The Investment Scientist

Archive for February 2022

Last Thursday when the news reported that Russia had just launched an invasion of Ukraine, the market opened down nearly 800 points. A client called to ask if we should move to safety, but I was able to persuade him to stay put. I did that without knowing that the stock market would end the day slightly positive, followed by the BEST rally since 2020 on Friday. Such is the unpredictable nature of the stock market. Today I am gonna show you, missing the best days of the market can be extremely costly

Below is research from JP Morgan that I found on the internet. You can see that between 1995 and 2014, the annual return of the S&P 500 is 9.85% if invested through the whole duration. But missing just the 10 best days would drop the annual return to only 6.1%. Missing the 20 best days would drop the annual return to 3.62%. Missing the best 30 days would further drop the annual return to only 1.49%. 

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Yesterday in a client progress meeting, the client asked me a question: “What do you think of crypto?” I usually get this question either when cryptos are rallying or crashing. As you may know, over the last three months, most cryptos have lost 50% of their value. In fact, I more or less alluded to this in my earlier newsletter. I wrote that in a Fed tightening cycle, the vanguard market will fall first. Decades ago, the vanguard market used to be the emerging market, now it’s the crypto market.

So what do I think of crypto? I have asked myself the same question, read a lot of books and white papers about it, and even took a full-length MIT class on crypto taught by Gary Gansler, who is now the SEC chairman. I have a good understanding of the technical aspect of cryptos, but I still can’t figure out the economic rationale of their existence and their sky-high valuations.

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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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