What the hell is going on in markets? Small caps and equal-weighted S&P 500 (which skews much smaller than market cap weighted S&P 500) have come to life while the mega tech that has accounted for all the S&P 500's return is getting hit.
Is this a reversion to the mean, a regime shift? I don't know obviously, that can only be answered in hindsight. It might just be a quirky week or two or some sort of meaningful transition. Unless you were overweight mega tech before or overweight small cap now, your returns are somewhere in the middle. Chances are your returns for just over six months are pretty good even if they don't look like the S&P 500 or the recent parabola in small cap and equal weight.
It feels like this is a pivotal point where investors could make mistakes chasing something. Zoom out a little bit. Where do you stand? Is your portfolio doing what you need it to do? Netting out the things doing well, one of the tools I use to hedge is up almost as much as the S&P 500 go figure, against the things that make you want to puke, as Jason Buck said, if you're diversified you have a couple of things that make you want to puke and I certainly do, two names really struggling, where do you stand?
Taking that perspective can maybe make it easier to endure whatever is going on right now. Watching stock market television or otherwise engaging in markets all day long probably makes it more difficult to avoid chasing heat in some sort of reactionary way. I don't know that the media outlets are trying to get people to trade more than they should but I can't refute the argument either.
We look at all sorts of different types of portfolios here that "win" over the long term. Not even that long necessarily, even just over a few years but that lag frequently for shorter periods. If you read this site regularly, how many times have we looked at some portfolio that outperforms over the long term but year to year only outperforms a little more than half the time, exactly half the time or even less than half the time? We see that in just about every portfolio study.
Over the last ten years, the Vanguard Balanced Index Fund (VBAIX) has about doubled. If you are trying to track closely to VBAIX then your return might be a little ahead or a little behind that performance. If you tried to smooth out the ride for some reason, maybe related to tolerances, having enough or income needs then you chose to not look too much like VBAIX over the last ten years. Either way, through all the market good times, scary corrections you do remember and other ones you don't (remember the crash in December 2018?) there were periods where you lagged and periods where you outperformed.
Looking forward, you could pretty much repeat that last paragraph. There's no way to know what VBAIX will do over the next ten years. If you're able to construct a portfolio that has done what you needed it to do thus far, then it is a good bet the portfolio will continue to do what you need it to do as long as you stick to your process and in the context of this post, avoid chasing heat.
A great quote attributed to Jack Bogle is "don't so something, stand there!" That's a good guideline for knowing how to not avoid reactionary mistakes.
The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.
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