Everybody is aware of that markets have been within the dumps this yr.
However do you know if you happen to look again on the trailing 12-months from the tip of November (11/30/22), the Dow was really up 0.31%?
Whereas we at all times appear to give attention to the calendar yr as a begin/cease date when evaluating efficiency, it’s considerably irrelevant to an investor who’s trying 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 at all times beloved podcasts, however I by no means anticipated how common the medium would change into for Monument. The suggestions we get is that our OFF THE WALL Podcast is attention-grabbing in a manner our weblog will not be – it’s conversational and offers not solely a chance for us to have visitors however to additionally enable listeners to ‘sit in’ on conversations we now have as a Workforce. As a Workforce, 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 the moment aiming to do one asset administration/market overview subject with Erin, Nate and myself as soon as 1 / 4, however we are able to additionally report and rapidly publish one if there’s a well timed subject to debate. They’re enjoyable, simple and, for some, extra entertaining than the weblog. Backside line is, we’re actually specializing in delivering you one of the best content material expertise in 2023. Be sure you see the Podcast web page and use the hyperlinks to subscribe to one of many common 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 examine that to the Nasdaq, down -26.70% YTD. If the yr ended on 11/30/22, this could have been the SECOND largest optimistic unfold of the Dow to the Nasdaq since 1973 (the yr the Nasdaq began publishing knowledge).
That’s an enormous distinction…a couple of 22% unfold. And that’s simply value returns which doesn’t account for including in dividends.
The most important optimistic unfold occurred 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…
Take into account this…
Meta: 52 week excessive $352.71, at the moment $122, wants to extend 187% to get again to the excessive
Google: 52 week excessive $152, at the moment $101 and wishes to extend 51% to get again to the excessive
Apple: 52 week excessive $183, at the moment $147 and wishes to extend 25% to get again to the excessive
Amazon: 52 week excessive $177, at the moment $92 and wishes to extend 94% to get again to the excessive
Netflix: 52 week excessive $632, at the moment $318 and wishes 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 right down to make the automotive go ahead. Proper now, traders who overconcentrated in huge common 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 one of the 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 (concern of lacking out) and begin shopping for or over concentrating within the highflyers. I get it, it’s not simple to look at shares you don’t personal hold going up and it’s even tougher to half methods with them after they hold going up. Like diversification, that pendulum will swing backwards and forwards however generally one of the best time to make the remark about overconcentration (and albeit 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 via regular development inside a diversified portfolio.
Have a stable, unemotional plan and course of to cope with that.