How Long Does It Take To Be A Long-Term Investor?

Some interesting charts to give some long term perspective of market performance of different asset classes and the blended performance of those asset classes.

How Long Does It Take To Be A Long-Term Investor?

http://contentengine.advisorproducts.com/images/NL_Images/3891_1.png

How long does it take to become a long-term investor? Past performance is not a guarantee of your future results but ignoring history is unwise.

MY COMMENT:  YES, PAST PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE, BUT WHAT ELSE ARE YOU GOING TO USE?  PAST PERFORMANCE NEEDS TO BE FACTORED IN TO YOUR DECISION MAKING.  IT GIVES YOU A PERSPECTIVE OF WHERE YOU ARE IN LONG TERM CYCLES FOR BOTH POSSIBLE FUTURE RETURNS AND RISKS

According to Craig Israelsen, Ph.D., an academic whose research we license, over the last 93 years, the four major asset classes — stocks in large and small companies, 10-year U.S. Treasury bonds, and 90-day Treasury bills — through the end of 2018 offered returns and risk levels as shown.

The period encompasses all of modern Wall Street history, some of the best statistics for understanding investing. Owning stock in large U.S. companies averaged a 9.99% return nominally, which is economic-speak for saying “before adjusting for inflation.”

http://contentengine.advisorproducts.com/images/NL_Images/3891_2.png

Since 1926, and through December 31, 2018, there were 59 35-year rolling calendar-year periods of returns. Shown in this chart is the percentage of times over the 59 35-year rolling calendar-year periods from 1926 through the end of 2018 that each asset achieved the 9.9% average annual return.

According to Israelsen, the 9.9% return of large company stocks was achieved 92% of the time with a 35 year-holding period since 1926, but in just 57% of the five-year rolling periods since 1926.

The four groups of bars on the left show the performance of each individual asset class. A portfolio combining the four assets is on the right.

The longer you hold your investments — the longer your horizon, your holding period — the more likely you were to achieve a long-run return.

Keep in mind, holding large-cap stocks 10 years versus 35 resulted in a lower-than 35-year holding period 57% versus 92%, but the difference in returns was not so far off.

http://contentengine.advisorproducts.com/images/NL_Images/3891_3.png

On the flipside, if you failed to achieve the long-run return, in the case of large U.S. stock, what was the performance gap when an investor did not achieve a return of 9.99%? The tallest dark blue bars are on the right side of each cluster represent five-year holding periods. If your holding period was only five years, your average annual return was 781 basis points — 7.81% — annually lower over all of the rolling five calendar-year periods since 1926. In the 43% of the time that failed to achieve a 9.99% or higher return, the performance gap was 781 basis points. That shows the shorter your time frame, your holding period, the more likely you are to really miss the long-run return. If you held for 10 years, you were below the long-run return by 411 basis points. If you hung in there for 35 years and you did not achieve the long-run return, you only missed it by 58 basis points. The past showed the longer you stayed in, even if you don’t achieve the long-run return, you missed it by less by holding longer.

MY COMMENT:  THIS IS A STATISTICAL TAUTOLOGY.

THE LONGER YOU INVEST, THE MORE LIKELY YOU EARN THE LONG TERM RETURN.

http://contentengine.advisorproducts.com/images/NL_Images/3891_4.png

The Standard & Poor’s 500 stock index closed at 2,775.60, 2.5% higher than a week ago and the third straight weekly gain, just 5% from its all-time closing high on September 20th, 2018. The S&P 500 index, a key growth component in a broadly diversified portfolio, suffered a 19.8% plunge from September 20th’s all-time closing high to the Christmas Eve closing low of 2,351.10, and then it rebounded.

Rapid Price Movement

I think that this comment addresses some of the reasons why we are seeing more volatility:

Today, since almost 90% of daily US Equity trading is what we call “systematic”, we have at least $2 TRILLION in assets under management that is betting on purely quantitative strategies … and at least another $1 TRILLION behind that running “net neutral”, constantly using options and ETFs to delta-hedge portfolios in real-time. 

