anywhere between a 3% and a 6% sell-off, depending on what index you’re looking at. I mean, the small caps are off 6% today. That’s a lot. The NASDAQ is off 4.5%. That’s the tech stocks. You’ve got the S&P 500 off 4%. That’s kind of like the general stock market gauge. Everybody looks at it off 4%. That’s kind of like the general stock market gauge everybody looks at. And then the Dow Jones, which is 30 stocks, but everybody knows it because it’s a big headline it’s down 3.3% today.
David Armstrong [9:32]
Okay, we have been talking about tariffs for weeks and weeks and weeks and all of a sudden everybody wakes up today and says, oh my gosh, the tariffs are here. Let me liquidate my portfolio and have the market go down. Okay, great, if that’s what the general market is doing today. The question that lingers in my mind is what happens if the tariffs work? Or what happens if there is some concession or anything like that. Is everybody going to rush out and rebuy into the stock market and it’s going to go up 5%? The answer, Dave. Sorry to cut you off?
Erin Hay [10:02]
The answer is yes, yeah, exactly. Cut you off? The answer is yes, yeah, exactly. See the most vicious rallies in the throes of you can’t quite call it a bear market yet, because we haven’t hit the 20% threshold, but we’re definitely in a pretty significant decline or correction. You tend to get these vicious rallies in the midst of these types of markets, so sorry to cut you off there, Dave, and you didn’t.
David Armstrong [10:39]
You just added to my point, thank you. So, my point is that, if you can just weather the storm, none of this way. And so here’s some context. Here’s another point of reference. Okay, it was only a couple of weeks ago, march 23rd, which was the five-year anniversary of the market sell-off from COVID. Okay, exactly five years from March 23rd, so let’s just call it five years ago from now. Okay, exactly five years from March 23rd, so let’s just call it five years ago from now.
David B. Armstrong [11:09]
Okay, the market bought the market. The S&P bottomed at a 34% sell-off and we’re talking about the anxiety around an 11% return. People have very quickly forgotten how much anxiety and emotion there was at a 34% sell-off in the market. Okay, that sell-off happened because the economy got shut down. Period, that was it. It was a sudden COVID’s here. We’re shutting the economy down, everybody’s staying inside, nobody’s going to school, nobody’s going to restaurants. It’s over. Okay, sell-off.
David B. Armstrong [11:38]
Since then, the S&P is up nearly 200% on a total return basis. Okay, so off those lows. So you have to keep that in mind as you are digesting all of these scary headlines that you’re seeing right now and the scary headlines you’re going to see at some point in the future, because they’re always going to come and, as a matter of fact, I dug up some old headlines. I’ll talk about them later. Old headlines I’ll talk about them later. Pass the torch here a little bit, but I did pull some headlines up from late 2022 for some context as to like what people were saying in the news back then, pre a 200% total return recovery off that low.
Jessica Gibbs [12:17]
So again, not a headline, but like just some facts I mean. So, Dave, I hear your point about keeping a long-term perspective, you know, looking out at the horizon rather down at the ground right now as far as, metaphorically, what’s happening at the market. I don’t want to like hold you guys to predictions, but I am just kind of curious if you have thoughts on do you think the market is going to continue to be choppy for the rest of the year, um or not, you know I you have any sentiment there on kind of where the short term direction of the market may be going?
David B. Armstrong [12:53]
My answer is yes, it’s gonna be dropping. It’s gonna be dropping till there’s some sort of visibility on all of this policy. Consternation that’s going on right now the tariffs and everything else there’s. Just until there is clarity on that, there will not be clarity in the direction of the market. Which gets me back to again. You got to weather these storms. Investors have to weather these storms.
Nate Tonsager [13:16]
And I think it’s kind of important. When we say choppy, I’ll use a different word that holds the same meaning volatile but that doesn’t mean. When people hear volatility, I think a lot of investors think that means going down. You can have upside volatility too.
