#147: Do You Really Believe?

S2N Spotlight

Below I share a chart (log scale) of the classic 60/40 equity and bonds and the benchmark S&P 500 total return.

I am using the IVV ETF for S&P 500 Total Return and the index before the ETF’s inception. I am using the ETF AGG for the bond component since its inception, and the index before. The data goes back more than 100 years. The benchmark kills the 60/40 from a return point of view.

For more than 6 months, I have been saying that I am all about risk-adjusted returns. So I asked myself today, with the benefit of hindsight, would I have taken the benchmark or would I have stuck to my principles of risk-adjusted returns? I recommend you ask yourself the same question.

My honest answer is yes; I would take the smaller, less volatile returns. Look at the row highlighted yellow. The risk-adjusted 60/40 returns are nearly double the benchmark. After trading for more than 20 years, I am so conditioned to this way of thinking. Until you have experienced the sleepless nights, the pit in the stomach anxiety (in my case, I never seemed to lose my appetite, sadly), gained the understanding of probabilities, and worked on yourself to the point that you never want to live through that again; the choice is easy.

It is one thing knowing you survived an 83% drawdown. It is another thing living through that experience.

S2N Observations

Yesterday I went into the high coffee futures prices. I took a guess that Australia would be in the top 3 per capita drinkers; I was wrong. A subscriber sent me to this link Australia ranked only 24th. The leader by miles is Luxembourg with 5.31 cups per day.

There was a time when everyone spoke about the FANG stocks. For those of you who are unfamiliar, the FANGs represent the equal weight of the top 10 biggest tech stocks on the NYSE. What strikes me with the index is how it is unable to rise with the broader market that is making new all-time highs.

For those of you who have been following the hedge fund space for some time, Steve Cohen apparently stepping away from managing money caught my eye. He is remaining Point72 co-Chief Investment Officer. If you believe he isn’t trading all day every day, then you don’t understand the makeup of a trader.

I close with some history—a lot of it. I had no idea the pound was so old.

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