New Investment Marketing With The Same Old Solutions

I was reading a blog post that came out from the world of Ritholtz Wealth Management, this company has absolutely been a change agent in the way they promote, market and connect with people on the front-end of their sales funnel. 

They own the investing blogging sphere, at last count they have five different blogs/podcasts (probably more) that all have great content and edgy points of view.. 

They have…

A Wealth of Common Sense – written by Ben Carlson

The Big Picture – written by Barry Ritholtz

The Reformed Broker – written by Josh Brown

Animal Spirits Podcast – by Ben Carlson and Michael Batnick

The Irrelevant Investor – by Michael Batnick

Ritholtz Wealth – A collaboration of the company

And a couple more I can’t remember right now. 

Their innovation has been in marketing and NOT management. There management is very 1970’s… meaning the solution is diversification and rebalancing and you’re just going to have to take the 50% drops. Sorry…

They did a recent email on recessions and markets and what they realized is, recessions themselves do not matter. As they alluded to in their email. 

Take a look at this image below which Ben Carlson uses, and it kind of proves recessions by themselves don’t really matter that much as the average market change during a recession is a positive 3.8%. But averages rarely help. 

I believe what people really want to know is, is this a crash (read: 40% to 70% fall over 18 to 36 months) or is this a correction (read: less than 20% over two to six months)?

What I hear most from the Ritholtz world is, you can’t do anything about recessions or market crashes… so just have a well-diversified portfolio based on the year you were born and how you filled out those12 questions. 

And that is a mistake because the market doesn’t care about your age or self-described risk tolerance. 

Two reasons:

  1. You will end up with an OVER-diversified portfolio that creates expensive and unnecessary (invisible) leaks in your investments and 
  2. You will take the full hit of the stock market fall but taught to feel okay about it because you were diversified and there’s nothing you can do about it anyway. 

If you have been in my world for any amount of time you know that I will take the other side of that debate all day long. 

Over-diversification and taking big losses is what creates the angst and slower growth people have been taught to accept.

They use the quote below to show that you have to take those big nasty losses… because, well… there’s no other choice.

Again their solution is to get a well-diversified portfolio and accept that large losses are part of the investment game. 

But what if there was another solution other than (1) taking it on the chin, or (2) having to try to time the market. Why is there only ever only two choices presented by people?. That’s weird. It’s like an American can only be a Democrat or a Republican. 

Their blog post even has a video called, How to build a recession proof portfolio. I’ll skip to the punch line for you, their recession proof portfolio is a well-diversified portfolio over many different uncorrelated asset classes. Yikes! Isn’t that what every big-box advisor says they are doing?

What people really want to know is the difference between a correction (less than a 20% fall) and a crash (40% to 70% fall). 

Below are some notes I took from listening to their video on recession proofing your portfolio…

02:42 minute – what the solution to big scary losses = build a portfolio that is durable for anything that the market and economy can throw at it (i.e. a well diversified portfolio). I call BS on this. Why would you want to just sit there and take it, when you could be trained to simply step aside. Sure you could be taught to get punched but who really wants to get punched for 2 ½ years like in the Dot-Com Crash. That’s insane. 

02:56 minute – you never know how long the market will fall for, how low it will go and when it will turn around… Agreed. But their solution is to, just close your eyes and build a “durable portfolio.” Again this is BS, why do so many big-box advisors teach taking it on the chin?

04:00 minutes – the economy and the stock market are not correlated. Agreed. And that is why the solution is to focus on price and ignore economic data, as economic data has been really bad for, wait for it, 10 plus years. If you were to follow economic data, you’d be in cash for the past decade. 

04:54 minutes – should the investor time the market to avoid the market falls. They say no, and I agree. When people time they are making an internal decision to get out, like when Trump got elected, people got scared and pulled their money. And boy was that timing a mistake. 

BUT periods of stepping aside when the market tells you is not timing, it’s watching. When people get out on a whim they have no idea when to get back in. Again, agreed. Timing is dangerous.  But there are more than just two choices in the world between buy and forget and willy-nilly timing based on feeling scared or confident. 

06:08 minutes – you can never know how investors feel. Again, I call BS on this. When the market is falling investors are feeling scared. You just have to be trained to know the difference between a crash and a correction. 

08:20 minutes – how does diversification help during a recession. Not all asset classes move together, so some of your investments will be doing well while others get crushed. This is crazy thinking. So just because only 50% of my money is getting crushed I should be happy? In any other industry this type of thinking would be illegal. 

10:41 minutes – price only matters over the short-term and intermediate term time frames. WHAT!!! Price doesn’t matter long term? Again. This is insane. Price is the only thing that matters. Fundamentals have been horrible for a decade and yet the stock market is up 500%. Price is everything. People have just never been trained to understand price. 

In fact, its price that tells you when people are scared and when to step aside. 

11:00 minutes – so what’s the best solution…??? Own both stocks and bonds… because you know, there’s nothing you can do. Again. Completely wrong. And they are presupposing bonds will always be a place of safety. 

11:39 minutes – if you are in the accumulation period of investing you should welcome market drops of 50%… really. People in their 40’s or 50’s should be excited about losing half their money Josh? 

And I quote from Josh Brown, the Reformed Broker, “…nothing would be better than adding to your portfolio at lower valuations rather than higher valuations.” Really Josh. You know what  would be better, not losing half your money. Period. And who talks in “valuation?” Don’t you really mean lower prices?

Again from Josh, “swinging to cash won’t help you…” Well yeah, if you don’t have a plan, but what’s wrong with cash for a year or two when the market falls 50%?

Caveat Lector….

In Your Corner,

RCPeck-Dig Signature.JPG

RC Peck, CFP

PS – Hello my Money Badgers… I have three things for you this week. 

  1. Perfectionists…Our brains are endlessly trying to predict what’s next to reduce the likelihood of error, so we don’t get hurt. And it’s this not wanting to feel hurt that is hurting people the most.
  2. So few words…“Whether it’s money, grades, promotions, popularity, or attention, scientists agree: seeking out external rewards is a sure path to unhappiness.” ― Jane McGonigal
  3. Micro-Training…I can train you to grow your money 30% faster in the next hour. And all it will cost you is [the equivalent of] a Pumpkin Spice Frappuccino from Starbucks. Here’s the details.
  4. It’s About Time…Many years ago for fun I wanted to feel personally how bad it was on the receiving end of Ken Fisher’s Sales funnel. It was awful. And now here’s the proof.

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