Nate Tonsager [13:27]
Sure, that’s Aaron’s point of the market rallying 5% If tomorrow, all of a sudden, liberation day never happened and everything gets wiped clean. Guess what’s going to happen? You’re going to see the markets kick right back into high gear. I think that gets to Dave’s point too. What we always want to talk about is that successful investing doesn’t mean sidestepping or missing market declines. Exactly what Dave said. It means weathering them. It means making sure that you have a strategy, because they are going to happen and it’s going to be volatile from here on out. In my opinion, it’s just the administration we’re in has a very difficult time of saying one thing, sticking to it. These tariffs that just went into effect, as Dave said, have been talked about for months.
Nate Tonsager [14:04]
They’ve been delayed for months. They went into effect for 24 hours and then were peeled back around. It’s really hard to make predictions about what’s going to happen, so it may seem counterintuitive because people want to think, oh, I can predict the market and I have to be in front of those market movements to really capture gains. If you’re nimble and you can react which is a lot of what I think we do here at Monument with our investment strategies is reacting to the data. You might be in a better situation right now than trying to figure out what’s going to happen is reacting to what is happening. So again, I’m not the prediction guy, I’m not my favorite thing to do, but I think you can expect that volatility to both ways. It won’t just be downside volatility 2025. There’ll be that upside volatility as well.
Jessica Gibbs [14:50]
Okay. So, it could be a good opportunity. If you are feeling in your gut right now anxiety or sort of nervousness about like oh crap, I really did need cash for, insert your reason here that you know it all may not be lost. There may be opportunities where the market swings back up and remember this moment, remember how you’re feeling right now, and that can be a good opportunity then to sell stocks, raise the cash that you need and keep that on the sidelines so that you don’t feel anxiety if the market inevitably, when it inevitably, goes down again.
Jessica Gibbs [15:28]
Yeah, exactly when it inevitably goes down again. Yeah, exactly. So I want to flip my earlier question about headlines on its head. What do you guys think is getting lost in the headlines right now? What do you think people are missing? What do you think people are not seeing? Nate, I’m going to start with you.
Nate Tonsager [15:49]
I don’t know if mine is necessarily one that people are missing, but I think there’s a key data point that shows it and, like we talked about at the beginning, I said I think the tariffs can boost inflation. Well, getting back to that other double-barreled approach that Aaron was talking about, well, what’s going on with economic growth and I think we are seeing some signs of growth slowing down. And really there’s one headline that really jumped out to me and it’s not meant to be a specific stock forecast, but what we heard from airline companies was really important. In this first quarter, you saw the major airline companies Delta, american, southwest all cut their first quarter forecast sales. Now, again, that’s not meant to say that these are bad stocks or bad companies, but it is an insight into consumer spending and economic growth.
Nate Tonsager [16:35]
If you’re traveling, you’re usually spending wherever you’re going. It’s kind of like buying a house in a way, where there’s a lot of additional spending that goes with the purchase of a home. You buy an airline ticket same kind of thing. It’s a big economic driver. And when you look at specifically why Delta was cutting their forecast specifically, you get quotes from the CEO of, and I quote, I think people are cautious and they’re pulling back a little bit on travel, not in an organized manner, but just kind of wanting to see what’s going to transpire, whether it’s trade tariffs or macroeconomic policy. It’s just a little bit of unsettledness in the market is what they’re seeing. So we’ve heard a lot about how consumers aren’t nervous, but the economic data has actually held up pretty well when you look back. Growth has slowed, but it isn’t falling off a cliff. Quotes like this make me nervous that that second barrel we talked about, the growth, is going to significantly pull back, because you heard the same thing from United Airlines as well, and I don’t want to be a fear monger here because, again, we need to stay invested. We have strategies. This happens.
Nate Tonsager [17:37]
But if we have higher inflation and slower growth, there’s a term that’s kind of an economic boogeyman called stagflation Stagnant growth, high inflation. What that really means is, when growth keels back, the Fed normally likes to cut rates, make monetary policy easier, but if inflation is moving the opposite direction moving higher now the Fed’s in a really tough place that they need to raise rates to fight inflation, but they need to lower them in order to support growth. It’s a very tough economic environment if that’s really what is unfolding and that headline, while you’re not getting a lot of people saying, they’re saying recession odds are higher. This is the kind of headlines that a lot of people aren’t talking about is you’re seeing some of it show up in the companies that are affected earliest by consumer spending.
