Barron's Round Up

Some interesting stuff in Barron's this weekend.

Christine Benz sat for an interview and although I disagree with her on target date funds (my take is to run screaming from the room, waving your arms frantically to get away from them), she had a great comment about paying off your mortgage early, she called it a peace-of-mind allocation. For years, I've been saying that just looking at the numbers and nothing else, you probably shouldn't pay it off early but for some people, and I am one, there is huge emotional value paying down and then off the mortgage. We're almost 10 years in to a 15 year mortgage and our balance is down to $5074. It will be paid off this summer.

Hopefully we have many more years here, healthy and able bodied enough to do what needs to be done to stay here. For now, all signs point to that working out. Props to Benz for articulating this point so succinctly. 

One of the Trader columns looked at whether for 2022, investors should sell in May and go away as the cliché goes. "While the Fed tightens, investors should use seasonality to their advantage and be spectators to the drama this summer" the article said. It came early in the article and it's not out of context. That is insanely bad advice and indeed, it was walked back later in the article.

For a little history, the article noted that when the S&P 500 is down for the first four months of the year, it has gone on to fall between May and September 40% of the time, falling an additional 1.5% on average in that period. It fell 40% of the time, so it went up 60% of the time? Investors should try to trade around an average 150 basis point decline that may or may not happen next time and possibly pay taxes? Like I said, insanely bad advice and they did walk it back. 

My approach on this sort of thing has always been to add funds with negative a correlation to the stock market to try to reduce the portfolio's volatility as opposed to doing a lot of selling. In past cycles, I've done a little selling at points like now but on this go around, no selling thus far, just increased hedging. If the market goes down a lot, we're not there yet, then the hedges will grow relative to the portfolio to hedge more, in a sense they are dynamic. If the stock market rockets higher, then yes the hedges will be a drag but we won't miss a rocketing up. Part of the shift away from selling might be that there are many more choices for products that hedge. They shouldn't all be expected to work perfectly every time, but they work well enough for me to remain confident in them.

Finally, the cover story was about ESG investing and the funds that offer ESG exposure. Nate Geraci (a great follow on Twitter for ETF info) Tweeted that Barron's took ESG to the "woodshed" and he cited this line from a report by Ken Pucker and Andrew King from Boston University that said: “The logic and evidence for assurances of ESG-driven alpha are lacking. Indeed, it is our best guess that flows of money into ESG funds represent a marketing-induced trend that will neither benefit the planet nor provide investors with higher returns.”

I've never considered ESG funds. I think they are a marketing gimmick and a fee grab. Note, I am not against the concept of avoiding companies that you think are bad actors or that pollute the planet or any other issues important to you. Believing you should avoid cigarette companies can coexist with the idea that the ESG funds being cranked out are marketing gimmicks and fee grabs. The closest I've ever gotten to an ESG conversation was a client where the wife said I don't want to own an oil sands stocks. The husband didn't care and she was ok if the oil sands stock was in his IRA not hers. 

I want to stress, this disdain for ESG funds has nothing to do with my wanting a healthier planet, even if I'm not sure how to get there. I care about the planet, the funds are a racket. 

Here's a picture from a fun fire training we had today, simulating a wildfire out in the community. I'm toward the middle, by the door of the engine in the white helmet.