Patience and Persistence in the Markets | AWM Insights #159
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Episode Summary
The S&P 500 is up more than 20% since it hit its low last year. Market conditions have improved since then with CPI inflation coming in at 4%, and the Federal Reserve pausing rate hikes this week.
There is a huge lesson to learn from the market’s short-term performance. Patience and persistence are key to any investor’s long-term well-being, and those qualities are rewarded. Markets are forward-looking, and even though conditions may have looked gloomy 8 months ago, withdrawing from the market and waiting it out on the sidelines would have led to missing out on the rally that we just witnessed.
Timing markets and playing the guessing game usually leads to missing out on these great periods and causes a high level of stress and friction. Patience and persistence can save you from that!
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Episode Highlights:
0:00 Intro
1:20 What is happening and driving markets?
3:45 Why predicting markets is a dangerous game to play
5:15 How a systematic investment approach helps you capture returns in an efficient manner
7:55 Why diversification and patience in the public and private markets reward investors
9:05 Why the guessing game is the wrong game to play
11:40 Text us!
+ Read the Transcript
Brandon Averill (00:04): All right, Justin. Well, we got another AWM insights here and we've been on a little bit of a roll with some series type stuff and we haven't done a good check-in recently on just what's happening in the world and what better week. We got a Fed meeting. There's lots of data coming out this week, so it seems like we might have some volatility, and so a good time just to check in on things. Would love to dig in maybe some of the things that are hitting your inbox. What are some of the things that you're kind of seeing across the news wires? And then we'll wrap up this whole thing obviously and talk a little bit about how it actually impacts the portfolio, but what are some of the things that we might see in the news and the headlines, et cetera this week. And I'll also mention we are recording this before the Fed meeting. You will listen to this after the fed meeting, so I'm not going to put you on the spot and-
Justin Dyer (00:55): Well, let's see if we have a crystal ball.
Brandon Averill (00:56): Right. But yeah, what's going to happen this week and let's talk a little bit about the portfolio.
Justin Dyer (01:02): Well there's a lot going on is the quick answer. Nothing drastically new I would say, but it is good to take a pause here given we've been focusing on kind of deeper, bigger topics and just look at what's driving markets. The interesting thing is the topics haven't really changed, so inflation is still there, interest rates are still there. Artificial intelligence I think it's fair to say it's still there, but I shouldn't say, but necessarily, markets have actually had a pretty good year. It's actually interesting before we hit record, we're going through some statistics. We're technically out of a bear market. What that really means for those of you following along. So last year we hit a bear market, which really just typically means we've fallen 20% or more from the previous highs. That happened about a year ago, actually, I think the low was June 9th in the S&P 500.
(02:01): Fast forward to today, we're actually 20% above those lows, and so that kind of potentially marks the end to the bear market. Some people would say, "Well, no, it's a bear market rally." I'm not going to go too much more into the weeds on all these silly terms that we use within finance, but suffice it to say, there we go. That markets have had a relatively good year so far. Will that continue? Hey, we'll see. The interesting statistic was that once markets recover 20% from a low, they're typically at least where they are, if not higher a year from today. So fast forward look in your crystal ball, chances are they're going to be higher. But it's a great reflection point to go back and say, "Well, yeah, a year ago it was pretty negative." Inflation was really, really high, and here we are.
(02:56): Fast forward to today, markets have rewarded patience, and I think that's probably one of the big takeaways I would say we want to hit on, especially as we're digesting all this new information, which is not as negative as it was in the past. Even though the topics are the same, it seems like the fed's going to potentially pause raising interest rates again, to your point, we'll see what actually happens come this week. Inflation appears to be easing a little bit. How quickly is it going to actually ease is still somewhat of an unknown and then the ever-present artificial intelligence, is that just going to take all of our jobs or are you guys all listening to AI bot right now? It's a big question mark. I guess an AI bot wouldn't stumble over words like I have. So maybe that's your indicator. So anyway, I'll pause there and let you reflect on that.
Brandon Averill (03:46): Yeah, no, I think it's some really important points in there and I think one thing I'd love for listeners to hit on is this is why we drive home so often that predicting where things are going to go in the short term term is so difficult because a year ago markets are down 20%. What's the natural inclination that we have? It's "Oh man, should I be investing right now?" Not even, "Hey, should I pull everything out?" I think for the most part people go, "Okay, I get it. It's a long term game." But we were getting the question, we've gotten the question quite a bit, "Is now the time to put money into the market." And it was because there was this fear about where things are going, inflation's at all time highs, the feds raising rates, what the heck's going to happen here? And it just goes back, of course it's Monday morning quarterback and looking back, but you look back and go, "Shoot, if I didn't participate, if I wasn't systematic in investing my savings, then I miss out on some pretty significant periods."