Nate Tonsager [18:23]
So, getting back to Aaron’s point, it all comes down to growth and inflation and what that means for interest rates. Really everything. Leave it in the comments, send us emails. I’ll be happy to kind of talk to people about no matter what your fear is, what headline you’re seeing, you can boil it down to the impact on those two components really Aaron.
Jessica Gibbs [18:43]
what do you think is getting lost?
Erin Hay [18:46]
Back to my earlier comments when I rudely interjected on Dave. I do have some stats here to talk about. This is definitely not a market that you’re going to want to short. Ie technical term there meaning go out and invest in such a way that you profit from stocks going down, because you’ve got to think of the payoff profile of investing in stocks. So, Nate really quick, if you’re going to short a stock, what is the maximum total return that you can get off of shorting a stock?
Nate Tonsager [19:26]
It’s whatever the current price is basically what is that? So, 100? 100% correct?
Erin Hay [19:32]
What’s the maximum amount you can lose on shorting a stock?
Nate Tonsager [19:36]
This is where it gets scary. You can lose an infinite amount of money because if you’re betting on that stock to go lower and it just ripped there’s no upper end for a stock price. Stock prices can only go to zero on the low end. They can go as high as they want.
Erin Hay [19:53]
Yeah, theoretically you can lose an infinite amount of money shorting stocks. The industry jargon for that is, quote getting your face ripped off. That’s what people mean by this. But just some data to highlight this fact. I found this from an author. His name’s Kevin Muir. I’ve never spoken with him, but shout out to Kevin. He goes by the moniker the Macro Tourist, he has an interesting sub stack and he put out some data within the last. Actually this is an old post, but he just resurfaced it and he has a graphic in there ranking the NASDAQ one day returns, the highest one day returns from 1990 to the end of 2021. And I’m going to read off the one day return to the top five here. So the highest return was 18,. Basically 19% in January of 01, 13% in October of 08, 12% in December of 2000, 11% in October of 08, and 11% in April of 01. So, dave, what can you tell me about those dates? What, what you? You’ve been around a while. So we’re looking at 2000, 2001, 2008, like what was going on in the market.
David B. Armstrong [21:03]
That was, that was the com boom and that was the 08 crisis.
Erin Hay [21:08]
Correct. So that just underscores the point that this is definitely not a market that you’re going to. I mean, it’s very tough to short stocks in general. You’ve seen a lot of these dedicated short selling firms, research firms go belly up here recently. That’s potentially a little canary in the coal mine when you start seeing that, but stocks have what we call a positive expected return. They should go up over time as long as economic growth is going up. So, this is definitely not a market you want to short.
Erin Hay [21:41]
The most vicious rallies, as we’ve just illustrated, tend to happen in the throes of bear markets or market corrections. I think the most frustrating thing of all here is all this is going to take for that to happen is a press conference, a tweet. If you think you can predict or otherwise have powerful analytics to determine when the president is going to unilaterally say you know what? I was just joking about that, good luck to you. It’s just not a game you want to play. Know what I was just joking about that? Good luck to you. It’s just not a game you want to play.
Erin Hay [22:17]
And then, on top of that, guys, I actually thought of this as, listening to Dave and Nate here, I think one thing that’s getting lost in the headlines not just this quarter, but I think it’s been lost for a long time, basically since, I’d say, since COVID, maybe even going back to the great financial crisis in 08, 09 is I think that investors are sort of expecting their politician of choice, administration of choice, to somehow eliminate the economic cycle, the business cycle, the boom bus cycle. They sort of somehow expecting their trusted experts wherever your trusted experts or they fall on the spectrum, you think that they’re going to eliminate a recession, like we got news for you. These are natural phenomenons. That’s not going to go away. We’re always going to have business cycles. Now we can delay them or we can amplify them, but it’s just not going away. I think that’s the biggest thing is, we haven’t magically solved just the basic complexities of the human condition, economic. We just haven’t solved it. So, you should always be expecting, at some point, a recession.