What does that do to The Machine? It makes it go faster. 

Especially on the most critical Factor Exposure in The Machine (price MOMENTUM)… and on the most critical duration (1 MONTH)… rules-based execution pushes prices up/down faster than ever before.

Behavioral Finance and Change in the Rate of Change Commentary

Since I am a technical short term trader and focus primarily on Behavioral Finance and price action, my analysis focuses on the ROC (change in the rate of change) of expectations.

A simple example would be that if investors are expecting good earnings from a company and the company acheives good earnings, I would expect the stock to be flat.  It would take great earnings to move the stock up.  Less than good earnings would push the stock down. 

I like to look for levels on any asset where I feel that the expectations are extremely positive or negative and then take the opposite side of the trade.  A simple example is if a stock has extremely positive expectations, current news, projected news and analysts comments AND the stock has been moving up dramatically, then I will look to sell / short that stock on the expecatation that statisitically, the change in the rate of change of those expectations will reverse.  By definition, the change in the rate of change must always move in cycles.  And when everyone loves a stock already and it is widely known, how many new buyers are out there to push the stock higher?  Stock prices move on the change in the rate of change of money purchasing a stock.  When that change begins to roll over from very positive to less than positive, that is another indicator of a possible drop in the stock.

This is what I have done for the last 35+ years – with various refinements over the years based upon the lessons and losses that Mr. Market has taught / given me.

For the more fundamentally oriented investors, I include the following:

What are the 3 most causal FUNDAMENTAL research FACTORS that determine the TREND’s path?

ROC (rate of change) of GROWTHROC (rate of change) of INFLATIONROC (rate of change) of PROFITS

Real-Time Macro: You Don’t Need A Recession To Get Paid (A Note on Small Business Optimism)

The ongoing collision between developing 2019 conditions and residual 2018 peak cycle sanguinity continues to play out in conspicuous fashion. We see this across high frequency Business (& Consumer) Confidence Surveys where the prospects for slowing growth have progressively overwhelmed still solid Present Conditions. This is driving an epic capitulation in Sentiment which has now entirely retraced the ebullience associated with post-election/fiscal stimulus/record streak of accelerating growth euphoria.

Headline Small Business Optimism fell -3.2pts, marking a 5th month of decline off the August 2018 cycle high and the lowest level since November 2016. Forward Expectations again served as the epicenter of weakness, falling -10pts sequentially on the back of December’s -6pt decline as slowing growth. Political gridlock and asset price volatility shock conspired to drive the largest 2-month decline since the depths of the Eurozone crisis in 2012.

Most notably, the juxtaposition in the 2nd & 3rd charts below provide a discrete reminder around the risks to the profit/earnings cycle we’ve been highlighting for months now. Specifically, a late-cycle acceleration in wages alongside a progressive slowing in (global and local) growth and a fading fiscal impulse into peak earnings cycle comps, higher interest rates and residual strong dollar translation effects is not margin and profitability positive.

… But you already knew that.  And – as we highlighted last week – with 1Q19 EPS growth estimates now negative, consensus is increasingly warming to the notion of rising earnings recession risk. 

Remember, its about shifts and delta’s ….

You don’t need an actual recession to get paid on a growth slowing view, you just need the probability distribution to shift to more/less probable for the view to be tangibly reflected and ‘capture-able’ in market prices.

