Uncategorized, Weekly Update

Timing Matters so Very Much

Tagged: , , , ,

Published July 27, 2018


Below is an interesting article by Nick Maggiulli pointing out that time, YOUR personal time – as in when you are alive, matters very much as to your life (and investing) experience. Imagine the difference between having your primary investing years occurring during the go-go days of the 1990s, retiring in 1999, turning over your hefty equity gains from the 1980s and 1990s into a heavily bond/income portfolio. The 600%+ return of the stock market from 1984-1999 would have delivered a nice retirement package. If you were only five years younger, however, your retirement package would be fully HALF of the prior example as your primary investing years would have spanned the dot-com market crash. If your primary investing years began ten years later, in 1993, your retirement package would be just more than one-quarter of your co-worker who was ten years older. Your personal time frame matters. At TimingCube, we seek to make it matter LESS by working to extract return from the market regardless of whether it is rising or falling.

Here is Nick’s article:

“It was July 1, 1858 when the idea of evolution by natural selection was first presented to the scientific world. The work was a joint effort between Charles Darwin and Alfred Russel Wallace, both of whom had independently formulated their theories on evolution over prior decades. I know you’ve heard of Darwin and you may have heard of Wallace, but how about Patrick Matthew? Matthew, a Scottish horticulturalist, had come up with his own theory of natural selection in the appendix to On Naval Timber and Arboriculture in 1831, over 25 years before the joint work of Darwin and Wallace. Despite this, Matthew never fully developed or publicized his ideas and is typically forgotten from the record of history.
I don’t tell this story to disparage Darwin’s fame or to suggest plagiarism on anyone’s part (Darwin deserves a majority of the credit because his ideas were the most developed). I tell it because it illustrates a phenomenon that has repeated itself over the centuries. Newton and Leibniz both invented calculus in the mid-1600s. Carl Wilhelm Scheele, Joseph Priestley, and other 18th century chemists all separately discovered oxygen. And the list goes on. This concept is known as multiple discovery and explains how three men from the same part of the world independently came up with an idea that changed the way we view life itself. Steven Johnson describes multiple discovery in more detail in How We Got to Now:

Most discoveries became imaginable at a very specific moment in history, after which point multiple people start to imagine them. The electric battery, the telegraph, the steam engine, and the digital music library were all independently invented by multiple individuals in the space of a few years.

In the early 1920s, two Columbia University scholars surveyed the history of invention in a wonderful paper called “Are Inventions Inevitable?” They found 148 instances of simultaneous invention, most of them occurring within the same decade. Hundreds more have since been discovered.

Johnson’s argument is that broader societal trends influence how we think and act in the world, which explains how multiple discovery events can occur. However, this idea isn’t limited to just invention and scientific revelation, but can also be found in business success. As Charles Slack states in Hetty: The Genius and Madness of America’s First Female Tycoon:

Jim Fisk, whose notorious financial schemes made him the embodiment for the term “robber baron,” was born in 1834, seven months before Hetty. Fisk’s partner, Jay Gould was born in 1836. Steel magnate Andrew Carnegie was born in Scotland in 1835. J.P. Morgan, the financier and banker who would buy Carnegie’s company (over a golf game) to form the colossus U.S. Steel, was born in 1837. John D. Rockefeller, the muscle and brains behind Standard Oil was born in 1839.

Is it just chance that the most famous businessmen and women of the Gilded Age were born within half a decade of each other? Or did they all get swept up in an era that resulted in more income accumulation than any point in American history? Maybe it was coincidence or maybe it was…the right place, the right time.

You might think this concept doesn’t apply to you as an investor, but you would be wrong. Just consider the S&P 500’s annualized return by decade:

Lucky and Unlucky Decades for the S&P 500

As you can see, when you start can have a big impact on your investment results. Yet, this is just the tip of the iceberg. For example, if you had invested from 1960-1980 and beaten the market by 5% each year, you would have made less money than if you had invested from 1980-2000 and underperformed the market by 5% a year. The gods always have the last laugh:

From 1960-1980, beating the market by 5% would have made you LESS money than under-performing by 5% from 1980-2000

Yes, this example is cherry picked, but it demonstrates how skilled investors (outperformers) can lose to unskilled investors (underperformers) if they get caught in a bad market. So, my friends, don’t worry about getting excess returns, worry about whether there are returns at all.”

Market Update

Investors focused on earnings this week with a heavy menu of tech/consumer company reports. Monday brought none of those reports but instead delivered strength in financials from a steepening yield curve. The +1% move in banks and other financials offset general weakness in other sectors. The overall result was a flat finish for the broad market. After the market close, Alphabet (GOOGL) reported strong earnings sending its stock upward. That led to a +1% opening rally for the Nasdaq. However, the gains faded over the course of the day as weakness in semiconductors dragged on the index. Earnings from a wide variety of companies in other sectors were generally quite positive however. There was evidence of some market rotation as the S&P 500 lifted +0.5% while the Nasdaq closed flat. Stocks reacted positively Wednesday to a meeting on trade between President Trump and European Commission President Juncker. The apparent easing in tensions helped produce a +1.0% gain in stocks. Disappointing news from Facebook (FB) weighed heavy on the Nasdaq Thursday, pushing that index down -1%. Dow Industrial components 3M (MMM), Boeing (BA), and Caterpillar (CAT) posted solid results helping that index rise in spite of the tech/consumer weakness. Amazon’s happy earnings news lifted the market to kick off Friday. But less stellar results from Exxon (XOM) and Intel (INTC) seemed to drive the market on the day. Stocks fell throughout the day to a steep -1.5% decline for the tech/consumer heavy Nasdaq.

Stocks had solid weekly gains until Friday’s tech/consumer selloff. The S&P 500 (SPY) managed to stay above water on the week with a +0.62% gain. However, the Nasdaq 100 (QQQ) slipped -0.77% while the small-cap Russell 2000 (IWM) struggled -1.91%.

Warm wishes and until next week.