David B. Armstrong [23:21]
Oh yeah, definitely going to have a recession, I just don’t know when.
David B. Armstrong [23:25]
I say that all the time, but you know, I I think what’s getting lost in the headlines? There’s two things. One lost in the headlines, in the midst of all this tariff talk and political jostling about and throwing arrows at each other across the aisle, is the fact that we are very rapidly, as a nation, massing military power off the coast of Iran and we’ve got two carrier battle groups now in the vicinity of Iran. From a national strategic perspective, we don’t put two carriers anywhere together just to take pictures of it and for them to pass each other and wave hello. Okay, carrier battlegroups have destroyers, cruisers, auxiliary ships, submarines, all attached, and we’ve got two of them off the coast or heading to the coast of Iran.
David B. Armstrong [24:20]
Right now, the air force is moving a massive amount of military equipment to support bombings. Um, out of diego garcia we’ve got b1 bombers there, we’ve got b-52 bombers. They’re staged. I mean we are very quietly massing a massive amount of military equipment and when you talk about volatility in the market, could it be choppy? We start throwing some bombs into another sovereign country like Iran and that’s just going to add to the volatility. I’m not saying that the Chick-fil-A down the street is going to close because of a war with Iran, but it could definitely impact oil prices and other things. So that’s that is another potential issue that that I think is being lost in the headlines. Let’s hope it doesn’t happen. But we’re so wrapped up in in the tariff thing right now that we’re very, you know, quickly losing sight of another potential conflict in the world, which I hope does not happen.
David B. Armstrong [25:20]
The other thing I think that’s getting lost in the headlines are all and I alluded to this earlier is all of the headlines from back in October of 2022 that no one remembers and the talking heads on TV are all conveniently forgetting right now. But I dug a few up and I’m just going to read them as they are quoted. So, bloomberg most of these are from Bloomberg because they were the easiest to search. Bloomberg quote forecast for US recession within the year hits 100% in a blow to President Biden. Also from Bloomberg quote quote of a quote, quote this is serious, says JP Morgan’s Jamie Diamond, warning that the USS is likely to tip into a recession inside the next six to nine months. Again more from Bloomberg Quote Bezos urges consumers and business owners to reduce risk in the face of a likely recession. Here’s one from Market Insider Quote, 81% of US adults are worried about a recession hitting this year. The survey finds Okay.
David B. Armstrong [26:20]
By the way, the only thing that stocks have done since that October 2022 low have been to go up. I mean first quarter notwithstanding, of course, but even factoring in the first quarter of this year, there’s been like a 50 or 60% run in equities over the past two years. So you see all of these headlines and everybody gets scared, but the market just kind of went up. And so to Aaron’s point about vicious rallies and things like that. I think what’s getting lost in the news is all the last time all of this news came up and what very quietly happened. I mean, there was a big sell-off from January to October, of course, but then, all of a sudden, does anybody remember why the market turned around in the middle of October of 2022? No, because there’s no catalyst that makes it happen. It just people start to look forward. And so, I think that what has happened in the past gets very easily lost in current headlines, and I just wanted to point that out because I think it’s important to keep in mind.
Nate Tonsager [27:21]
Well, and I think too, if I remember correctly, a big kind of you know, there was no one event. There will no be one event. That turns things around, but I think the Fed had a lot to do in 2022, right, and I always harp on the macro side, the interest rate side, and I think them slowing down the pace of hikes or maybe even stopping the hikes at that point. I can’t remember exactly when the last hike was at this point, but that’s a big catalyst to what helped. And I think we need to be aware and we always are of trying to identify when there’s these kind of regime shifts. And I think, dave, you bring up a great point with the IRM pieces. We’re talking about the headlines that aren’t being maybe caught up. All of them are just going to boost the uncertainty and right now it feels like uncertainty might be at a maximum. Just remember, certainty can go up way more than we have seen right now.
Nate Tonsager [28:09]
I’ve written about this a few times. The 10% decline I know we’ve just passed that mark happens about once every 18 months. So, while this doesn’t feel good, human attention span is at an absolute minimum. So, talking about uncertainty reaching maximums, your attention span is at a minimum. People quickly forget this happens. And if you’re not ready for it, if you don’t have a plan for it, kind of, what are you doing?
