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Views on News, Wave-Riding & Balanced Asset Allocation for Q1 Quarterly Market Review

Examining the world capital market performance for the past quarter, the Q1 Quarterly Market Review shows some stormy times and negative returns. Just like the weather, daily stock movements can vary day to day, and investors saw negative returns posted this past quarter. Amidst the wave of wary investors, wisdom comes with the hindsight to keep a long-term perspective, as we’re reminded in this brief video by Dimensional. Investors will notice in the report the following:

  1. Views on recent news headlines and their impact on Q1 Market Performance.

  2. Why to be wary of riding popular trends and favorite stock picks (such as the popular Gamestop stock last year).

  3. The cost of "tactical asset allocation” versus balanced asset allocation.

1. Views on the News

As we face stormy stock performance, investors may ask, “Is now the time to sell stocks?” On Page 5 of the Q1 Market Review sowing World Stock Market Performance, dips in the market appear to coincide with the selected headlines this past quarter that seem grim such as:

Contrast those with the positive market performance that followed these headlines such as Stocks Finish Week with Strongest Gains since 2020; Nasdaq Gains More than 8%right after Fed raised interest rates for the first time since 2018.

The reminder for investors is that daily events must only be viewed from a long-term perspective and to avoid making investment decisions based solely on the news. The deep troughs we saw in February and March already seem to be on the rebound, and zooming out can give us even greater perspective, as we see on Page 6 of the Market Report by the dips in performance we’ve already endured.

Negative Returns

Stocks, in the US, International Developed, Emerging Markets, and Real Estate, all took a hit in the first quarter of 2022, posting negative returns for the quarter. Index returns indicate that the US equity market outperformed emerging markets, value outperformed growth, small caps underperformed large caps, and REIT indices outperformed equity market indices. Bond Markets also posted negative gains. (See page 7 of Q1 Market Review).


Value International Development Stocks were the one exception, posting positive returns of 3.5% and 1.55% in US Currency. (See page 8). Interesting to note that the top four winners this quarter were South American Countries of Peru, Brazil, Columbia and Chile (See page 10). The Bloomberg Commodity Index Total Return posted 25.55% for the first quarter, and as volatility in currencies and the market continue, this can be a trend investors look to. However, it is still important to recognize the volatility that can occur in commodities, particularly in the longterm. For example, despite the 49.25% performance in the past year, the annualized 10 year return is still in negative territory for commodities, not even up to par with inflation (See page 12).

2. Wary Investors of Wave-Riding May Be Wise

Several stocks were all the rage last year, with a wave of interest as they posted record returns. However, notables such as Robinhood Markets, GameStop, and AMC Class A are all now posting significant double-digit losses of over 70%, and even Tesla’s returns through 1/31 is posting a whopping decline of -24.7%.

That is why we continue to recommend a balanced portfolio not driven by the whims or waves of populous trends. (see page 16). The chart on Page 17 of the Q1 Market Review also illustrates the danger of the market timing strategy by illustrating the portfolios of hypothetical personalities of “Felicity Foresight” versus “Hapless Harry:” Whose strategy for investing wins? One gets it right every year and just happens to have the perfect timing. The other, Harry just gets it wrong every time. So is there a strategy to mimic one of these to ensure the Perfect Timing Strategy and avoid the Perfectly Awful Timing Strategy as illustrated below?

Investors may get excited about new theories such as the Hindenburg Omen which seemed the perfect indicatory when it foreshadowed major downturns in 1987 and 2008, and flashed for investors to sell on August 12, 2010, when the next day Friday the 13th was full of talk of a looming crash. However, that is the same month this indicator failed to predict the highest September return since 1939. That is why investors should be wary of anyone claiming to have a profitable timing strategy.

3. Tactical Asset Allocation vs. Balanced Asset Allocation

There is also a cost for funds that seek to opportunistically shift assets between stocks and fixed income by what is called “Tactical Asset Allocation.” As illustrated below in this Morningstar analysis, Tactical Asset Allocation underperformed funds that held a relatively static mix. They concluded that these numbers if they included funds that no longer existed, would be even worse and that investors should “avoid making short-term shifts between asset classes in their own portfolios.”

Increased Taxes

In addition, there are often tax consequences of a short-term trading strategy. For example, a client who had some of their money with another investment advisor, experienced significant increase in taxes when the other investment advisor made a variety of trades without taking into account the tax consequences of each trade.

We are very conscientious of any trades that will affect the clients tax situation in order to minimize tax consequences to a client.

“A Portfolio is Like a Bar of Soap. The more you handle it, the less you have”

--Commonly Cited Investment Adage

Rebalancing when necessary to ensure each client's investment portfolio stay on track according to individual circumstances, risk tolerance and personal financial goals are all important, and services we provide our clients as fiduciaries.

See full report here:

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