2022 Year-in-Perspective - Part Two

Government bonds saw one of the single greatest drops since their inception and international stocks were adversely affected by foreign conflicts. It was a challenging year to say the least. But, we firmly believe that a well-researched strategy of diversification (across asset classes of all types) can help investors endure these down market periods. Listen to the second half of our "2022 Year-in-Perspective" for a detailed review of market performance last year, and, discussion of our hopes for 2023.

If you have any questions or would like more information, reach out to us at https://symmetrypartners.com/contact-us/

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Symmetry Partners, LLC, is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered, excluded or exempted from registration requirements. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. No one should assume that future performance of any specific investment, investment strategy, product or non-investment related content made reference to directly or indirectly in this material will be profitable. As with any investment strategy, there is the possibility of profitability as well as loss.

Due to various factors, including changing market conditions and/or applicable laws, the content may not be reflective of current opinions or positions.

 

Please note the material is provided for educational and background use only. Moreover, you should not assume that any discussion or information contained in this material serves as the receipt of, or as a substitute for, personalized investment advice.

 

Show Notes/Transcript:

 

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Welcome back

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 listeners. This is your host Tom romano, and thank you

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 for joining us for part two of our 2022 year

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 in perspective. Once again, we're joined by Casey Dillon

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 to give us some insights on the markets and

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 how they affected investors throughout the course

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 of the previous year. Thanks for joining us again. Casey talked us

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 a little bit. How did the markets react right? I mean we saw both

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 equities and fixed income have negative

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 performance for the year. And what

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 are we seeing from rates of

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 return from the US as well as abroad?

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Yeah, well the the sharp increase

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 in rates reverberated across

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 markets everything from stocks to

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 bonds to real estate to commodities.

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And in what we observed was

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 sort of some interesting things

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 again threads that

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We'd seen coming into 2022 for instance. The

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 the growth of tech stocks

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 becoming a huge portion of

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 the sort of the the US market,

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 right? So if you you think about the Fang stocks Facebook

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 Apple Amazon Netflix, Google

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They accounted for almost 25% of

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 the market cap of the US.

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Coming into 2022 and they were

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 the sort of those growth oriented tech stocks were the drivers

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 of the tremendous returns

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 that the market had given kind of the past five years.

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Or even ten and and to the

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 point that there were a lot of folks who looked at that and said,

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 hey, look are we out over our skis here this feels

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 very much. Like we're entering into kind

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 of frothy Tech bubble territory

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 and there were sort of the Hallmark things

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 trappings of

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 that that were that felt very familiar to

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 those of us who lived through the first tech bubble. So you saw things

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 like the mean stocks right with games stop

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 and Best Buy and sort of, you know day trading.

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To to the overuse of Leverage on these

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 and a lot of that was kind of being driven by

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 this idea that you know coming out of the pandemic these

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 growth stocks. This was the story. These were the story

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 stocks that people were gravitating to so so what happens people

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 buy them up they to the point where the valuation

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 no longer makes sense. If you

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 take a step back and say well what am I buying right at

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 the end of the day?

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Investing is about purchasing future cash flows. And

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 so you arrive at a price today based on

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 some assessment of what you think those future cash flows

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 are and what you're willing to pay for those.

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If you get to a point where you're paying so much today for

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 you know, this idea of

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 heightened future cash flows at some

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 point you enter into a world where?

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To to even substantiate the price you're willing

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 to pay today. You have to have Perfection on those future casuals

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 going forward and the world doesn't work that way right? You

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 have a situation where Russia invades Ukraine, you have

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 a situation where you have, you know pandemics and Avian flues

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 and things like that. So the world is just in that

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 need a place where you can predict Perfection

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 for cash flows for things like yeah, Facebook

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 Apple Amazon, and in fact what we see

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The the case for Perfection fell off the cliff in 2022

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 because the the earnings for

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 those companies started to turn around and go the other way and that

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 caused Market participants to rethink the

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 valuations that they were giving them and what

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 we observed was the Fang stocks lost

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 collectively over three trillion dollars in market

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 cap over the course of the year. So that that

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 was a homos 25% of the total market cap lost in

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 the US was attributable to those handful of stocks

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 right those those Fang stocks that you allude to. I mean

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 at some point they were you know, collectively very

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 large percentage of common us benchmarks

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 like like the S&P 500, right they've been

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 inflated and so when there is that correction, you're gonna

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 feel it across the the industry across the all

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 the markets rather. So I think that makes a lot of

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 sense a lot of our investors are evidence-based investors,

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 you know, Casey you and I share the same investment philosophy

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 of buying hold.

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Long-term taking a factor approach to investment management.

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What how did factor-based investors or

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 evidence-based investors fair in 2022?

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 Yeah, so if you think about what what

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 are you doing? If you're a factor investor? Well yours, you're

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 lazing in on specific characteristics of

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 risk to invest in and those

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 character those risk factors those characteristics of

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 risk that that you have

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 been identified by way of academic research to have a

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 premium or return

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 associated with that that characteristics of risk.

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 So you're trying to figure it

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 out and say okay, you know, the the tech stocks

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 is great example, the thing stocks if things become exceedingly

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 expensive. Well, what does that

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 do? Then to the cheaper stocks the stocks that aren't the

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 thing stocks, right? How are they priced relative

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 to these these growthier stocks?

