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Frequent Contributor

Market recovery, should you index?

The stock markets will recover, eventually, once the economy gets going again and people are back to work.  The economy, in turn, produces goods and services.  A good not produced and sold, today, during the quarantine, will eventually be produced and sold.  A service, such as an airline flight, or a hotel room rental, or a meal, not provided, today, is lost forever.

Going forward, after a month or two of quarantine in place, the public will decide pretty much what are 'essential' goods and services, regardless of what governments say about things.

Investors, going forward, who concentrate on investing in 'essential' goods and service companies should thrive.  Those who concentrate and focus on non-essential goods and services not so much, IMO.  Index fund investors will earn average returns, going forward.  Maybehaps it's time for above average investors to build/hold sector funds, rather than broad market index funds.

(Just thinking out loud, after listening to El-Erian on an M* podcast.)

IMO, the stock market is like a piece of steel in a vise, where the coronavirus is pushing against the other end.  The 'question is if the 'yield strength' of the market has been exceeded, that is, will the stock market recover back up to historical highs, once people get back to work and the economy starts to 'grow' again.  There is little question, in my mind, as to whether or not the tensile strength of the stock market has been exceeded, however.

The bond/debt market, again IMO, is like a spring (or a group of springs!), each of which is very high yield, let alone tensile, strength, steel.  The whole kit and kaboodle (Treasuries, Corporate, preferred stock, money market, MBS) was stretched way beyond where it had ever been stretched before, but now the system is going through damped harmonic motion, all 'adjusting' to historically low interest rates all across the board.

That's what I got out of the El-Erian's 34 minute podcast.

ElLobo, de la casa de la toro caca grande
32 Replies
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Participant ○○○

Re: Market recovery, should you index?

With a market cap weighted broad index and assuming market efficiency, airlines and cruise ships won't have enough presence to make a very big difference in performance.

 

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Frequent Contributor

Re: Market recovery, should you index?

What??  When I get back in I will start with VUG, VPU, VGT, and VDC.   Then I'll chase me some momentum. I think I'm done with OEFs.  I'm all about TR now.

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Frequent Contributor

Re: Market recovery, should you index?

I think quality companies with large moats and believe they will recover and stabilize, but when, it anyone's guess? There are some good active funds to choosing a bundle of these companies, as well some index funds like QUAL and MOAT.

Sector funds in health and consumer staples would be an idea?

I have not listened to the podcast, in a hurry to get out for a few hours today

 

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Frequent Contributor

Re: Market recovery, should you index?

So how has the “above average” investor done compared to the Indexers? Below are two lists, one from an “above average” investor the second list from an Indexer.


Targa Resources (TRGP)  9.2% yield
Macquarie Infrastructure  (MIC) 9.1% yield
Energy Transfer (ET)  9.1% yield
Enbridge Series 5 (EBGEF)  6.9% yield     
Iron Mountain (IRM)  8.0% yield
Tanger Outlet (SKT)  8.7% yield
Nustar Logistics (NSS)  8.6% yield
American Finance Trust Series A (AFINP) 7.5% yield
Ladenburg Thalman Series A (LTS-A) 8.0% yield
AGNC Investment Corp (AGNCO)  7.2% yield

In addition to this more recent list, it should be noted that many of the “above average” investors choose to overweight energy, specifically MLPs and the infrastructure space. KMI, MLPL, KMI Warrants, “The Trifecta + APU,” and many levered UBS products that no longer exist after have collapsed.

 

Now the Indexer’s top 10 holdings from total market products like VTI are listed below. It is extremely difficult to outperform the indexes over time, that is why I index.

VTI with top ten holdings
 
Microsoft
Apple
Amazon
Alphabet
Facebook
Berkshire Hathaway
Johnson & Johnson
JP Morgan
Visa
Proctor & Gamble

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Frequent Contributor

Re: Market recovery, should you index?


@Bentley wrote:

So how has the “above average” investor done compared to the Indexers? Below are two lists, one from an “above average” investor the second list from an Indexer.


Targa Resources (TRGP)  9.2% yield
Macquarie Infrastructure  (MIC) 9.1% yield
Energy Transfer (ET)  9.1% yield
Enbridge Series 5 (EBGEF)  6.9% yield     
Iron Mountain (IRM)  8.0% yield
Tanger Outlet (SKT)  8.7% yield
Nustar Logistics (NSS)  8.6% yield
American Finance Trust Series A (AFINP) 7.5% yield
Ladenburg Thalman Series A (LTS-A) 8.0% yield
AGNC Investment Corp (AGNCO)  7.2% yield

In addition to this more recent list, it should be noted that many of the “above average” investors choose to overweight energy, specifically MLPs and the infrastructure space. KMI, MLPL, KMI Warrants, “The Trifecta + APU,” and many levered UBS products that no longer exist after have collapsed.

