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| | | Tuesday, August 30, 2016 | Issue #2878 |
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A Simple Way to Profit in the New Era of Investing Matthew Carr, Emerging Trends Strategist, The Oxford Club
 We live in an era of investing I like to call "21st Century Transience."
Since 2000, we've had two major market collapses. And since 2009 alone, we've witnessed 10 notable corrections - more than one per year.
At the same time, we've been fairly consistent in hitting new all-time highs. The one asterisk is the correction that began on May 19, 2015, and lasted until July 12, 2016. Because of it, there was more than a year between new all-time highs.
We also saw two double-digit corrections in that span.
So, that's what I mean by 21st Century Transience. Highs and lows today are fleeting. And there's an overwhelming feeling that what's happening in the broad market is impertinent.
We can see this in the constant doom and gloom that has hounded our current bull market. It's the most hated bull market in history because all these highs and lows make stocks seem unstable.
But it's been the norm for the past 16 years. Which is why I adapted my investing strategy long ago. If you want to find success as an investor, I suggest you do the same.
Let's consider this for a moment...
The Dow Jones Industrials haven't ended a month down since January. That's a pretty impressive stretch. Especially considering the volatility at the end of June on the heels of the Brexit. But despite an initial slump, the markets rallied strong to close out the month.
At the moment, the Dow is up just under 6% for the year. Meanwhile, the S&P 500 has gained 6.3% and the Nasdaq 4.34%.
When compared to some of the massive individual stock gains we've seen this year, those aren't face-rippers. But they're quite substantial if you remember that back in January, the Dow finished the month down 5.4%...
It continued to fall into February. At the time, investors thought the world was going to end. Panic on Wall Street was in full bloom.
Of course, back then I said the same thing I say at the beginning of every year: January is a terrible month for the markets. This year's 5.4% loss on the Dow was the third straight year of losses in January, with two of those greater than 5%.
It doesn't mean we're in for more pain ahead. (In fact, I prefer to simply think of January as a sort of "throwaway month.")
And there's another thing most investors overlook. While obsessing over fleeting gains, folks don't stop and realize the other side of the coin is also true...
In an age of short-lived highs and lows, losses are temporary.
Did the Times Just Predict "The Death of the Stock Market"?
If you're not getting rich from the stock market these days, it's NOT YOUR FAULT. The New York Times recently said, "It used to be that public investors... could earn historic gains."
Note the past tense! The paper went on to add that public investors today are unlikely to get anywhere near such gains... "By the time companies come to the market, the biggest gains have already been extracted by private backers." The good news is that now YOU can become a "private backer"... starting with as little as $100. Details here. | |
For every sharp, steep decline lower, there's an equal - often greater - move to the upside. It's why red is my favorite color.
But the vast majority of investors don't feel this way. They feel just the opposite, in fact. Right now, they're abandoning the market in droves.
In July, investors pulled $25.5 billion from hedge funds. This followed June's "Highs and lows today are fleeting. And there's this overwhelming feeling that what's happening in the broad market is impertinent.
"We can see this in the constant doom and gloom that has hounded our current bull market. It's the most hated bull market in history because all these highs and lows make stocks seem unstable." | |
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$23.5 billion in outflows.
Already, year to date, investors have yanked $55.9 billion from hedge funds. It's a move similar to what we saw during the second half of 2011.
2016 could be the first year since the Great Recession where the industry sees net outflows.
Of course, if I were getting the kind of return most hedge funds are generating, I wouldn't be happy either.
Funds seeing the greatest withdrawals are averaging a loss of 4.1% so far this year. On top of that, the average hedge fund's year-to-date return is just 2.72%, according to the Barclay Hedge Fund Index. (That's across 2,838 funds.)
So, the broader markets are outperforming hedge funds by multiples.
In March, the average gain for hedge funds was 2.45%. This was the single best monthly performance for the industry since January 2013. But at the same time...
- And the Nasdaq rose 5.96%.
So the average hedge fund's performance was less than half that of the market's.
Maybe 21st Century Transience is, itself, a brief phenomenon. Perhaps we'll look back in 10, 20 or 30 years and say, "That was an unusual period in the markets."
But I'm not planning on it.
In my view, most investors are still operating as if we're in the days of the late-1980s to 2000, when the S&P surged 500%, and corrections were few and far between.
This century is different though. To be successful, you must adapt. The way to do this is simple: Buy when others are fleeing the markets. Wherever the average investor is heading, go the other way.
This is one crowd you don't want to be a part of.
Good investing,
Matthew
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The Oxford Club is a financial publisher that does not offer any personal financial advice or advocate the purchase or sale of any security or investment for any specific individual. Members should be aware that although our track record is highly rated by an independent analysis and has been legally reviewed, investment markets have inherent risks and there can be no guarantee of future profits. The stated returns may also include option trades. 
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