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What historically we've observed is that

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 there is a premium associated with valuation. Meaning

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 the cheaper stocks tend to outperform the

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 more expensive stocks over time.

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And so you enter into a world where the Fang stocks are

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 ripping the cover off the ball and they're kind of the expensive growth stocks and

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 by comparison, the the cheaper value

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 stocks just aren't keeping up with that on the upswing and

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 you got to a point where the

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 market was collectively the one of

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 the most expensive markets in history. Meaning that

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 the

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thighs and weight of those Bank stocks across

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 the market

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and how expensive they become

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lifted the whole market up

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But the spread between the growth stocks and

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 the value stocks became as wide as we've

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 seen really since the tech bubble right going back to

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 that that the the value stocks were

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 just so unloved and so beaten down my price relative to

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 the tech stocks. So if you're

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 a value investor rolling into a year like

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 2022 when the the Fang

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 stock bubble sort of starts to become deflated and

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 those prices start to to come

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 back to the mean if

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 you will.

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One consequent of that is is that on a relative

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 basis those cheaper value stocks start to perform better. Even

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 if the market is going down as a whole the value

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 stocks tend to hold up better because it's the

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 top end of the market the expensive end. That's moving more.

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And so we we saw that and in 2022 value

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 stocks actually did quite well, they did exceedingly well

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 relative to grow stocks large

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 cap value outperform large cap growth handily

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 for 2022. And

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 so if you're a value a factor investor with

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 a tilt towards value that was really helping your portfolio in

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 2022. We also saw factors like

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 low volatility or

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 associated with lower volatility stocks

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 doing well across the

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 board minimum volatility globally and

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 also here in the United States. So those stocks that tend

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 to be less volatile than the market in general.

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There's a return premium associated with that and of course

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 in a year that highly volatile like 2022 those less

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 volatile stocks had a premium associated with

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 them relative to everything else. And if you're a factor investor who

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 has a tilt towards minimum volatility you you reap the

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 reward on that but it is as we sort of

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 break out of kind of globally or looking at the US things like

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 small cap stocks and Emerging Markets continue to do quite well.

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 So if you had a tilt towards size in your

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 Factor tilt that that paid off

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 for you on a more broadly Diversified basis.

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And so you you started to see that these these

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 Factor tilts in at

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 a time when normally you would think a look

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 if it's a risk off environment. Well Factor, it is

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 a risk anyway, right? So you might

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 expect for the factor exposures to

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 be down it and to a degree you're

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 right, but they're also relative to the other things that

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 they're trading against and in that case they held up

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 much better than the market in general.

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And so a broadly based a broad

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 Diversified broadly Diversified Factor portfolio

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 tended to do better on both a relative

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 and absolute basis than the market in general

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 did and certainly more so than the Contra points

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 of that things like growth or more volatile stocks or you

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 know, large cabs. So so being a factor investor

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 really was beneficial in

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 many regards in 2022.

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Yeah, we've seen that in the performance of a number of

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 portfolios that that you and I have talked about over the

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 years that you know, a diversified portfolio factors in

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 2022 albeit was

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 still in the red at the end of the year, but not nearly as as bad

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 as some of those market like portfolios

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 or benchmarks that we've seen. I do

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 want to hang on the value conversation a little bit. Right?

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 We you know value as a factor you and

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 I share the the belief that investors should have exposure

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 to value in their portfolios. And I know

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 over the years Casey you and I have had shared a cocktail

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 discussing. What was the underperformance of

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 value for a number of years. We saw the rise

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 of the things which we discussed earlier and for

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 Value investors. I think that they were

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 someone Vindicated in 2020 to but for

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 those are out there listening, you know with this outperformance

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 of value. Is there still room for Value to

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 continue to outperform in 2023?

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You know, I love the quote history rare

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 rarely repeats itself, but it often Rhymes because

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 I think that that's incredibly true

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 across markets in particular and I

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 heard an a quote that I think shed some light on that and it's

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 not that history repeats itself. It's that people

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 repeat themself, right? And so if you think about markets are

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 made up of people making purchasing and

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 selling decisions across the board it it's it

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 should be no surprise that in a similar

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 type of dynamic or environment.

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People might Chase things like large cab growth

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 tech stocks, right? And so if you look back to

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 a time that was very similar to that during the tech bubble where

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 you saw again Tech socks become very expensive and

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 value stocks kind of be left to languish

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 on the sidelines for

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 some time when the tech Bubble Burst, right all of

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 those growthy tech stocks valuation plummeted

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 and value stocks had a tremendous run for several

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 years.

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Well, where are we now?

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The we see these these Fang stocks the the air going

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 out of them value having a nice run.

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So you might think is the run over. Well, if you

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 look at the sort of globally the value spreads.

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So again cheap versus expensive we are still in

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 the 90 plus percentile

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 meaning it still one of the most expensive markets,

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 right? So if we look at the, you

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 know, nine out of 10 markets have been cheaper than

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 the market that we're in currently even after 2022's price

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 decline. So that tells you that value

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 stocks, even though they had a tremendous year

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 in 2022. The potential is there

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 for them to continue to experience this

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 reversion to the mean of these expensive stocks

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 coming back down and value could have

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 a run akin to what we observed post

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00:12:11.500 --> 00:12:14.700
 the tech bubble in the early 2000 when value

244
00:12:14.700 --> 00:12:17.900
 was really dominant for a

245
00:12:17.900 --> 00:12:20.700
 good three years in the marketplace. Now,

246
00:12:20.700 --> 00:12:23.800
 I'm not suggesting that that it will exactly repeat itself.

