Wednesday, July 18, 2018

Asset Class Returns In The USA

The brilliant snapshot of asset class returns compiled by Blackrock makes for interesting analysis. See if you can deduce any pointers from the table. 100 persons could be looking at the same table and arrive at differing conclusions. 

To develop a keen interest in investing is the continue to develop your ability to link and see cause-and-effects from seemingly disparate factors. 

a) Look at 2008 when the financial crisis impacted. When all hell breaks loose, does it matter what kind of stocks you were in? Well, long and short answer, NO. Large caps core -37%, Large caps growth -38.4%, Large caps value -36.9%, Small caps -33.8%. There's no place to hide apparently. But when big boss sneezes, the rest of the world catches a worse cold, EVEN THOUGH IT WASN'T BLOODY OUR FAULT!!! International stocks were down -43.4%. Where is the justification?

b) The following years till 2017 were all UP years, thanks to the relentless printing of money by the Federal Reserve and EU. The exception was 2011 where equities had a terrible year. When the US had a terrible year you can bet that international equities would have an even worse year. Large cap growth 2.6%, Large cap core 2.1%, Large cap value 0.4%, Small caps -4.2%... and international equities ta-dah -12.1%.

c) For those risk-averse players selecting dividend stocks, well, they performed as expected in a normal market. But when crisis hits like in 2008, it was also down -22.8%. In the difficult 2011 dividend stocks only eked out a 1.8% return.

d) Two down years out of 11 is not that bad, but it also points to the conclusion that we are ripe for another DOWN/CRISIS year soon. It comes around like clockwork because markets never forget and investors always forget, and you can quote me on this.

e) Just look at the last 5 years, these equity asset classes are just taking their sweet rotational play year in year out thanks to low-interest rates and excess liquidity due to the flagrant printing of money. There's nothing academic about it, just kids playing with an increasing number of toys.

... we are ripe for another DOWN/CRISIS year soon. It comes around like clockwork because markets never forget and investors always forget ...

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