The 2nd quarter is over and it was a strange one. Large cap growth stocks were up but the rest of the stock market didn’t participate. With equity allocations at the household level at all time highs, some caution might be warranted.
My latest market commentary:
The 2nd quarter is officially over and it was one of the strangest I’ve experienced in my 33 year career. To jump straight to the punchline, if you owned large cap growth stocks, you had a great quarter. If you owned almost anything else, you didn’t and you likely lost money. I don’t know when the bear market in doing the right thing will end but it wasn’t this quarter.
What do I mean by “the right thing”? Well, there are certain things all the research and decades of history says are the prudent things to do with your investments but the only way to perform well over the last decade or so has been to ignore them. Diversify your investments? Nah, just buy the S&P 500 (which isn’t very diversified despite owning 502 stocks) or the NASDAQ. Diversify internationally? Loser. Diversify into mid or small caps? Loser. Buy stocks based on fundamental measures like Price/Sales? Loser. Own assets with low or negative correlation to stocks? Loser. My generation of investors was brought up on Graham and Dodd’s Security Analysis and Graham’s layman guide, The Intelligent Investor. Today’s investors turn to Roaring Kitty.
Morningstar tracks 370 asset allocation funds and out of those, only 1 has managed to beat the S&P 500 on a risk-adjusted basis since 2009. According to Cambria funds, broadly diversified portfolios have underperformed the S&P 500 in 13 of the last 15 years, a feat only matched once in the last century. It is a period so long, I fear it has taught an entire generation the wrong lessons about investing which one can see in the household allocation to equities. As a percent of household financial assets, equities now represent 41.6% of the total. That’s higher than the 38.4% at the top of the dot com boom in Q1 2000 and matches the all-time high set in Q4 2021. You might remember that as being a mere two days before the top that preceded the 2022 bear market.
Read the entire thing…The S&P 500 Rules Everything Around Me