247
00:12:23.800 --> 00:12:26.100
 But you see the dynamic there in the case

248
00:12:26.100 --> 00:12:29.400
 to be made for hey, it looks like there's still some fuel for

249
00:12:29.400 --> 00:12:29.900
 this fire.

250
00:12:31.300 --> 00:12:34.200
And it would not be surprising to continue to

251
00:12:34.200 --> 00:12:38.100
 see value run relative to the the

252
00:12:37.100 --> 00:12:39.100
 more expensive stocks.

253
00:12:39.800 --> 00:12:42.300
Certainly, and you know, I think it's

254
00:12:42.300 --> 00:12:45.300
 important for our listeners to know we're by no means suggesting people

255
00:12:45.300 --> 00:12:48.600
 should speculate between growth and value. We think that you

256
00:12:48.600 --> 00:12:52.100
 know factors specifically value are our

257
00:12:51.100 --> 00:12:55.700
 long-term Endeavors and investors who maintain that

258
00:12:55.700 --> 00:12:58.500
 exposure tend to do better over time

259
00:12:58.500 --> 00:13:02.000
 is what I'm hearing you say and I

260
00:13:01.300 --> 00:13:04.200
 and I lived through the tech bubble as you did

261
00:13:04.200 --> 00:13:08.200
 and you know, those those years after where value did outperform

262
00:13:07.200 --> 00:13:11.400
 they were still poor years, right 2000

263
00:13:10.400 --> 00:13:13.300
 2001 weren't positive years in

264
00:13:13.300 --> 00:13:16.500
 the market. And do you have any comments on you

265
00:13:16.500 --> 00:13:19.200
 know value kind of shining during those downturns when

266
00:13:19.200 --> 00:13:22.500
 we say values out performing. It doesn't necessarily I mean values positive, right?

267
00:13:22.500 --> 00:13:25.700
 I think this is this the the Crux

268
00:13:25.700 --> 00:13:29.100
 of why it's difficult to be a value investor because

269
00:13:28.100 --> 00:13:32.300
 I mean sexually value investing

270
00:13:31.300 --> 00:13:34.400
 is not hard to get your head around by cheap stuff

271
00:13:34.400 --> 00:13:39.100
 and hold it right like that's not hard from sort

272
00:13:37.100 --> 00:13:39.500
 of a conceptual.

273
00:13:39.800 --> 00:13:42.500
Went to get the hard part is actually doing it

274
00:13:42.500 --> 00:13:45.600
 and being able to be patient through those

275
00:13:45.600 --> 00:13:48.100
 periods when it doesn't look like

276
00:13:48.100 --> 00:13:51.300
 it's working because those are those come right you

277
00:13:51.300 --> 00:13:54.300
 you have those periods where the the tech bubble

278
00:13:54.300 --> 00:13:57.100
 occurs where the Fang stocks are ripping the cover off the

279
00:13:57.100 --> 00:14:00.300
 ball for five years in a row and your value stocks are languishing.

280
00:14:01.400 --> 00:14:04.700
Most investors the vast majority of investors cannot

281
00:14:04.700 --> 00:14:05.600
 sit still through that.

282
00:14:06.300 --> 00:14:10.600
that's why value investing well easy to to

283
00:14:09.600 --> 00:14:12.400
 sort of implement is hard

284
00:14:12.400 --> 00:14:15.700
 to maintain and yet right what

285
00:14:15.700 --> 00:14:18.600
 why do why do folks like you and I gravitate to

286
00:14:18.600 --> 00:14:21.500
 Value as an important element of

287
00:14:21.500 --> 00:14:24.800
 kind of a broad-based factor portfolio because

288
00:14:24.800 --> 00:14:27.600
 the data going back over time

289
00:14:27.600 --> 00:14:30.300
 suggests that if you can be patient

290
00:14:30.300 --> 00:14:33.500
 through those periods when values not working the

291
00:14:33.500 --> 00:14:36.400
 payoff for you when it comes in times

292
00:14:36.400 --> 00:14:39.200
 like after the tech bubble when it comes when it

293
00:14:39.200 --> 00:14:42.300
 comes in times like 2022 the payoff for

294
00:14:42.300 --> 00:14:44.500
 you for being patient through that period

295
00:14:45.400 --> 00:14:49.300
And maintaining that that value exposure is

296
00:14:48.300 --> 00:14:51.600
 significant enough such that

297
00:14:51.600 --> 00:14:54.700
 over the total holding period you you

298
00:14:54.700 --> 00:14:57.100
 end up ahead of where you might otherwise have been

299
00:14:57.100 --> 00:15:00.800
 had you just had kind of Market level performance right?

300
00:15:00.800 --> 00:15:02.100
 Just just broad beta.

301
00:15:02.900 --> 00:15:05.400
And so at the end of the day, you know, the question is, how

302
00:15:05.400 --> 00:15:08.200
 do I out? How do I outperform the market? Well, one way to

303
00:15:08.200 --> 00:15:11.300
 help perform. The market over time is to tilt towards

304
00:15:11.300 --> 00:15:15.000
 these characteristics of risk, which have shown over

305
00:15:14.300 --> 00:15:18.000
 time to outperform the market and values

306
00:15:17.100 --> 00:15:20.000
 one of those now what I

307
00:15:20.200 --> 00:15:23.600
 would say Tom is that it's incredibly difficult to just

308
00:15:23.600 --> 00:15:25.500
 be a value investor and that's all you do.