 

Now the Indexer’s top 10 holdings from total market products like VTI are listed below. It is extremely difficult to outperform the indexes over time, that is why I index.

VTI with top ten holdings
 
Microsoft
Apple
Amazon
Alphabet
Facebook
Berkshire Hathaway
Johnson & Johnson
JP Morgan
Visa
Proctor & Gamble


Or VUG  and forget the other 4000 stocks:

  
  
  
  
  
  
  
  
  
  
   
 
 Microsoft Corp.
 Apple Inc.
 Amazon.com Inc.
 Alphabet Inc.
 Facebook Inc.
 Visa Inc.
 Mastercard Inc.
 Home Depot Inc.
 Comcast Corp.
 Adobe Inc.
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Contributor ○○

Re: Market recovery, should you index?

Set to speculate, I have a question for experienced investors in this forum. Will the US economy be the largest after COVID? or Will China, that had a 'chinese' success controlling the virus, emerge as the largest world economy after COVID?  The answer may dictate changes in how you weight international funds or index funds. 

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Frequent Contributor

Re: Market recovery, should you index?

"I have not listened to the podcast, in a hurry to get out for a few hours today."

You should, as should all on these forums!  After all, we are all socially distanced enough from each other and should be stay at home quarantined long enough to listen!

ElLobo, de la casa de la toro caca grande
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Frequent Contributor

Re: Market recovery, should you index?


@CarlosDS wrote:

Set to speculate, I have a question for experienced investors in this forum. Will the US economy be the largest after COVID? or Will China, that had a 'chinese' success controlling the virus, emerge as the largest world economy after COVID?  The answer may dictate changes in how you weight international funds or index funds. 


El-Erian discusses this a bit, with the virus risks factored in, not so much as to which will be the largest economy, however!

ElLobo, de la casa de la toro caca grande
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Explorer ○○

Re: Market recovery, should you index?

Index all the way. Even my VG total bond is beating the majority of those boutique bond funds that experts are always crowing about.

Highlighted
Frequent Contributor

Re: Market recovery, should you index?

I would index but my preferred one for the rebound would be QQQ instead of SPY/VTI

Highlighted
Frequent Contributor

Re: Market recovery, should you index?

Have added MOAT, added to USMV, but I have taken positions or added to individual stocks when they offer good entry points. BCE, ENB, GILD, CSCO, CVX, PFE, WFC, ABBV or long time holdings like SGEN, VZ and T.

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Participant ○

Re: Market recovery, should you index?

I will be in tech funds when the recovery happens. But that could be a long ways off. Consumers drive our economy and many will not have jobs when this virus has run its course because many small businesses will go bankrupt.  I don't see a rapid recovery as many experts predict. And the virus could hit again this fall/winter. So many uncertainties. I'm not convinced the markets have bottomed yet. To much uncertainty and bad news on the horizon. Unemployment will be bad for some time.

Rich

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Explorer ○○

Re: Market recovery, should you index?

God point, will we get to prior highs?  Maybe but not for a long time, but things will normalize 

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Frequent Contributor

Re: Market recovery, should you index?


@TopCat69 wrote:

God point, will we get to prior highs?  Maybe but not for a long time, but things will normalize 


I wish He did.

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Frequent Contributor

Re: Market recovery, should you index?

Why invest in index funds when GS is forecasting 34% decline in Q2 GDP, JPM 25% down, with unemployment rate that will go up by 5% to 8.5%? Many companies with declining earnings will have to deleverage which will reduce cash. One forecast is that full employment will not return until end of 2021. Owning both winners and losers in a declining economy is not a good idea.

Better to wait for recovery and bottom feed in companies with good cash flow, earnings and above average dividends such as T and VZ whose services will be needed during the economic decline.

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Frequent Contributor

Re: Market recovery, should you index?


@Intruder wrote:

Why invest in index funds when GS is forecasting 34% decline in Q2 GDP, JPM 25% down, with unemployment rate that will go up by 5% to 8.5%? Many companies with declining earnings will have to deleverage which will reduce cash. One forecast is that full employment will not return until end of 2021. Owning both winners and losers in a declining economy is not a good idea.

Better to wait for recovery and bottom feed in companies with good cash flow, earnings and above average dividends such as T and VZ whose services will be needed during the economic decline.


Or, for those who don't invest primarily in individual stocks, concentrate/overweight in sectors representing those stocks!

ElLobo, de la casa de la toro caca grande
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Participant ○○○

Re: Market recovery, should you index?


@ElLobo wrote:

  Index fund investors will earn average returns, going forward. 


ElLobo, I've been head down planning and writing a novel for the last couple of weeks, so I may not be current on the news and recent market action.