(04:45): And we've hit on that in previous podcasts, but the impact of actually missing those best days, missing this last year would've been different to your wealth. So I think when we look at short term moves or short term kind of information that's happening, it can be really noisy and this is why it's so incredibly difficult to put together some sort of portfolio where you're trying to predict things and you're moving in and out. If you want to be successful over a long term, you want to be very systematic about staying in the market and persistently investing. And the AI thing we're kind of joking about and we may throw AI on the end of AWM because who knows, it'll increase our valuation pretty significantly.
Justin Dyer (05:34): That's all it takes. Yeah.
Brandon Averill (05:36): I think with AI, it's a great point again, of consistently being in market. You don't know when certain technological shifts may show up and that's going to impact both public markets and potentially really impact the private markets and to what extent those are going to show up. I think we're in the very early innings. Everybody's using AI. It's almost like a marketing tool now to throw that on, but there are underlying some pretty significant things happening that might take 20, 30 years to play out. They might take five years to play out, but having a really systematic approach gives you that success over the longer term.
Justin Dyer (06:14): I think that systematic approach, that term is something I'd like to sit on for a sec too and unpack. Not only the last year or even this present year to date period, just go back to pre-pandemic, let's say January, 2020 to today. I think a systematic diligent approach where you're not chasing fads, you're not chasing the bright, shiny object has just proven to be a very sound way to invest money. In a way in which we're trying to have the highest confidence to meet priorities. We want to always go back to that. Our goal here is to help you, our clients meet your distinct priorities in a very high likelihood way. Nothing's guaranteed, but doing that through a systematic approach, instead of trying to go, like you said, in and out of markets, rifle shoot various things, not only is it incredibly difficult to get those trends right, but you're also just introducing what I always say, frictions to the portfolio.
(07:20): The biggest friction to call it the term it should be called is taxes. And anytime you're selling this asset and buying this asset to try and chase some tail, if you will, not only is it incredibly difficult, again to pick that, to spot that trend, guess what? You're likely paying taxes as a result of that. It's not something you see in that given moment, but man, it really, really, really destroys wealth over the long term as you're turning that portfolio over. So we talked a lot about it in the series around venture capital taking a systematic approach. I think that dovetails exactly into what you're saying around AI and whatnot in the private markets. We want systematic exposure there. We don't know when and what type of company's necessarily going to take off with respect to AI, but that's probably where some of this really innovative creation and ideas is going to actually take hold and we're going to systematically allocate there.
(08:17): In the public markets, yes, there's probably some exposure too. Some of these big chip makers, you have exposure through a diversified systematic portfolio there. And so taking even further step back and bringing it really to the present day, this is a little microcosm of the risk return dynamics that really drive all this stuff that I'm talking about. It's hard to pick trends. If you're doing that, you're introducing risk where you're really not compensated. But these forces both positive and negative are what come together into this crazy amalgamation and complex market and give us a positive rate of return going forward. And doing it in the systematic way is where we have the highest confidence.
Brandon Averill (09:06): Yeah, preparing for this podcast, we're again doing a little bit of research and just to point to how difficult this is. I saw one news headline, Goldman Sachs put a new positiveS&P target out there, so they're optimistic about the future of theS&P. And then I flipped over to another website, the Financial Times, and I see David Solomon and the CEO of Goldman Sachs warning that we're going to have this potential correction and all this kind of stuff. So you have the organization, the CEO of the organization, and then very smart people putting together forecasts on the other side and they can't even agree. So it's to think about these things and try to get those short term things correct or are really difficult. What I want to be clear as we wrap up here is it doesn't make it any easier to watch potentially your portfolio on a daily basis though all those stats, it's a flip of a coin what it's going to do.
(10:02): And so it can be anxiety ridden. We're going to see this could happen. We could see inflation numbers print higher than expected this week, and the Fed could have a knee jerk reaction and throw another rate rise on there and it could send the markets into this turbulent short term kind of short term move. And it doesn't make any easier to sit there and watch that and kind of get wrapped up in it. But hopefully what we're trying to do here is continue the education on yes, you're going to feel that.
(10:34): Then take a step back, look at it objectively and go, "You know what? I have a really good plan here. I've got my protective reserves set aside. I'm bulletproof there. I'm allowing those assets that I have in excess to grow in a growth mode over a long period of time. And this is part of it. This is why that grows over a long period of time because I'm allowing myself to actually stay in the market, stay performing, and ideally even adding additional capital as those savings come in throughout the year." So the big takeaway for today is this short term up and down's, incredibly difficult to deal with. The market is a complex being. We've talked about inflation rates, AI, all these different factors could come-
Justin Dyer (11:19): Even hit on recessions potentially.
Brandon Averill (11:20): Yeah, recessions could blow up a market or boost a market in the short term. That's incredibly difficult. But what we do know is that history tells us over long periods of time, the market does become a lot more predictive and that's what we're building our plans upon. So they're a lot more solid. There's a solid foundation for that. So we appreciate your attention, shoot us, shoot us a note if you got any questions, we'd love to address them. More specifically, new phone number. So actually my personal number, shoot me a text 714-504-7689. If you're a client, you probably already have it, but we'd love to address any topics that you have. So until next time, own your wealth, make an impact, and always be a pro.