309
00:15:26.100 --> 00:15:29.300
Which is why it's so beneficial to have a

310
00:15:29.300 --> 00:15:33.100
 blend of factor exposures to have other things

311
00:15:32.100 --> 00:15:35.400
 working when things like value for instance

312
00:15:35.400 --> 00:15:38.900
 aren't so a good example of that is momentum, right? So

313
00:15:38.900 --> 00:15:41.300
 it momentum and value are really nice

314
00:15:41.300 --> 00:15:44.600
 pairing to put together in a portfolio because they're

315
00:15:44.600 --> 00:15:48.200
 negatively correlated meaning when when values down

316
00:15:47.200 --> 00:15:50.400
 momentum tends to be up and vice versa.

317
00:15:50.400 --> 00:15:53.400
 So if the value investor if it's incredibly difficult

318
00:15:53.400 --> 00:15:57.300
 to sit through those periods when value is not doing well with momentum

319
00:15:56.300 --> 00:15:59.200
 exposures you end up

320
00:15:59.200 --> 00:16:01.100
 having things in your portfolio.

321
00:16:02.200 --> 00:16:05.400
Which are picking up what's working and so in the case of the past five

322
00:16:05.400 --> 00:16:07.700
 years a broad-based?

323
00:16:08.400 --> 00:16:12.100
Factor multi-factor portfolio would have value stocks

324
00:16:11.100 --> 00:16:15.100
 in it, but it would also have some exposure

325
00:16:14.100 --> 00:16:17.200
 to the fangs because those are

326
00:16:17.200 --> 00:16:20.400
 representing kind of the momentum in the market until you have exposure to

327
00:16:20.400 --> 00:16:23.700
 that and and that becomes an easier portfolio for

328
00:16:23.700 --> 00:16:27.300
 most people to consume and sit through and the

329
00:16:27.300 --> 00:16:30.100
 real magic here is the longer you

330
00:16:30.100 --> 00:16:33.900
 can hold on to any of these Factor exposures. The more

331
00:16:33.900 --> 00:16:36.700
 you have an expectation that you're going to have performance that's

332
00:16:36.700 --> 00:16:37.200
 above Market.

333
00:16:37.900 --> 00:16:40.300
And and the real challenge for everybody is

334
00:16:40.300 --> 00:16:43.500
 to sit still long enough to reap

335
00:16:43.500 --> 00:16:46.200
 the reward of putting that Capital to risk. So you just trying to

336
00:16:46.200 --> 00:16:49.700
 build a portfolio that people can actually stay in

337
00:16:49.700 --> 00:16:53.000
 through these Market turmoil these ups

338
00:16:52.300 --> 00:16:56.000
 and downs because if they can sit still there, you

339
00:16:55.400 --> 00:16:58.700
 know it a bears make

340
00:16:58.700 --> 00:17:01.100
 money Bulls make money pigs get slaughtered. Right? What does that mean?

341
00:17:01.100 --> 00:17:04.400
 Look regardless of what your philosophy is, if you

342
00:17:04.400 --> 00:17:07.200
 maintain that philosophy eventually the market

343
00:17:07.200 --> 00:17:10.400
 will come around and rotate to you and pay you off for it. If you

344
00:17:10.400 --> 00:17:13.000
 keep jumping from philosophy to philosophy trying to

345
00:17:13.400 --> 00:17:16.200
 chase whatever is in front of you and get those returns. That's when

346
00:17:16.200 --> 00:17:19.000
 you get slaughtered. That's when the cost of

347
00:17:20.300 --> 00:17:23.700
Trading in and out eats up your returns that

348
00:17:23.700 --> 00:17:26.200
 that's when you're catching a falling knife. That's when

349
00:17:26.200 --> 00:17:29.200
 all of these things that you hear why you might want to

350
00:17:29.200 --> 00:17:32.300
 not want to be a growth investor or a value investor or

351
00:17:32.300 --> 00:17:35.100
 right? All of those things can be true. If you're

352
00:17:35.100 --> 00:17:38.800
 trying to find those things because the timing is is has

353
00:17:38.800 --> 00:17:41.900
 been proven to be elusive if not impossible. So

354
00:17:41.900 --> 00:17:44.000
 picking a philosophy and sticking with

355
00:17:44.200 --> 00:17:48.100
 it as shown consistently over time to to be the way to go and we

356
00:17:47.100 --> 00:17:51.700
 happen to believe in the philosophy of what's been

357
00:17:51.700 --> 00:17:54.100
 shown from the academic research to be these

358
00:17:54.100 --> 00:17:57.200
 characteristics of risk that pay off over time certainly and so

359
00:17:57.200 --> 00:18:01.300
 in a nutshell, it's time in the market versus

360
00:18:00.300 --> 00:18:03.600
 timing. The market is the best course of

361
00:18:03.600 --> 00:18:06.600
 action. I want to hit upon something

362
00:18:06.600 --> 00:18:09.900
 that you're alluding to and that platitude or

363
00:18:09.900 --> 00:18:12.700
 it sounds like a platitude to most investors, especially

364
00:18:12.700 --> 00:18:15.400
 when the markets down right telling them. I'm

365
00:18:15.400 --> 00:18:18.300
 in the market not timing the market that doesn't mean much to somebody

366
00:18:18.300 --> 00:18:19.700
 who's like am I gonna be able to retire?

