On the eve of Thanksgiving, I think it’s natural to step back and take stock of the things we are thankful for in our lives.
Brad and I have been on our own at Second Level Capital for about a year and a half now, and I will speak for both of us in saying that it’s been the best decision we’ve made in our business lives. Having friends become clients and having clients become friends has been a real blessing, and I’m honestly not sure if I could be happier with the current state of affairs.
As for the stock market, it decided to cooperate this year (which is always appreciated), with stocks and bonds both returning double digits. The S&P 500 is up north of 20% this year and for most of our broadly diversified ETF portfolios in the moderate to moderately aggressive range, the yearly returns are in the mid-to-high teens.
But before you get excited about buying those new wireless headphones on Black Friday, remember that the fourth quarter decline in 2018 skewed these year-to-date numbers to the upside, so in terms of how you should really be thinking about the stock market going forward is that since January 2018, the S&P 500 is up about 10% (not including dividends). This should be the anchoring thought when the inevitable question rears it ugly head, “With stocks at all-time highs, is now a good time to get a little more conservative?” To this logical question, I respond with the only truthful answer…I don’t know.
What I do know is that the portfolio construction we’ve built is working. It allowed us to stay the course during an almost 20% decline in Q4 of last year, which, in turn, allowed us to participate in the strong advance of 2019. Generally, year three of the presidential cycle is the strongest as the incumbent turns his attention from enacting social reforms and making good on campaign promises, to boosting the economy and doing everything in his power to get re-elected (who knew?). As far as the fourth year in the presidential cycle, year four is the second strongest. Will 2020 be a repeat of 2019? Maybe. Will a broadly diversified portfolio return more than the interest in your savings account? The answer in 14 of the last 17 years has been yes. I certainly like those odds.
Feeling very thankful and appreciative for every one of you.
– Adam
P.S. In case the turkey doesn’t put you to sleep, here are some of my favorite articles I’ve read throughout the month. Enjoy.
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- Making Money vs. Sounding Smart – Had the pleasure of meeting Adam Collins this year, and he’s as smart as they come. He’s also becoming a must read for his research and voracious reading habits. This must be what it’s like not to have kids.
- The Best Investment You Can Make – Nick Maggiulli of Ritholtz Wealth Management turns his high powered perception to spending time with family.
- I Will Absolutely Be Long At The Top – Larry Tentarelli from Trend Trading Signals clearly lays out what’s required in order to take part in multi-year advances, even though the noise can be deafening along the way.