Diversify And Chill

We're going to go all over the place with this one. 

First a a couple of quick hits starting with concierge medicine in Barron's. I don't have a ton to say about it. It's expensive but if someone needs to engage kind of frequently with the healthcare system and can afford it, then sure, why not? There was a comparison to concierge medicine being like old time medical care from you small town doctor which is interesting. 

This quote was right up my alley, "patients are typically screened for grip strength and gait speed, metrics of well-being that insurers typically don’t cover." I don't know about those things being covered or not but grip strength and retaining the ability to walk fast are very telling benchmarks. This is where I say to lift weights (deadlift, squat, farmer's carry, landmine twists) and get out and climb some hills. 

The Streetwise column took a look at what's going on at Robinhood in terms of offering prediction markets (betting) along side crypto and more traditional stocks/bond/funds. I think this is a positive step for the long term. I have zero interest or intention of speculating on who scores the first touchdown in the Patriot's game or whether Sarkozy ends up staying in prison or not but this can be a bridge to doing more things inside the typical brokerage account as we now know them. Different types of assets will at some point be tokenized to provide access to different types of assets for investors. 

Art and collectibles come to mind in this context but there must be others. These types of assets tend to be uncorrelated, I say tend but that is not always the case. I told this story once before but early on in the pandemic I bought a 1970 Bobby Orr hockey card for $20 that has a 6.5 grade. A year or two ago when I looked, there was a 6.5 for sale on eBay for about $300. Sure the return is great but aside from having no idea it would go up like that, even if I somehow knew, there's no way to buy 1000 of them for a portfolio allocation. Tokenizing either a collection or some very expensive card would be a way to allocate to an asset class, collectibles in this example, that is not easily accessible. That is a positive but there will probably be bumps and bruises along the way.

Peter Oppenheimer of Goldman Sachs is expecting a weak decade ahead for domestic equities versus other markets. Not a lost decade though, he thinks the US will compound at 6.5%. If he's right about relatively weak returns and the 6.5% part of the guess, that doesn't sound so bad to me. 

The real lost decade we had is captured below.

You can plug in your own dates to play around with it but you can the S&P 500 compounded at a negative 82 basis points. Despite that average, there were of course a few big years in both directions. You can see that emerging markets, as measured by VEIEX, and gold did just fine and blending all three together compounded at 8.7% despite the lost decade for domestic equities. 

If the US ever does have another stinker of a decade, there will be markets and asset classes that will go up. If you don't want to guess what those might be, then there's your argument for broad diversification. 

Testfol.io has simulated DBMF and KMLM which are both managed futures funds. While there should be a grain of salt with this, simulated DBMF compounded at 8.44% in that period while simulated KMLM checked in with 12.06%. Again, grain of salt but I do feel comfortable taking them as being indicative of managed futures doing relatively well even if the exact numbers they came up with need some faith. Other forms of long/short could probably also do well under Oppenheimer's scenario. 

I am a big believer in defense industry stocks and in the period studied, client holding Northrop, Lockheed and General Dynamics compounded at 9%, 12% and 15% respectively. While there's no way to know whether they would again do well despite a weak or lost decade, if anything the demand in this niche is greater now than it was 25 years ago. 

As opposed to lamenting this sort of prediction or outcome, I would think of it instead as a challenge to overcome. Putting it very simply and sort of repeating for emphasis, we had a lost decade not that long ago and the thing that worked was simple, broad diversification. Looking back at the last few years, simple, broad diversification might have caused some frustration at times, over the long term, it of course works. 

Maybe not that frustrating. The second backtest has the same start date, running through to this week. Broad diversification again worked. 

Diversify and chill.

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