367
00:18:20.200 --> 00:18:23.500
Right, but you have to understand where that platitude

368
00:18:23.500 --> 00:18:26.200
 comes from right where where that rule of thumb comes

369
00:18:26.200 --> 00:18:30.600
 from any and it is informed by

370
00:18:30.600 --> 00:18:34.400
 decades upon Decades of observations

371
00:18:33.400 --> 00:18:36.400
 of how markets behave

372
00:18:36.400 --> 00:18:39.600
 and where returns to markets come from. Yeah. That's an excellent

373
00:18:39.600 --> 00:18:42.100
 point. You were alluding to

374
00:18:42.100 --> 00:18:45.000
 diversification Factor diversification but diversification as a whole

375
00:18:45.300 --> 00:18:48.300
 and there's one thing I'd like you to comment on, you

376
00:18:48.300 --> 00:18:51.300
 know, I've been hearing in Reading in popular press and

377
00:18:51.300 --> 00:18:54.100
 in the various industry trade Rags that you know

378
00:18:54.100 --> 00:18:57.700
 diversification didn't work in in 2022. My

379
00:18:57.700 --> 00:19:00.200
 thought on that is that I think it's a misunderstanding of

380
00:19:00.200 --> 00:19:03.100
 how diversification actually works and I'd love to hear your

381
00:19:03.100 --> 00:19:06.100
 thoughts on that. Yeah. So you sort of

382
00:19:06.100 --> 00:19:09.400
 come back to well. What are your expectations? I went

383
00:19:09.400 --> 00:19:12.600
 when when you hear someone like you or

384
00:19:12.600 --> 00:19:16.400
 I say, hey a broadly Diversified portfolio is

385
00:19:15.400 --> 00:19:18.900
 is the starting point for most

386
00:19:18.900 --> 00:19:19.800
 investors like

387
00:19:20.200 --> 00:19:23.500
Everybody should have if you're going to invest you should do it in a

388
00:19:23.500 --> 00:19:26.400
 fashion that allows you to take advantage of broad-based diversification.

389
00:19:27.300 --> 00:19:30.800
If your expectation when you hear that is, oh, okay. I'll

390
00:19:30.800 --> 00:19:33.200
 never lose money. Well, no that that's not what we're saying,

391
00:19:33.200 --> 00:19:36.500
 right? The the point of broad-based diversification

392
00:19:36.500 --> 00:19:39.800
 is you're taking off some of the idiosyncratic risk

393
00:19:39.800 --> 00:19:42.200
 of any one kind of investment meaning.

394
00:19:43.400 --> 00:19:47.000
All I want to invest the only thing I know about is expensive wine

395
00:19:46.600 --> 00:19:49.200
 French wine, right? That's the only thing I know about that.

396
00:19:49.200 --> 00:19:50.200
 The only thing I want to invest in

397
00:19:50.900 --> 00:19:53.400
So if that's my investment philosophy the risk

398
00:19:53.400 --> 00:19:57.500
 that I have is that the the wine

399
00:19:56.500 --> 00:19:59.800
 market goes away people, you know,

400
00:19:59.800 --> 00:20:02.100
 they're tasting preferences. They no longer want

401
00:20:02.100 --> 00:20:05.200
 to drink expensive wines. We see

402
00:20:05.200 --> 00:20:08.600
 a shift in the in the wine market where French wines are are no

403
00:20:08.600 --> 00:20:11.700
 longer as highly valued as California wines, for

404
00:20:11.700 --> 00:20:14.100
 instance. And if I've invested in

405
00:20:14.100 --> 00:20:17.400
 a bunch of French wines, just the shift in the market now, I have

406
00:20:17.400 --> 00:20:20.700
 a dramatic impact in my portfolio and or

407
00:20:20.700 --> 00:20:23.400
 you know fires in

408
00:20:23.400 --> 00:20:26.700
 California and drought in France and

409
00:20:26.700 --> 00:20:29.400
 suddenly the wine market has absolutely no

410
00:20:29.400 --> 00:20:32.600
 Supply. And so the

411
00:20:32.600 --> 00:20:35.300
 price of what you're holding goes up dramatically, but then

412
00:20:35.300 --> 00:20:38.500
 when it's gone, it's gone, right and then what do you invest in? So

413
00:20:38.500 --> 00:20:41.300
 so the the risk of investing in any one

414
00:20:41.300 --> 00:20:45.600
 thing you may know that thing inside and out but it's idiosyncratic

415
00:20:44.600 --> 00:20:47.200
 to that thing. You're

416
00:20:47.200 --> 00:20:47.900
 investing in like wine.

417
00:20:48.900 --> 00:20:51.700
So, you know the idea is with

418
00:20:51.700 --> 00:20:54.400
 diversification. Yeah, okay invest in wine, but while

419
00:20:54.400 --> 00:20:57.900
 you're doing that can we find some other things to invest in that are

420
00:20:57.900 --> 00:21:00.600
 going to behave differently than Wine does

421
00:21:00.600 --> 00:21:01.100
 because

422
00:21:02.200 --> 00:21:05.400
If the risks come to bear for wine, you don't get wiped out.