Jessica Gibbs [28:33]
So, nate, that’s a really good segue into my last question. For all of you guys, what is your advice on how to deal with volatility in the market and the news cycle? I think those are the things that none of us can control, kind of to the point you guys have been talking about. But what are the things that listeners can control? And, dave, I’m going to start with you.
David Armstrong [28:59]
Sure, are the things that listeners can control and, Dave, I’m going to start with you, sure, so kind of piggybacking on Nate’s. You know these things happen every so often a more definitive stat here. But since the end of World War II we’ve seen, I count, 39 market corrections, you know, greater than 10%, and only 13 of those have turned into bear market, which is down 20%. Okay, so what can we control? We can control having that cash buffer I talked about before, having that in place and that allows for access to cash by the Mr and Mrs Smith, the general investing public, to cash by the Mr and Mrs Smith, the general investing public. If you need cash out of your portfolio and you have a bucket of cash available, it keeps you from having to sell securities during a correction or during a bear market and permanently booking a loss during that 10 to 20% correction or even more. That’s the goal. So, as these things happen, it’s not about correctly anticipating these events and making adjustment, because that’s a losing proposition. It’s about knowing that they happen and then being financially prepared to not turn paper losses into real losses by doing what a lot of people are doing today and selling their stocks at, you know, down four or 5%.
David B. Armstrong [30:28]
I’m going to go out on a limb here and create a statistic out of thin air and say this I’ll bet you, almost 100% of the people selling today aren’t selling because they’re going out to buy a new house tomorrow and they need cash. They’re selling out of panic and fear and everything else and a lack of visibility on the expectations positive expectations about the economy going forward and they’re selling. They’re not selling to buy something. So that is that is one of the things you can control is having the money available that you need when you need it. In an environment when the markets are at an all-time high, like should have been raising cash on february 18th, right, if you knew you were going to be buying a house or something like that. So I just I always keep coming back to that, because cash is the best and the cheapest hedge against market corrections that’s available to the, to the everyday average investor and even institutions as well, I’d argue Period. End of story. Dave Armstrong dies on that hill.
Nate Tonsager [31:30]
Well, I’m right there next to you, Dave, because again you took a lot of mine and it’s what can investors do now? There are some other ways that you can maybe make lemonade out of lemons in a bad situation, but really there’s not a lot you can do at this time if you didn’t prepare earlier. Speaking, I know we talked about massing military assets. The best kind of leadership prepares before there’s a conflict. So, if you think about it, you should have been raising cash earlier and all that. And now hopefully you can use this as a moral lesson, because right now, like what Dave was saying, is about locking in those losses permanently.
Nate Tonsager [32:04]
There’s studies out there Morningstar does a great one and every year they calculate something what’s called investor returns, where the goal of the study is to measure how much of an investment fund do investors actually capture. So if you bought an S&P 500 or a large cap blend, a large diversified mutual fund, how much of that return are investors actually capturing? And they look across all the different asset classes. But the one that always jumps out to me every year, which is kind of nuts, is the US equity group. So you buy a US equity fund, you know you’re buying just US equities. Well, if you look at the returns over 10 years and the study the most recent one. They do it on an annual basis, so they haven’t released 2024 yet, but at the end of 2023, the 10 years prior investors returned about 10% within the US large cap equity group. That’s the investor return of 10%, while the group overall had a 10.8% total return. Annualized. That means investors almost lost 0.8%, so almost a full percent per year because of their missed time buy and sell decisions.
Nate Tonsager [33:11]
You’re not going to be able to time the market. You can’t just say, okay, well, now’s the time to get out, now’s the time to get back in. There’s no perfect signal when it comes to that, and you can quantify the impact on your returns by making those kind of emotional decisions when it’s usually in markets like this, like Dave was saying, locking in losses. So what can you do? Unfortunately, there’s not a whole lot to do outside of hopefully have conversations with your wealth manager who is ever running your money, if that’s yourself to really make sure that your strategy is set up to withstand it, it being volatility, because, like we talked about, volatility is likely to continue. So how are you going to find ways to capture the upside volatility but also then limit the downside volatility and that’s kind of the ideal investing solution. I think everyone is really trying to do that Monument. We have our ways of doing it, but again, if you don’t have strategies to do both, you’re kind of unprepared for what is pretty normal market cycles.