Real-Time Macro: You Don't Need A Recession To Get Paid (A Note on Small Business Optimism) - nfib1

Real-Time Macro: You Don't Need A Recession To Get Paid (A Note on Small Business Optimism) - nfib2

Real-Time Macro: You Don't Need A Recession To Get Paid (A Note on Small Business Optimism) - nfib3

Real-Time Macro: You Don't Need A Recession To Get Paid (A Note on Small Business Optimism) - nfib4

The Best-Paid Hedge Fund Managers Made $7.7 Billion in 2018

ByTom Maloney

February 14, 2019, 9:00 PM PST Updated on February 15, 2019, 7:13 AM PST

  • James Simons, Ray Dalio, Ken Griffin lead Bloomberg’s ranking
  • Chase Coleman, Izzy Englander each made more than $340 Million

Captions

Hedge Fund Titans Add $7.7 Billion to Their Fortunes in 2018

These Are the Richest Towns in America

Bloomberg’s Alix Steel and David Westin report on how much hedge fund titans made in 2018.

Even for this Gilded Age of 0.0001 percenters, Kenneth Griffin drips money.

The hedge-fund mogul recently closed on a New York penthouse for an eye-watering $240 million. Before that he picked up a $122 million London mansion. He can hang his $200 million Pollock in one and his $300 million de Kooning in the other.

Remarkably, all of that cost less than what Griffin made in 2018, when his personal fortune swelled by $870 million to about $10 billion, according to the Bloomberg Billionaires Index, a ranking of the world’s 500 richest people.

More remarkable is how Griffin and many other hedge fund giants mint so much money: with investment returns that are solid, but a far cry from John Paulson’s mammoth housing short or when George Soros broke the Bank of England.

The Bloomberg Billionaires Index’s inaugural ranking of hedge-fund wealth lays bare a truth about the business that, for many, defines what it means to be rich.

Outfits like Griffin’s Citadel and Ray Dalio’s Bridgewater Associates have grown so big by assets that they’ve effectively become printing presses for their ultra-rich owners. The largest funds can now throw off millions or billions of dollars a year in fees.

Hedge Fund Titans

These hedge fund billionaires added to their fortunes in 2018

Source: Bloomberg

“We still want the mega funds to produce returns that are better than a typical hedge fund, that’s why we’re willing to pay the 2 and 20 percent fees,” said Tim Ng, CIO of Clearbrook Global Advisors, which invests in hedge funds. “We’re willing to tolerate lower performance from some in a market like 2018 because they have for years outperformed their peers.”

Bloomberg reached out to representatives for all of the firms and individuals on the list. All declined to comment.

The top hedge-fund earners of 2018 performed significantly better than the average manager.

Kenneth Griffin

Photographer: David Paul Morris/Bloomberg

See more: Hedge fund performance in 2018. The good, bad and the ugly

Citadel’s flagship Wellington fund, for instance, returned 9.1 percent last year, while the average fund lost 6.7 percent, slightly worse than the S&P 500 Index. Of course, Griffin doesn’t get performance fees unless he makes a profit for his clients. As the largest investor in the funds, the billionaire’s interests are aligned with theirs.

How did other big names stack up in 2018?

Quants feature heavily on Bloomberg’s list, led by James Simons of Renaissance Technologies. The former code-breaker’s fortune increased $1.6 billion to $16.6 billion, according to Bloomberg estimates, making him the world’s wealthiest hedge fund manager.

RenTech’s Institutional Equities Fund gained 8.5 percent, while its Medallion vehicle, closed to outside investors, did better.

Ray Dalio’s fortune rose $1.3 billion, powered by Bridgewater’s approximately $160 billion of assets.

Ray Dalio

Photographer: Simon Dawson/Bloomberg

He’s now worth about $16.2 billion. His flagship Pure Alpha fund gained 14.6 percent last year, while the All Weather strategy lost money.

Some managers crushed the competition.

Michael Platt of Bluecrest Capital Management returned 25 percent, although hedge fund investors didn’t benefit after he kicked out clients. Jeffrey Talpins of Element Capital Management had a 17 percent gain for his macro fund, elevating him to billionairedom.

For several people on the list, hedge funds are just a component of their businesses.

Griffin owns one of the world’s largest firms making markets in stocks and bonds. In addition to buying houses and art, he’s given away more than $700 million to charity.

Chase Coleman of Tiger Global Management runs a fabulously successful venture capital arm, helping to boost his fortune to $3.9 billion.