A short while back, knowing then that I wouldn't have time to seriously follow individual investments, I sold all my holdings and put the entire enchilada in a whole market index fund.  I was moved to do so by a drumbeat of bleatings urging me to 'HOP ABOARD!!!!  DOW 33,000 IS RIGHT AROUND THE CORNER!!"

Yes, this was a departure from my income focus of many years.  And I fully expected my cash returns to be drastically reduced.  But I was going to be busy with no time to spend worrying about the market.  I figured for once I'd obtain the results of average and below average investors and I'd just have to be satisfied with those results.

When I finish up the final chapter here in a day or so, I'm going to do two things.  First, I'm going to check my account and see if my unrealized returns synch up with that DOW 33,000!!! train I was urged to HOP ABOARD!!  And then I'm going to post a pre-order notice for my book here on Morningstar.

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Frequent Contributor

Re: Market recovery, should you index?


@cliff wrote:

@ElLobo wrote:

  Index fund investors will earn average returns, going forward. 


ElLobo, I've been head down planning and writing a novel for the last couple of weeks, so I may not be current on the news and recent market action.

A short while back, knowing then that I wouldn't have time to seriously follow individual investments, I sold all my holdings and put the entire enchilada in a whole market index fund.  I was moved to do so by a drumbeat of bleatings urging me to 'HOP ABOARD!!!!  DOW 33,000 IS RIGHT AROUND THE CORNER!!"

Yes, this was a departure from my income focus of many years.  And I fully expected my cash returns to be drastically reduced.  But I was going to be busy with no time to spend worrying about the market.  I figured for once I'd obtain the results of average and below average investors and I'd just have to be satisfied with those results.

When I finish up the final chapter here in a day or so, I'm going to do two things.  First, I'm going to check my account and see if my unrealized returns synch up with that DOW 33,000!!! train I was urged to HOP ABOARD!!  And then I'm going to post a pre-order notice for my book here on Morningstar.


 

 

Cliff,

 Let's compare portfolios. Easy to do without getting too involved, simply use your HOP ABOARD bunch of stuff with my HOP ABOARD stuff. Hands down the Indexer has outperformed your favorite Index, THE ALERIAN, by wide margins throughout the past decade.

Your's first,

Targa Resources (TRGP)  9.2% yield
Macquarie Infrastructure  (MIC) 9.1% yield
Energy Transfer (ET)  9.1% yield
Enbridge Series 5 (EBGEF)  6.9% yield     
Iron Mountain (IRM)  8.0% yield
Tanger Outlet (SKT)  8.7% yield
Nustar Logistics (NSS)  8.6% yield
American Finance Trust Series A (AFINP) 7.5% yield
Ladenburg Thalman Series A (LTS-A) 8.0% yield
AGNC Investment Corp (AGNCO)  7.2% yield

In addition to this more recent list ... KMI, MLPL, KMI Warrants, “The Trifecta + APU” and associated Alerian companies vs.

VTI with top ten holdings
 
Microsoft
Apple
Amazon
Alphabet
Facebook
Berkshire Hathaway
Johnson & Johnson
JP Morgan
Visa
Proctor & Gamble

 

Continue to think you are an "above-average" investor, but then check your performance against a market index such as VTI; I'm afraid you might find Indexers have far outperformed the highly energy weighted portfolios of the "above average" investors.

Stay safe

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Frequent Contributor

Re: Market recovery, should you index?

 


@cliff wrote:

@ElLobo wrote:

  Index fund investors will earn average returns, going forward. 


ElLobo, I've been head down planning and writing a novel for the last couple of weeks, so I may not be current on the news and recent market action.

A short while back, knowing then that I wouldn't have time to seriously follow individual investments, I sold all my holdings and put the entire enchilada in a whole market index fund.  I was moved to do so by a drumbeat of bleatings urging me to 'HOP ABOARD!!!!  DOW 33,000 IS RIGHT AROUND THE CORNER!!"

Yes, this was a departure from my income focus of many years.  And I fully expected my cash returns to be drastically reduced.  But I was going to be busy with no time to spend worrying about the market.  I figured for once I'd obtain the results of average and below average investors and I'd just have to be satisfied with those results.

When I finish up the final chapter here in a day or so, I'm going to do two things.  First, I'm going to check my account and see if my unrealized returns synch up with that DOW 33,000!!! train I was urged to HOP ABOARD!!  And then I'm going to post a pre-order notice for my book here on Morningstar.

Yeah, the hop aboard thread didn't amount to much., but most investors understood it wasn't anything more than an attention getter. I'll be the first to admit the thread  was an occupier of time when there was nothing better to do, but now most of us are finding life has changed and are more willing to ignore sill stuff.

Best to all 


 

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