423
00:21:06.100 --> 00:21:09.400
Right. So we want to invest you know in a fashion

424
00:21:09.400 --> 00:21:12.300
 that allows us to sort of achieve these long-term goals without getting

425
00:21:12.300 --> 00:21:15.300
 wiped out along the way. So instead of investing in

426
00:21:15.300 --> 00:21:18.100
 wine. Maybe we invest in, you know,

427
00:21:18.100 --> 00:21:21.100
 small cap stocks in the United States and those are

428
00:21:21.100 --> 00:21:23.200
 gonna look and behave very differently than the wine market.

429
00:21:23.600 --> 00:21:27.100
And maybe we invest in Emerging Market

430
00:21:26.100 --> 00:21:29.200
 debt because we know that that's gonna

431
00:21:29.200 --> 00:21:32.700
 behave differently than Securities and wine

432
00:21:32.700 --> 00:21:35.200
 and maybe we invest in treasuries and

433
00:21:35.200 --> 00:21:38.200
 maybe right. So as you start to go down that path you look at

434
00:21:38.200 --> 00:21:42.100
 all of the different things you can lay around that are going to behave differently

435
00:21:41.100 --> 00:21:44.500
 from the other things that you're holding. That's not

436
00:21:44.500 --> 00:21:48.700
 to say that when a systematic level

437
00:21:48.700 --> 00:21:51.600
 risk comes along like a pandemic or

438
00:21:51.600 --> 00:21:54.500
 Rising interest rates that all of those things aren't

439
00:21:54.500 --> 00:21:58.100
 going to be impacted by them. They will be right your your

440
00:21:57.100 --> 00:22:00.800
 wine your small counts dogs. You're you're

441
00:22:00.800 --> 00:22:03.200
 treasuries, right? You're you're emerging market

442
00:22:03.200 --> 00:22:06.400
 that all of those things are gonna be impacted if there are

443
00:22:06.400 --> 00:22:09.300
 issues that are roiling markets across the

444
00:22:09.300 --> 00:22:12.600
 board. And and so if you're expectation going

445
00:22:12.600 --> 00:22:15.300
 into a broadly based Diversified portfolio as I'll

446
00:22:15.300 --> 00:22:16.700
 never lose money, or it'll never go down.

447
00:22:17.100 --> 00:22:20.200
That's the wrong. I would like to disabuse you of that notion.

448
00:22:21.200 --> 00:22:24.400
What you should expect is if any one or two of these things

449
00:22:24.400 --> 00:22:27.200
 are impacted by a risk specific to it.

450
00:22:27.200 --> 00:22:30.500
 I'm not going to be wiped out and that's why I would have a

451
00:22:30.500 --> 00:22:33.500
 broadly based portfolio Diversified portfolio. Now,

452
00:22:33.500 --> 00:22:36.000
 I will say that if a part of your

453
00:22:36.800 --> 00:22:39.800
 diversification are things like Factor exposures. Well, you

454
00:22:39.800 --> 00:22:42.400
 you end up often doing

455
00:22:42.400 --> 00:22:45.200
 better than the market even if the markets down

456
00:22:45.200 --> 00:22:48.200
 and your portfolio is down you end up doing a

457
00:22:48.200 --> 00:22:50.100
 bit better than the market did in general.

458
00:22:51.100 --> 00:22:54.500
And if you look at like a sick just a generic 60 40 portfolio.

459
00:22:55.400 --> 00:22:57.700
It was one of the worst years on record for.

460
00:22:59.100 --> 00:23:00.600
1640 board folios

461
00:23:01.400 --> 00:23:04.200
because stocks and bonds both went down

462
00:23:04.200 --> 00:23:08.600
 dramatically in fact bonds had a historically bad year led

463
00:23:07.600 --> 00:23:10.300
 by treasuries which had the

464
00:23:10.300 --> 00:23:13.300
 worst year since the you know in 200 and

465
00:23:13.300 --> 00:23:16.300
 something years, right? So a 60 40

466
00:23:16.300 --> 00:23:20.500
 a broad base 640 portfolio being down is unusual.

467
00:23:19.500 --> 00:23:22.300
 It's Unique to have

468
00:23:22.300 --> 00:23:25.300
 that experience, but it's also

469
00:23:25.300 --> 00:23:29.100
 not unexpected given the the

470
00:23:28.100 --> 00:23:31.100
 Catalyst for why all of those

471
00:23:31.100 --> 00:23:31.900
 things were down.

472
00:23:32.900 --> 00:23:35.800
That doesn't mean you abandon that that

473
00:23:35.800 --> 00:23:38.300
 investing discipline. It just means that

474
00:23:38.300 --> 00:23:43.000
 you should expect there are going to be times when broad-based

475
00:23:41.400 --> 00:23:44.100
 diversification isn't going to

476
00:23:44.100 --> 00:23:48.800
 be the thing that saves you from experiencing a

477
00:23:48.800 --> 00:23:49.500
 downmark.

