Smoke, Mirrors, and The Financial News
Financial news sources create a smoke and mirror effect that is detrimental to prudent investing.~ Bryan Baggenstos
The financial news loves to sound smart. They report on recent performance and then write stories about why that performance happened.
It is important to note the order mentioned above. First they look at what happened and then they create a story about why it happened. Hindsight is alway 20/20. The linkage of the stories with the returns are fictional. They are not why prices moved. Prices move for one reason and only one reason. More people want to buy than sell or vice versa, sometimes news may influence buying decisions but only when it is major news. There are good and bad things that happen every day - the financial news emphasizes the good things on days when the market goes up and the bad things on the days when it goes down.
Why is this important? This is what causes the smoke and mirror effect.
Smoke because, like smoke, it limits your visibility. It focuses on only part of what is happening and mostly on what is happening today. It obscures your ability to think about and visualize the future in a non-biased way. It rarely talks about the long term plans of companies or the potential risks that have not already been made apparent and are already priced in.
Mirrors because, like mirrors, you are always looking backwards. Mirrors do not let you see through them. You think you are looking forward, but what you see in the mirror is what is behind you. Investing based on what has happened in the recent past is what causes markets to overshoot. They assume that what has happened in the recent past will continue into the future.
This creates opportunities for prudent investing. For someone who looks at things other than the financial news or recent price movements as their compass. Keep this in mind as you listen to your favorite news outlet report on the recent rise or fall in the markets.
PORTFOLIO UPDATE (as of 1/16/2019):
Current Performance:
The ETF's and other funds that make up the portfolio's MTD Returns:
Portfolio Description:
The first is a "buy and hold" strategy that does not ever change. I call this the Equal portfolio because it is made up of four equal parts allocated to different asset classes. It is 1/4 in large cap equity (Ticker VONE), 1/4 in small cap equity (Ticker VTWO), 1/4 in investment grade debt (Ticker AGG), and 1/4 in high yield debt (Ticker JNK). The allocations never change. The only thing needed is to rebalance every so often as performance differences will cause the weights to shift.
The second portfolio is a "tactical" portfolio. It is tactical because it adjusts the weights to the four asset classes above based on market conditions. I call this the TA portfolio. It can go 100% into any one asset class or be a mixture of them. 1/12th of this portfolio can change each month as I make a monthly call on what i expect will do best over the next year based on current market conditions. Historically I have picked the best asset class about 50% of the time, the second best about 25% of the time, the third best 18% of the time and the worst 7% of the time.
The third portfolio is also a "tactical" portfolio. I call it the Enhanced portfolio because I follow the same allocation as the TA portfolio but I pick other vehicles that I expect to offer a better return than the four ETF's used in the Equal portfolio. This allows for active management and broader exposure to asset classes such as International Equities, Emerging Markets, and Commodities among others.
Current Allocations:
Current Performance:
The ETF's and other funds that make up the portfolio's MTD Returns:
| Ticker | 1/16/19 |
| VONE | 4.4% |
| VTWO | 7.2% |
| JNK | 3.8% |
| AGG | 0.0% |
DBCMX | 2.3% |
| IEMG | 5.1% |
| KXI | 1.5% |
| JXI GOVT | 1.5% 0.4% |
Portfolio Description:
The first is a "buy and hold" strategy that does not ever change. I call this the Equal portfolio because it is made up of four equal parts allocated to different asset classes. It is 1/4 in large cap equity (Ticker VONE), 1/4 in small cap equity (Ticker VTWO), 1/4 in investment grade debt (Ticker AGG), and 1/4 in high yield debt (Ticker JNK). The allocations never change. The only thing needed is to rebalance every so often as performance differences will cause the weights to shift.
The second portfolio is a "tactical" portfolio. It is tactical because it adjusts the weights to the four asset classes above based on market conditions. I call this the TA portfolio. It can go 100% into any one asset class or be a mixture of them. 1/12th of this portfolio can change each month as I make a monthly call on what i expect will do best over the next year based on current market conditions. Historically I have picked the best asset class about 50% of the time, the second best about 25% of the time, the third best 18% of the time and the worst 7% of the time.
The third portfolio is also a "tactical" portfolio. I call it the Enhanced portfolio because I follow the same allocation as the TA portfolio but I pick other vehicles that I expect to offer a better return than the four ETF's used in the Equal portfolio. This allows for active management and broader exposure to asset classes such as International Equities, Emerging Markets, and Commodities among others.
Current Allocations:
DISCLAIMER:
Past performance is not a guarantee of future performance. This strategy is presented for informational purposes only and is not a solicitation to buy or sell any securities. The writer of this blog owns many (long positions only), if not all, of the securities discussed in this blog. October is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May , March, June, December, August and February. ~ Mark Twain
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