The Investment Scientist

Archive for January 2019

unnamed.pngA few days ago I got a question from a client.

Why don’t we move the money to T-Bills to avoid market volatility, and get back to full market exposure only when the market is on an up-trend?

It is all too human to only want to take the upside risk without the downside risk. However, study after study has shown that investors who do that usually end up hurting themselves financially.

Look at the chart. In the fifteen years between 12/31/02 and 12/31/17, missing just 10 of the best return days of the S&P 500 Index would mean that you gave up 66% of the total return during the whole period.

I conjectured that the best return days usually happened at the depth of a bear market when fear and desperation were highest and investors were quitting the market in droves. I asked my assistant Taro to look up historical data to verify that, and here is what he found: the first nine out of the ten best return days in the last fifteen years happened during the Great Recession, just as I had thought!

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On Dec 17th, 2017, that’s one year and some days ago, BTC (bitcoins) punched through

the $20,000 level, peaking at $20,042.91. Only twenty days earlier BTC reached $10,000 and it was during this 20-day period that I got the most intense client pressures to get their money into BTC and other cryptocurrencies. I am glad I kept them away from it, since as of today, BTC is at $3700. That’s a loss of 81.5% in a year.

BTC is not a stock since it’s not even a real business. Here’s how some stocks that were red-hot a mere few months ago have been faring …

Apple, the perennial darling of the investment world, just lost nearly 40% from its peak after today’s close. That’s a whopping $460 billion loss. The loss itself is larger than the market capitalization of all but four publicly traded companies.

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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