Income components

Split of fees and return on invested assets

Source: Bloomberg

The figures are more than almost anyone will earn in a lifetime, but 2018 wasn’t a particularly good year for the industry. Closures outnumbered launches in 2018 for the third year in a row, according to Eurekahedge, and investors continue to pressure managers to cut their fees.

See more: Hedge-fund swagger sinks along with profits and fees

This year is shaping up to be an improvement over 2018. The average fund returned 2.1 percent in January, according to the Hedge Fund Research index. Citadel’s Griffin is again beating peers with its Wellington fund advancing 3.6 percent last month. Element, now managing $18 billion, saw a 3.5 percent jump in its main fund.

To compile the ranking, Bloomberg broke out “total income” figures to show estimates of dividend income and return on personal assets. Dividend income is our calculation of the share of performance fees that the manager takes home as owner of the hedge fund. Return on personal assets is our estimate of how much managers earned on their own cash invested in their funds.

Midday Missive

Judd, here is your Midday Missive. 

Chips are bid with profit taking in the Industrials

The low looks to be in for the In indces

Spu’s back above 2745.50 will attract buyers.

I bought CRONOS @ 20.70

LONG INTC 2/22 51 Calls @ .56 cents
these are next Friday’s

ORL daily stops were elected in the OIl Spu’s Russell

NFLX looks good against today’s low.

AMZN held its 50 DMA

Do not be short!


 MU

ES Friday Options

Sold 2700s and 2695s puts for Friday near the opening on the pullback. Now selling the 2765s calls… Liking the idea of strangles and legging into them by selling puts on drops and calls on rallies.

Ended up losing about 6 points overall on the Wed expiration short calls. Not too terrible considering the 50+ point push in 2 days.

SPX/MKT update 2.14.19

As laid out earlier this week- I do think the SPX/MKT is coming into a pivotal High/Top- sometime this week, the question today IS… was yesterday’s High ,IT? 

Maybe, but the DTE- Algo is saying tomorrow 2.15-18.19-

Additionally, we didn’t quite get tour projected TGT=2770-74 which I think is an important level…

So, without trying to get too cute- I think the MKT has a good chance of holding in here this am and probably rally’s UP into tomorrow if I had to take an educated technical guess based upon the sum of the parts.

The trend is still intact and unless we take out 2717,(which is probably NOT going to happen today), then we must assume the current trend is valid.

We will get there, and I think well know it when we DO…  *TIME, price and Algorithmically we will align and fire!

Traders/PM’s are advised to keep their expectations in check for the downside today AND assume the SPX/MKT likely holds S1- and most likely rally’s from there. I’m looking for a move higher into 2.15-18.19- to 2770-74-

SPX/MKT update 2.12.19

Last week we mentioned the SPX/MKT was likely to hold in well, and move higher based upon relatively robust DMP algo readings we were seeing.

Additionally, this past weekend I highlighted the “macro” schematic suggesting a move to 2755-74– completing some projections from the Dec.26th LOW-

Based upon this week’s VERY LOW DMP reading (4:1 sell/buy signals), I DO think the MKT as measured by SPX will most likely put in a tradable High/Top sometime this week…

The daily TIME cycle schematic starts to turn negative again 2.14-15.19– at least from a n intermediate/minor TIME frame perspective (3-9 days/1-3 days)

So, although the MKT appears to be focused on ANY constructive news on a trade deal, I think we are coming into the late stages of the current rally and will likely come into a “tradable” pivot High/Top sometime this week. *At this point, any constructive news would be a SELL opportunity anyway-

Traders/PM’s are advised to allow some room for the MKT to extend the rally in price /TIME keeping in mind that were very likely to come into a high pivot sometime in the next couple of days which should precede a S/T corrective cycle. *It is very likely that the MKT experiences a brief disruption this week or next and then resume its trend later in month into early March as outlined in the macro schematic.…