Generate Resilient Wealth
💩 doth happen. If one is going to invest (a necessity for all who plan on living a long, full life), then resilience is crucial. Resilience requires being prepared for the black swan events that can crush a portfolio. On the flip side one doesn’t want to be in a low-growth-only portfolio when the bull charges.
#GenerateResilientWealth
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Learning the Hard Way
We were cruising the bull market market as it climbed its wall of worry back in the 20-teens and then wham!, Covid came to town. Before long, monetary and fiscal stimulus kicked in and the bull charged. Hard. We had massive gains and sold and bought more and then the money printer ran out of ink and the high-revenue-growth-but-negative-profits-disruptive-innovation-stocks we had been cheering on, crashed. Hard. Inflation became more than just transitory and interest rates soared at an unprecedented rate of rise. The US$, oil and consumer staples had a resurgence and Tesla and the high-revenue-growth-but-negative-profits-disruptive-innovation-stocks were treated like pariahs. Mr Market swung from one end of the irrationality pendulum to the other (and will undoubtedly again). “Cycles” as Howard Marks explains. Cycles are joyous and then doubly tortuous if you traverse them blindly.
We still hold some stocks bought in early 2021 as reminders of what happens when you don’t Abide the Strike Price. It’s not just that it could take a few years to get back in the green, its the impact on the CAGR that has over the long run. Learning, experience and preparation lead to resilience so that the cycle becomes ones friend instead of nemesis. This led us to develop a system so we buy on sale, we diversify across sectors and we position size according to risk. High risk and high returns are not always correlated.
Learn more about our system:
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“If the first two decades of the twenty-first century have taught us anything, it’s that uncertainty is chronic; instability is permanent; disruption is common; and we can neither predict nor govern events.” — Jim Collins
In the past 25 years we have had the Dot Com Boom (and bust), the Great Financial (housing) Crisis, Trumpism, a pandemic, money printer go brrrrr, and now interest rates ballooning from near zero to fight supply chain+war+deglobalization fueled inflation. Now we are in the process of transitioning to a new energy system, introducing artificial intelligence (the most potent invention ever?), demographic mega-shifts, a Fourth Turning, demise of the US$ as the global reserve currency (Hello Bitcoin), and a massive amount of debt in the legacy system that somehow needs to be dealt with in order for the new system to emerge.
💩 doth happen. If one is going to invest (a necessity for all who plan on living a long, full life), then resilience is crucial. Resilience requires being prepared for the black swan events that can crush a portfolio.
Ways to invest resiliently include portfolio allocation via market sectors, identifying lifecycle stages (and sizing your investments accordingly), buying+selling in tranches to manage risk vs reward and utilizing shorts and hedges.
NOTE: There is perhaps a silver lining, in our opinion, to this change from growth and momentum to value investing. Stock picking is back in vogue as risk-adverse investing means fundamentals matter again. “Buy the best, ignore the rest.” — Keith Fitz-Gerald
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The Idea of Resilient Wealth Creation Started with the All Weather Portfolio
An all weather portfolio for stocks is one that is appropriately diversified to survive economic storms and prosper in the halcyon times.
NOTE: You may also want to include real estate (in multiple jurisdictions), fine art, whisky, antique autos, precious metals, cryptoassets, etc., for a truly all weather portfolio.
Ray Dalio, founder of the hedge fund Bridgwater, and author of Principals for a Changing World Order, among other books and docs, created the All Weather investment strategy, “the foundation of the ‘risk parity’ movement.” Full story here: https://www.bridgewater.com/research-and-insights/the-all-weather-story
return = cash + beta = alpha
(cash is controlled by the central bank interest rate, beta is the benchmark (E.G. S&P 500), alpha is your stock picks deviation from the benchmark)
Bridgewater doesn’t open source their all weather portfolio’s individual picks, but based on asset types and percentages here is a 5 ETF version:
THE RAY DALIO INSPIRED ALL WEATHER PORTFOLIO VIA ETFs
- 30% US Stocks – $VTI: Average annual return 2016 – 2022 = 12.3%
- 40% Long-term Treasuries – $TLT: Average annual return 2016 – 2022 = -2.0%
- 15% Intermediate-term Treasuries – $IEI: Average annual return 2016 – 2022 = -0.8%
- 7.5% Commodities (diversified) – $GSG: Average annual return 2016 – 2022 = 6.7%
- 7.5% Gold – $GLD: Average annual return 2016 – 2022 = 9.5%
Average Annual Return (2016 – 2022) = 3.99%
This is about the same as a 1-year GIC in 2023 and half of what inflation has been in 2022. This is fine if your goal is only to preserve your wealth but if you aren’t at that stage yet you likely want to put the effort into doing significantly better than that. For those that find investing daunting, we have just the tool for that …
Investing Can Be Daunting
There are many thousands of stocks stocks to choose from and MUCH to know about this vast subject. We do the brunt of the curating the stock market work for you so you can focus on the quality stocks, forget the rest, and make your decisions accordingly. We take a 25,000 piece puzzle and turn it into a 500 piece puzzle. Or as ChatGPT suggested, when asked for a simplifying a daunting task analogy: “eating an elephant one bite at a time.” Regardless, there is still work to be done for you that will provide you with a sense of accomplishment when your portfolio compounds, but it can be a much less daunting task with the GGI Strike Price List.
#SolvingTheInvestingPuzzle
There are over 600,000 securities (financial instruments) worldwide. More manageably there are a 6,500 or so stock in the US (~5000) and Canada (~1500). That is still a helluva lot of choices for the average retail investor to contend with. This excerpt from Keith Fitz-Gerald discusses this issue very adroitly:
A 2004 study on behavioural finance published in Pension Design and Structure: New Lessons in Behavioral Finance found that people faced with more choices actually saved less for retirement. People want all the choice in the world because they think it’s empowering when, in fact, the opposite is true… too much information results in decision paralysis, exhaustion, and a decline in results.
Wall Street’s marketing geniuses have spent billions of dollars learning how to push your buttons by getting you to focus on the short-term news cycle… even as they separate you from long-term wealth that would otherwise be in your pocket. They are well versed in the behavioural biases I’ve just shared with you, which is why they ply their trade the way they do. Wall Street knows that retail investors are more likely to make emotionally driven decisions under duress—and that you’ll trade more often when that’s the case. That’s why learning to “zoom out” can be a huge advantage!
Buy the best, ignore the rest. People delude themselves into thinking they’ve got to find the next great undiscovered stock. My research, for example, shows that there are only about 50 stocks that matter at any given time out of more than 600,000 listed securities worldwide.
“Wall Street analysts have a long, less-than-stellar record of saying one thing and doing another. It’s an open secret that “the Street” trades against clients who are following the same advice they’re busy avoiding. Research from Barron’s, DALBAR, and others shows that investors routinely buy when they should be selling and sell when they should be buying.
And that brings us to a great time to remind you of our favorite Warren Buffett quote: “Be fearful when others are greedy and greedy when others are fearful.” We created a tool to help retail investors succced.
Remember, investing can be interesting, fun and lucrative!! 💰😀
Strike Price List // Abide the Strike Price // Generate Resilient Wealth // Think Green … Investing // Subscriber Benefits →
Subscribe to our Strike Price List (access via Patreon // starts at US$3.25 per month)
More info about Subscriber Benefits →