What caught my eye this week.
Going on the comments I’ve heard and read this week, many stock market types have flopped into the Easter Weekend like a late-night drunk who only makes it as far as the living room sofa.
Relief! Sweet relief.
Of course, UK investors may have a four-day break from seeing their portfolios cosplay a fruit machine – US investors just three – but Trumpomania no more respects public holidays than it does anything else.
Today’s plot lines include Trump scapegoating US Federal Reserve chairman Jerome Powell and going after the New York attorney general, more fights over wartime-law deportations, the administration threatening to walk away from Ukraine again, and a new front opened up against Harvard.
Please do read my (quarantined) political links every week if you’re still complacent and want to learn more.
Diversified distractions
Markets are certainly not complacent – at least not about the economic engine of Trump’s project – as the whipsaw volatility and wholesale dumping of US assets in recent weeks has proved.
But there’s been a silver lining for those of us with vaguely diversified portfolios.
Which is that for the first time in a long time, we don’t feel like chumps for owning anything other than US stocks – or even just the Magnificent Seven tech giants.
It’s been a long time coming. But in a typically top-drawer post this week, Nick Maggiulli described such diversification as ‘the price of peace’, even while acknowledging that:
…when you have the best portfolio possible for a given time period […], you should still expect to lose money about once every four years (on average).
That might seem crazy but it’s true.
But underperformance and occasionally losing money are just the tip of the iceberg.
The real mental challenge of holding a diversified portfolio is watching some of your asset classes underperform almost every year.
Meanwhile Adam Grossman at Humble Dollar noted that though not everyone has celebrated diversification, well, not everyone has the investing chops of Warren Buffett and Charlie Munger.
For the rest of us:
What does it mean to build a sufficiently diversified portfolio?
For starters, it should be diversified along more than one dimension. Nearly every investor, in my view, should own a combination of stocks and bonds. In addition, holding cash can help carry a portfolio through years like 2022, when both stocks and bonds were down.
Next, look to diversify within bonds and within stocks.
Be sure to check out too this great post from Portfolio Charts on what has worked best before in the biggest drawdowns.
We don’t study such data to divine the perfect asset mix to survive a bear market. That’s an impossible goal.
No, the purpose of looking back is to understand why we need to try in order to best face the future.
Strategy versus tactics
The other major part of getting through a bear market is continuing to hold. Or perhaps to buy more.
This has always taken fortitude. But in recent years it’s also taken quick reflexes.
Okay, I guess 2022’s downturn dragged on a bit unless you owned a lot of US technology stocks.
But the Covid crash was over in a few weeks. And we’ve already bounced back a bit from the initial Trump tariff tantrum, though who knows for how long:
Note again too the benefits of diversification – for the UK, so far tis but a flesh wound.
Whether you should be holding, buying opportunistically, or even trimming risk if you’ve really got the wobbles will depend on your age, risk tolerance, and portfolio mix, as well as your overall financial goals.
In other words, it’s personal. That’s why you need a personal plan, not predictions or platitudes.
But here’s some more of this week’s buy-the-dip reading to get you thinking:
- Why buy stocks before a recession? – Downtown Josh Brown
- The fear and volatility we saw in early April portends higher returns – Charlie Bilello
- Buy the dip or buy the bottomless pit? – Arcadian
- How to actually buy the dip – The Joint Account
- Is it finally time to buy British? – This Is Money
Have a great weekend all!
From Monevator
What asset classes are best for hedging UK inflation? – Monevator [Members]
The Hemline Index and other fashionable follies – Monevator
From the archive-ator: Social care late in life is a black hole – Monevator
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
UK inflation slowed to 2.6% in March – CNBC
Morningstar is retiring its popular portfolio management tool – Morningstar
Broker X-O has been sold to Interactive Investor – Research Tree
High income households could pay more for electricity, says Ofgem – Yahoo
Second homeowners marketing their beauty spot properties to dodge council tax – Daily Mail
How child benefit is changing this year – Which
Londoners earn the most but spend very little – City AM
Starbucks’ UK retail business paid no corporation tax last year – Guardian
Neil Woodford to launch subscription-based investment service – Guardian [become a Monevator member instead!]
