Accountability check-in
Did you invest this month?
"I have been investing for 80 years – more than one-third of our country’s lifetime. Despite our citizens’ penchant – almost enthusiasm – for self-criticism and self-doubt, I have yet to see a time when it made sense to make a long-term bet against America."
– Warren Buffett, Berkshire Hathaway annual letter to shareholders 2022
We are sure you've heard of Murphy's law. Sometimes you spread peanut butter on a slice of bread and it slips from your hand – but it always has to fall buttered side down. You're waiting in a queue and you see the adjacent queue moving faster. You switch over after five minutes, and now the queue you left starts moving faster. Life always finds a way to give you the short end of the stick.
Mostly this is a minor inconvenience, but it's frustrating when this happens with your money. Consider the world's worst investor, Bob, who started investing for his retirement in 1970 at the age of 22. He started saving $2000 a year, and investing whenever he felt the time was right – which was usually when the market had run up to its peak. You can't blame him. He kept accumulating money on the sidelines waiting for the perfect time, and when the market saw a run-up, he was tempted to go all in. Here's how it went every time:
As far as market timing goes, Bob could probably give Jim Cramer a run for his money – but he had one advantage. He never sold what he bought before he retired, despite the crashes in the market. After 42 years in the market, Bob cashed in his investment at the end of 2014. Even though Bob had bought literally at the worst possible times, he retired a millionaire!
The reason is that despite huge drawdowns in the short term, Bob had an advantage in terms of the time horizon he had set for himself in terms of investing. He did not make the mistake of timing the market twice – he knew that his financial goals were far into the future, and he held on to his investments without selling unnecessarily. Being clear about your time horizon and letting that guide your decisions can give you a superior edge even if you have the worst luck in the world.
Of course, if Bob had just DCA-ed into the market, he would have had over $2.3 million – which is a far better return even though his end result was not so bad. This week, we took a stab at seeing if we could improve upon this result by doing the opposite of what Bob did, and investing the most when consumer sentiment was at its most fearful and everyone was staying away from the market.1
Regardless, investing regularly and sticking to your plan is one of the best possible approaches. So, we wanted to make your life easier and be your accountability partner. We started this concept last month and 96% of you voted that we should continue doing this every month. So,
Here is a reminder to you in case you forgot to invest this month
Tell us about the investments you made so that all of us are exposed to new ideas
If you have any questions on your portfolio allocation or any new ETFs, we can run some quick backtests and get you the key performance metrics
Suggest new analysis ideas/portfolio backtests/interesting books or blogs (check the comment section for our favorite book)
Market Sentiment Recap: Feb’23
While you are here, in case you missed out on any of our previous issues this month, here they are:
Value Investing (Paid): On the 90th anniversary of the publication of Security Analysis, we take a deep dive into the merits of value investing and the findings were incredible - over a rolling 10-year period in the U.S. from 1926 to 2018, value stocks have beaten growth stocks 84% of the time.
Changing Winds (Free): Top-down vs bottom-up: which one is the right investment approach? - we find that it isn’t reasonable to be agnostic about the big picture. The best investment strategies would involve taking the best of both worlds.
Investing in Small-caps (Paid): 24% of our readers have zero exposure to small-caps and another 39% have <10% of their portfolio in small-caps. But, over the past 90 years, small stocks have outperformed their large counterparts by 1.88% annually. We take a deep dive into the ideal allocation to small-cap companies and their recent performance.
Fear & Greed (Paid): If you invested when consumer sentiment was at its highest, on average the S&P 500 returned only 4% in the next 12 months. However, if you made the same investment when sentiment was at its lowest, your average return was 24.9% - a sixfold increase!
More Interesting Stuff
We spend hundreds of hours researching every month. Here are some of the best articles we enjoyed this month and hopefully, you can discover new and interesting content!
The problem of too much money by
- Undoubtedly, our best find this month. One article explains why our national debt makes sense, why we shouldn’t be concerned a lot about the trade deficit, and how money is plentiful, but good things are scarce.In defense of finance: The confidence with which people proclaim that finance is parasitic and worthless is in direct proportion to their ignorance of any theory or facts pertaining to the financial industry. The goal of this post is to push you up the Dunning-Kruger curve towards less ignorance about finance, less reflexive hatred of it, and less confidence that you know how to “fix” it. (from the author himself )
Constellation company deep-dive: A fascinating look into a company that buys other companies (like Berkshire but for software companies). The companies Constellation acquires are near-monopolies in some niche industry-specific markets and are incredibly profitable. The company is so successful that the stock is up 30x since its IPO.
Some fun stuff!
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The original article by Ben Carlson is a good read.
The book we found most interesting last month was Investing: The Last Liberal Art by Robert G. Hagstrom.
Robert breaks down complicaed mental models and how investing works by borrowing ideas from other disciples such as biology, economics & mathematics. A great read if you already have a basic understanding about finance and investing.
Constellation article was so interesting!