Erin Hay [34:07] I suppose I can round this out here. Nate, you reminded me of something. I had to look it up here on the side while we’re speaking your Morningstar study. I think this is the most famous incident or case study in this incident or case study in this. I know, Dave, you and Nate are familiar with the fund manager, Peter Lynch. But just for background, Peter Lynch ran a really popular and successful mutual fund. It’s called the. What was his fund? The Magellan Fund. You ran that fund from 1977 to 1990. Dave and Nate, do you guys have any idea of what S&P returns were over that time? What his fund?
Nate Tonsager [34:56]
average return was over that time Annualized? I couldn’t tell you. I can’t give you exact numbers, but something. If I remember this story correctly, he did better than what the index says, which is a very tough thing to do.
Erin Hay [35:05]
Oh yeah, so his fund, the Magellan Fund, annualized 29% and the S&P was 14.5% over that time. I don’t have the exact stat, but they found this was actually a Fidelity study. But the average investor in his fund over that time lost money. So just to put a finer point, Nate, on your investor return stat and those studies from Morningstar.
Nate Tonsager [35:33]
But sorry to kind of cut you off now, but isn’t that kind of a wild thing to think about?
Jessica Gibbs [35:37]
Yeah.
Nate Tonsager [35:37]
That people are buying an equity fund. They know what it is. The Magellan Fund was not out there doing as we talked about shorting stocks with unlimited losses. They weren’t doing anything crazy. But it’s so important to have a strategy you’ll stick to. And equities aren’t for everyone either, which is another important point to remember. You might need more. If you can’t handle equity volatility, don’t be fully in equities.
Erin Hay [36:01]
Hey, on that point, I mean, this is why it’s as frustrating and just, I don’t. I don’t think this is going to happen, by the way, I don’t know this, this woman, this fund manager, but heck, we could. We could wake up in five years and we could see Kathy Wood, who runs the ARK investment funds. Hell, she could go on an absolute heater right now and I think you’re going to see the same sort of stats. I would venture to say you’d see the exact sort of stats play out with her fund. She could be the modern-day analog to Peter Lynch. I don’t know, we don’t invest in any ARK funds or anything like that, but just an off the wall idea there. Maybe in five years we wake up and think, oh my God, Cathie Wood’s killed it, but her average investor, much like Peter Lynch, has lost money. But I guess you guys want to know what I think people can control and this isn’t going to shock people.
Erin Hay [36:55]
A lot of the same things. This is evergreen. Of course, you can control your asset allocation, as always, and by extension, as Dave and Nate so eloquently put, your cash reserves, because the cash reserves are definitely an extension of your asset allocation and there’s definitely silver linings in these types of environments, especially for taxable investors which, by and large, comes in the way of tax loss harvesting. Jessica, I think you might have something to say on that here at some point soon. But that’s really it. It’s asset allocation by extension of your cash reserves and if you’re a taxable investor with really volatile markets, these types of markets tend to present some good opportunities for tax loss harvesting.
Jessica Gibbs [37:40]
Yeah, and just to be clear, by taxable investor. We’re talking about investing in non-retirement investment accounts where you can take advantage of capital losses and put that towards your tax bill. So yes, to Aaron’s end, we are going to be having a more in-depth conversation about tax loss harvesting coming out next week. This is going to be a private podcast episode only available to our subscribers. So go and sign up to get access to our private YouTube video. If you haven’t already. You can do this by subscribing to our private newsletter monumentwealthmanagementcom./unfiltered. So, I thank you all for your really good perspective that you shared here today. Dave, Erin, Nate, I think it’s valuable to hear about, yes, what’s happening to the short term, but hear that reminder about the long term as well. So that’s a wrap on another episode of Off the Wall. We’ll see you guys’ next time.