Analysts are getting pessimistic – fast – about US corporate earnings – Sherwood
Products and services
HSBC and Co-Op cut rates as Halifax and Lloyds ease rules – Guardian
Vets say they are under pressure to bring in more money per pet – BBC
Number of 5% mortgage deals at post-GFC high – This Is Money
Get up to £4,000 when you transfer your ISA to InvestEngine our link. (Minimum deposit of £100, other T&Cs apply. Capital at risk) – InvestEngine
Save up to 5% with every supermarket shop – Be Clever With Your Cash
“What happens if my annuity provider goes bust?” – Which
NS&I’s one- and five-year British Savings Bonds return after 16 years off market – Trustnet
Get up to £1,500 cashback when you transfer your cash and/or investments through this link. Terms apply – Charles Stanley
The affordable IKEA pieces designers keeping coming back to – Home and Garden
Why are chocolate Easter eggs so expensive this year? – This Is Money
You can get up to £250 cashback when you open a SIPP with Interactive Investor. Terms and fees apply. – Interactive Investor
Five very fancy (non-FIRE-friendly) gadgets for the home – FT
Stylish new homes for down-sizers, in pictures – Guardian
Comment and opinion
Would you buy a ski chalet? – The Waiter’s Pad
The problem with wealth taxes [Search result] – FT
What is risk? – Behavioural Investment
Paul Johnson: it’s time to raise the basic rate of income tax – IFS
My husband covered up the fact that he was retired – Guardian
Money dysmorphia: why you think you’re poor when you’re not – Independent
Big swinging dicks – We’re Gonna Get Those Bastards
Alternative asset allocations have cost endowments dear – CFA Institute
Naughty corner: Active antics
The US stocks that are most at risk from tariffs – Morningstar
Dollar weakness: a panic signal or a healthy rebalancing? – Klement on Investing
REITs are in a rut [US but relevant] – Institutional Investor
Time to buy emerging market debt? – Trustnet
Kindle book bargains
A Man for All Markets by Edward O. Thorp – £0.99 on Kindle
Million Dollar Weekend by Noah Kagan – £0.99 on Kindle
Great Britain? by Torsten Bell – £1.99 on Kindle
The Moneyless Man by Mark Boyle – £0.99 on Kindle
Or read one of our 24 investing favourites – Monevator shop
Environmental factors
How mine water could warm up the UK’s forgotten coal towns – The Conversation
Project to suck carbon out of the sea begins in UK – BBC
Abandoned lynx, ‘beaver bombing’: has re-wilding got out of hand? – Guardian
If we must bring back extinct species, let’s focus on giant herbivores – The Conversation
“I needed heart surgery after swimming”: sewage spills reach decade high – Independent
The life and death of a ‘laundered’ cow in the Amazon rainforest – Guardian
Robot overlord roundup
Demis Hassabis is preparing for AI’s endgame – Time
OpenAI is a systemic risk to the tech industry – Where’s Your Ed At?
Why do AI company logos look like buttholes? – Velvet Shark [h/t Abnormal Returns]
ChatGPT spends ‘tens of millions of dollars’ on people saying ‘please’ and ‘thank you’ – Tech Radar
Not at the dinner table
The silence of the CEOs [Search result] – FT
State terror: a brief guide for Americans – Thinking Aloud
The economic consequences of a mad king [Search result] – FT
Compliance is the new American dream – Kyla’s Newsletter
Why Trump can just declare ’emergency’ to do whatever he wants – Vox
Boycotting America – Optimistic Callie
What would a real anti-China trade strategy look like? – Noahpinion
Is China the ultimate free-rider? – Marginal Revolution
Off our beat
See where London tube trains are in real-time – London Underground Live
Have scientists found the secret of happiness? – Guardian
UK rearmament: lessons from the 1930s [Podcast] – A Life Time in Finance
How to cure ‘premature enumeration’ – Tim Harford
Is there life after banking? [Search result] – FT
The truth about life on other planets – BBC
Over-60s get long-term protection from a one-shot RSV vaccine candidate – New Atlas
Don’t push it – Humble Dollar
And finally…
“A part of all you earn is yours to keep.”
– George S. Clarson, The Richest Man in Babylon
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