478
00:23:50.300 --> 00:23:53.300
So it sounds like there's like two two things that you're bringing

479
00:23:53.300 --> 00:23:56.800
 up here, right diversification certainly provides you with some

480
00:23:56.800 --> 00:23:59.700
 protection from concentrated stock concentrated

481
00:23:59.700 --> 00:24:02.300
 industry or even sector right? Like you bring

482
00:24:02.300 --> 00:24:06.000
 up wine a great way to sort of

483
00:24:06.400 --> 00:24:10.300
 balance that out by maintaining diversification. But however diversification is

484
00:24:10.300 --> 00:24:13.600
 not going to necessarily protect you from the natural ebb and

485
00:24:13.600 --> 00:24:16.400
 flows of the market, right? Those are gonna continue to happen

486
00:24:16.400 --> 00:24:19.400
 but the market risk and I

487
00:24:19.400 --> 00:24:23.000
 think you would agree is that that's what rewards investors for deploying

488
00:24:22.100 --> 00:24:25.200
 their Capital into the market. Why would I invest

489
00:24:25.200 --> 00:24:28.500
 broadly in you know, the S&P 500 well because

490
00:24:28.500 --> 00:24:31.300
 there's risk associated broadly with the SD, but and

491
00:24:31.300 --> 00:24:34.700
 I should be paid for doing so you're absolutely spot on right? Yeah. Why

492
00:24:34.700 --> 00:24:37.200
 are we investing in anything because there's risk associated with

493
00:24:37.200 --> 00:24:40.200
 it and that risk generates return, right? Yeah risk and return our

494
00:24:40.200 --> 00:24:43.600
 absolutely Inseparable and I think it's it behooves investor

495
00:24:43.600 --> 00:24:46.200
 to keep that investors to keep that sort of Mantra in

496
00:24:46.200 --> 00:24:49.200
 mind so Casey, thank you so much for

497
00:24:49.200 --> 00:24:50.100
 your comments. I do have

498
00:24:50.400 --> 00:24:53.500
Last question for you, you know, we covered the current events

499
00:24:53.500 --> 00:24:57.100
 how that affected the markets, you know investors are

500
00:24:56.100 --> 00:24:59.400
 listeners are looking at the retirement

501
00:24:59.400 --> 00:25:02.500
 accounts. They're seeing a lot of red. What advice

502
00:25:02.500 --> 00:25:05.300
 would you give investors? What should

503
00:25:05.300 --> 00:25:08.100
 they do going into 2023? What are some of the things investors could be

504
00:25:08.100 --> 00:25:11.800
 doing now? Well, you know, my my knee jerk

505
00:25:11.800 --> 00:25:14.200
 response to that is nothing right. So if you're

506
00:25:14.200 --> 00:25:18.000
 if you're a discipline investor maintain that discipline, right?

507
00:25:17.300 --> 00:25:20.600
 There's no question 2022 was challenging year

508
00:25:20.600 --> 00:25:23.300
 for investors. And there is likely,

509
00:25:23.300 --> 00:25:26.500
 you know, these issues that we've been talking about they're not resolved.

510
00:25:26.900 --> 00:25:29.800
Right and in and in fact, there will be other things

511
00:25:29.800 --> 00:25:32.300
 that will Royal the markets layered on

512
00:25:32.300 --> 00:25:35.400
 top of these like for instance a fight over

513
00:25:35.400 --> 00:25:36.300
 the debt ceiling, right?

514
00:25:37.300 --> 00:25:40.700
So there's likely more turbulence ahead. However, right the

515
00:25:40.700 --> 00:25:44.200
 the best option for the long-term investor is

516
00:25:43.200 --> 00:25:46.300
 to find a philosophy that

517
00:25:46.300 --> 00:25:49.500
 makes sense for them build a portfolio around that and

518
00:25:49.500 --> 00:25:53.100
 then maintain the course maintain

519
00:25:52.100 --> 00:25:54.200
 the discipline.

520
00:25:55.800 --> 00:25:58.300
Through up markets down markets, you know turbulence in

521
00:25:58.300 --> 00:26:02.000
 the headlines the it's the discipline of maintaining

522
00:26:01.200 --> 00:26:04.800
 that philosophy over time that is provides the

523
00:26:04.800 --> 00:26:07.600
 reward for long-term investors and their steadfast

524
00:26:07.600 --> 00:26:08.000
 patients.

525
00:26:08.800 --> 00:26:12.700
Through these short-term Market movements or macroeconomic

526
00:26:11.700 --> 00:26:14.300
 events are the things

527
00:26:14.300 --> 00:26:18.000
 that are going to generate returns for them over the next Century, right? That's

528
00:26:17.500 --> 00:26:20.900
 it just is what it is. It's what it has been for

529
00:26:20.900 --> 00:26:23.600
 those investors who are looking at 2023 here are

530
00:26:23.600 --> 00:26:26.400
 some statistics. Hopefully that will Empower you to maintain

531
00:26:26.400 --> 00:26:30.800
 the course over the sort of the past Century

532
00:26:29.800 --> 00:26:32.600
 the US has endured 15

533
00:26:32.600 --> 00:26:33.600
 recessions.

534
00:26:34.500 --> 00:26:37.700
In 11 of the 15 or 73% in

535
00:26:37.700 --> 00:26:37.800
 time.

536
00:26:38.400 --> 00:26:41.500
Returns on stocks were positive two years after the

537
00:26:41.500 --> 00:26:42.300
 recession began.

