October 28th, 2022
With the turbulent financial markets this year, I am often asked, “How are you doing with the market being so bad?”
I usually reply something along the lines of, “Pretty well. At Shadowridge, we expected bear markets in both stocks and bonds and had plans in place for how to deal with them. We recognized these declines for what they were when they started to show up in prices earlier this year. Since we planned ahead, we are very comfortable with our portfolio changes and performance. And importantly, our clients are comfortable, too.”
The kicker comes when the person usually says, “Gee, that is great, you must be really well diversified.”
My reply goes like this: “Diversify? Why would I want to diversify when everything is going down? You just lose money in more places. The only way to survive in this market is to concentrate on what little you can find that is making money.”
An old acquaintance in the industry, Bill DeShurko from 401k Advisor, gave me a great analogy a while back, a way to illustrate this idea of concentration vs diversification. Ask yourself if you can diversify away the risk of being in a room with poisonous snakes by adding more snakes?
Here is what the US Stock Market looks like these days.
So, where can one diversify effectively?
Here are some current snakes with YTD performance as of October 24, 2022:
Home Depot -33%
JP Morgan -22%
Clearly this is not a time to try to diversify away market risk!
As I said in my 2018 book Why Bad Things Happen to Good Investments, “The surest way to make money is to have more money in asset classes that are going up, and less in asset classes that are going down.” It is a simple concept, but takes professional know-how to do it well. This is what we do at Shadowridge.
If you know someone that is worried about the health of their investments, please have them call Shadowridge at 888-434-1427 for a free portfolio review, to see what our proactive management can do for them.
Remember, friends don’t let friends blindly buy-and-hold.
* The model accounts mentioned in this article are hypothetical examples of how the strategy may work as designed. Performance and activity in client accounts may be different from that in the model in amount of each investment, specific timing of trades, and actual security used, which may vary from account to account. Not all trades are profitable. It should not be assumed that current or future holdings will be profitable. A list of all trades in these accounts for the past 12 months will be provided upon written request.
** Indexes are unmanaged lists of stocks considered representative of a broad stock market segment. Investors cannot invest directly in an Index.
This newsletter may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Information in this newsletter may be derived from sources deemed to be reliable, however we cannot guarantee its accuracy. Please discuss any legal or tax matters with your advisors in those areas. Neither the information presented nor any opinions expressed herein constitute a solicitation for the purchase or sale of any security.
In all investing, past performance cannot assure future results, and as such, our efforts are not guaranteed. Losses can occur. All strategies offered by Shadowridge Asset Management, LLC, adapt to changes in the markets by changing the investments they hold, therefore, comparisons to broad stock market indexes such as the unmanaged indexes mentioned may not be appropriate. Sometimes client accounts are invested in stocks or markets not included in these indexes. Past performance does not guarantee future results. Investment return and principal value will vary so that when redeemed, an investor’s account values may be worth more or less than when purchased. Mutual fund shares and other investments used in our managed accounts are not insured by the FDIC or any other agency, are not obligations of or guaranteed by any financial institution and involve investment risk, including possible loss of principal. Advisory services offered through Shadowridge Asset Management, LLC, a Registered Investment Advisor. Adviser will not transact business unless properly registered and licensed in the potential client’s state of residence.
Copyright (C) 2022 William T. Hepburn. All rights reserved.