posted on 03 January 2017
Short Market Note & Review
We wrapped up 2016 with a fairly dismal trading week last Friday as the S&P had its biggest plunge since the election diving 24.95 points or 1.10%. This has left the bulls pondering if they will ever be able to recover from such a catastrophe. (Dripping with sarcasm)
However, for the year, all of the gains of the S&P 500 came in just the last two months of the year and those gains were somewhat relegated to only a few areas of the market. The two charts below show returns by sector, and by major market, as compared to the S&P 500 for the year.
S&P 500 Sector Returns Vs. S&P 500
Major Index Returns Vs. S&P 500
Now, take a look at the gains above for the entire year as compared to the charts below which show comparative returns since the November 8th election.
S&P 500 Sector Returns Vs. S&P 500 since November 8th
Major Index Returns Vs. S&P 500 since November 8th
As you can see, the bulk of the returns for the S&P 500 came from the massive explosion of the heavily weighted sector of financial related companies since the election. Furthermore, if you were invested anywhere other than domestically (large, mid and small capitalization stocks) you underperformed the S&P 500 this year.
You will hear a lot heading into the New Year about fund managers once again underperforming the S&P 500 index and why you should just buy an index and go home.
Unfortunately, the majority of those individuals touting such nonsense don't, and never have in many instances, actually managed money for individuals or institutions. The reason you know this to be the case is they are they same ones touting the benefits of "diversification."
If you were diversified this year, you underperformed. Period.
It is highly unlikely that you will ever "beat the market" over the long-term anyway.
For all of these reasons, and more, the act of comparing your portfolio to that of a "benchmark index" will ultimately lead you to taking on too much risk and into making emotionally based investment decisions. The index is a mythical creature, like the Unicorn, and chasing it takes your focus off of what is most important - your money and your specific goals.
Investing is not a competition and, as history shows, there are horrid consequences for treating it as such. So, do yourself a favor and forget about what the benchmark index does from one day to the next. Focus instead on matching your portfolio to your own personal goals, objectives, and time frames.
In the long run, you may not beat the index, but you are likely to achieve your own personal investment goals which is why you invested in the first place.
The Only Chart That Matters Heading Into 2017
As we head into 2017 we enter into the year with:
In other words, after 8 straight years of a bull market advance, what is the risk you are taking to garner additional returns?
With markets pushing overbought, overvalued, and bullish extremes the future outcomes have not been terrific.
Just something to think about.
Investor Resolutions For 2017
Here are my annual resolutions for the coming year to be a better investor/portfolio manager:
These are the same resolutions I attempt to follow every year. There is no shortcut to being a successful investor. There are only the basic rules, discipline and focus that is required to succeed long-term.
The biggest problem for investors is the bull market itself.
When the "bull is running" we believe we are smarter and better than we actually are. We take on substantially more risk than we realize as we continue to chase market returns and allow "greed" to displace our rational logic. Just as with gambling, success breeds overconfidence as the rising tide disguises our investment mistakes.
Unfortunately, it is during the subsequent completion of the full-market cycle that our errors are revealed. Always too painfully and tragically as the loss of capital exceeds our capability to "hold on for the long-term."
Remembering these basic rules from Bob Farrell will help you survive, and win, the long-term investment game.
Happy New Year
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