538
00:26:43.200 --> 00:26:46.900
With an annualized average Market return 7.8% So

539
00:26:46.900 --> 00:26:49.800
 if you're concern going into 2023 is always

540
00:26:49.800 --> 00:26:52.100
 it gonna tip into recession. Should we be concerned with

541
00:26:52.100 --> 00:26:55.700
 what the FED is doing? Are they gonna go too far? My answer to you

542
00:26:55.700 --> 00:26:59.100
 would be look recessions are not new with the

543
00:26:58.100 --> 00:27:00.300
 we've experienced them.

544
00:27:01.500 --> 00:27:04.300
Over time in fact more frequently than

545
00:27:04.300 --> 00:27:07.200
 you would think and yet in a vast majority of those

546
00:27:07.200 --> 00:27:10.100
 recessions. If you just have the patience to ride through

547
00:27:10.100 --> 00:27:13.400
 it you're rewarded on the back end of that to to

548
00:27:13.400 --> 00:27:16.300
 the tune of sort of a healthy average annual Market return of

549
00:27:16.300 --> 00:27:16.800
 almost 8%

550
00:27:17.200 --> 00:27:20.500
So going into 2023 expect volatility

551
00:27:20.500 --> 00:27:23.300
 expect there to be things playing out in the headlines. Do not

552
00:27:23.300 --> 00:27:27.000
 let that pull you away from the long-term

553
00:27:26.600 --> 00:27:29.800
 discipline and know that the the

554
00:27:29.800 --> 00:27:33.200
 rationale for why you're investing over

555
00:27:32.200 --> 00:27:36.400
 the long term is sound and

556
00:27:35.400 --> 00:27:38.400
 you have expectation that this too

557
00:27:38.400 --> 00:27:40.500
 shall pass and I'll be rewarded for that patients.

558
00:27:41.300 --> 00:27:44.500
Yeah, absolutely discipline and patience tends to be the biggest Catalyst

559
00:27:44.500 --> 00:27:47.600
 for rewards for investors over the long term and going

560
00:27:47.600 --> 00:27:51.000
 into 2023, you know investors who might be uneasy

561
00:27:50.500 --> 00:27:54.000
 unable to sleep at night concerned about their portfolios.

562
00:27:53.300 --> 00:27:56.500
 They should go meet with their financial advisor.

563
00:27:56.500 --> 00:27:59.500
 Make sure that their current asset allocation is aligned with

564
00:27:59.500 --> 00:28:02.200
 their financial plan and their long-term goals

565
00:28:02.200 --> 00:28:06.100
 and objectives and you know, I think staying

566
00:28:05.100 --> 00:28:09.300
 the course and remaining disciplined makes the

567
00:28:08.300 --> 00:28:11.700
 most sense but making

568
00:28:11.700 --> 00:28:14.500
 sure that your portfolio is aligned with what you want to achieve with.

569
00:28:14.500 --> 00:28:17.500
 Your hard-earned capital is something investors could

570
00:28:17.500 --> 00:28:20.600
 be doing into 2023 and then expect your

571
00:28:20.600 --> 00:28:23.300
 advisor say everything's gonna be fine unless there's

572
00:28:23.300 --> 00:28:27.200
 some sort of life-changing event that happens with the

573
00:28:26.200 --> 00:28:29.700
 investor not necessarily the markets

574
00:28:29.700 --> 00:28:32.100
 Casey. Thank you so much for your insights today.

575
00:28:32.100 --> 00:28:35.100
 It's always a pleasure. We love talking to you and

576
00:28:35.100 --> 00:28:38.000
 we look to have you back over the next

577
00:28:38.200 --> 00:28:40.700
 couple of podcasts and I want to thank all of our listeners out there.

578
00:28:41.100 --> 00:28:45.500
Joining us today. Please feel free to access other

579
00:28:45.500 --> 00:28:49.500
 podcasts that we have done and they

580
00:28:48.500 --> 00:28:51.300
 can be accessed anywhere you get your

581
00:28:51.300 --> 00:28:54.500
 podcast. So thanks everyone and we will see you

582
00:28:54.500 --> 00:28:57.900
 next time symmetry Partners LLC is an

583
00:28:57.900 --> 00:29:00.500
 investment advisor firm registered with the Securities

584
00:29:00.500 --> 00:29:03.500
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585
00:29:03.500 --> 00:29:06.400
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586
00:29:06.400 --> 00:29:09.900
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587
00:29:09.900 --> 00:29:12.700
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588
00:29:12.700 --> 00:29:15.200
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589
00:29:15.200 --> 00:29:18.200
 training and does not constitute an endorsement of

590
00:29:18.200 --> 00:29:21.200
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591
00:29:21.200 --> 00:29:24.900
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592
00:29:24.900 --> 00:29:27.800
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593
00:29:27.800 --> 00:29:30.600
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594
00:29:30.600 --> 00:29:32.700
 this material will be profitable.

595
00:29:33.700 --> 00:29:36.200
As with any investment strategy there is the

596
00:29:36.200 --> 00:29:39.800
 possibility of profitability as well as loss due

597
00:29:39.800 --> 00:29:42.500
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598
00:29:42.500 --> 00:29:44.900
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599
00:29:45.600 --> 00:29:48.800
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600
00:29:48.800 --> 00:29:51.900
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601
00:29:51.900 --> 00:29:54.300
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602
00:29:54.300 --> 00:29:57.800
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603
00:29:57.800 --> 00:30:01.100
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604
00:30:00.100 --> 00:30:03.500
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605
00:30:03.500 --> 00:30:05.900
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