Summing Up The Week

Does stock picking not work long-term?

In his new book, Larry Swedroe, a chief research officer for Buckingham Wealth Partners, says stock picking has a terrible track record and it’s getting worse, reported CNBC on Friday.

Stock-picking, also called active management, involves a fund manager or investor actively buying and selling specific stocks based on different theses. Basically, it’s the “professional” version of what I practice in Get Irked.

However, according to Swedroe, stock pickers can’t identify underpriced stocks with any regularity.

After 10 years, 85% of large investment funds underperformed the S&P 500, and, after 15 years, nearly 92% are trailing the leading index. In other words, investors would have been better-served simply investing in an Exchange Traded Fund (ETF) that tracks the S&P 500 like Vanguard’s VOO ETF rather than investing in active funds.

Does this mean active investing like what Get Irked does doesn’t actually work over the long-term?

Personally, I think success rate depends on how you actively invest. 

A professional fund manager must manage millions, if not billions, of dollars with more money coming in every day. That means they don’t have the luxury of time – they must put that money to work even if the market (or sector) is at all-time highs. They have to buy more to accommodate the accounts they bring in.

When an individual manages his or her own money, they have the time to actively pick stocks of companies they know as well as the agility to add or subtract from a position during periods of market volatility. With a smaller quantity of money and no expectations from other investors, an individual can keep new funds in cash longer, knowing the opportunity to add to positions always comes eventually.

Individual investors can beat the markets.

I have beaten the market nearly every year for more than a decade. When I don’t, as I didn’t in 2019, I don’t miss by much: my Investments in Play portfolio rose 28.20% in 2019 versus the S&P’s 28.88%, a difference of 0.68%.

However, over a longer term comparatively, my Investments in Play portfolio always beats the markets. For example, just going back an extra year to the beginning of 2018, my portfolio is up +56.92% between January 1, 2018 to September 18, 2020 versus the S&P 500’s +23.44% gain over the same time period.

That’s a difference of 33.48% – not a small beat by any measure.

Anyone can do manage their own money – it’s not rocket science.

I truly believe any individual can outperform the market if they put forth a little time, effort, and discipline. It’s not rocket science – stocks can only move two directions: higher or lower.

As long as an investor picks the stocks of high-quality companies; sees market-wide sell-offs as buying opportunities and not times to panic; and religiously take profits when they can, I think anyone can beat the indexes by managing their own money.

With that, let’s look at the news that moved the markets this week… 

Market News

Federal Reserve to keep rates at zero for years

The Federal Reserve Bank voted to keep short-term interest rates near zero and indicated it would keep them there for years (at least 2024), reported CNBC on Wednesday.

What does this mean?

Basically, this means that rates on loans will remain low to motivate Americans to consume more and, theoretically, reboot the economy. For savers, on the other hand, savings account interest rates will remain at the low figures they are now (or perhaps drift even lower for some online banks currently at 0.8%).

Many analysts and pundits express deep concerns about keeping the interest rates near zero with fears of both inflation and deflation depending on the perspective you pay attention to.

Some analysts believe the low interest rates and influx of printed money will result in rising prices on goods and services – inflation. Other analysts believe that fears over the economy and the Federal Reserve’s lack of confidence will motivate consumers to hoard money and not spend resulting in lower prices on goods and services – deflation.

While the Federal Reserve Bank’s mandate historically has been to target an inflation rate of 2% per year, their policies have been unable to achieve inflation for years. Due to this, the economy will continue to head into unknown teritory with no one truly knowing what will happen next.

Jobless claims less than expected but job growth sluggish

Fire-time unemployment claims totaled 860,000 last week, less than Dow Jones estimates of 875,000, reported CNBC on Thursday.

Continuing claims fell in excess of 900,000, dropping to 12.63 million. Mohamed El-Elrian, noted long-time market bear and chief economic advisor at Allianz, tweeted that the numbers were “at pace below what’s both needed and possible.”

‘Pandemic fatigue’ leads to COVID-19 resurgence

France and Spain are seeing more new cases every day now than they did when the virus originally peaked in the spring, reported CNBC on Friday. In addition, Israel entered a second national lockdown on Friday.

The official start of fall begins Tuesday, and epidemiologists remain concerned that autumn will be worse. “There are some worrying trends that we’re starting to see,” said Dr. Maria Van Kerkhove, head of the World Health Organization’s (WHO) emerging diseases and zoonosis unit. “What is really worrying I think for us is that we’re not only seeing an increase in the case numbers, but we’re seeing an increase in the hospitalizations and ICUs.”

Next Week’s Gameplan

As each week brings us closer and closer to the presidential election, I think we can expect to see increased volatility in the markets. Debates, prediction polls, and more will drive the markets.

Not to mention, the ever-present issues involving the pandemic including COVID resurgence and the failure of Congress to pass more stimulus will add to the confusion.

Hang tight, stick to your Trading Plan and remain disciplined. The rest of 2020 will likely continue to be turbulent.

This Week in Play

Stay tuned for this week’s episodes of my two portfolios Investments in Play and Speculation in Play coming online later this weekend! 

Crytpo Corner

Bitcoin Price Action

Bitcoin surprised the Bears over the past week as it rallied through $11,000 to make a new weekly high of $11,099.95. The weekly low remains $9813.00.

The Bullish Case

Bulls see this new momentum as potentially the start of the next epic rally. If Bitcoin can crack through $11,100, the next points of resistance are the monthly high of $12,486.61 (also 2020’s high) followed by 2019’s high of $13,868.44. From there, Bulls suggest the next target would be the all-time high near $20k.

The Bearish Case

Bears expected Bitcoin to break down when it pulled back slightly on Sunday (September 13, 2020). Instead, the crypto used that new low as a jumping-off point. Bears argue that this bounce is a Dead Cat Bounce off the $9813 low, pointing to the crypto’s inability to break through the Support of Last Resort trendline as evidence further downside is coming.

If $9813 is tested and fails to hold, the monthly low of $8815.01 is the next point of support followed by the Line That Shall Not Be Crossed currently near $7860.

Bitcoin Gameplan

Current Allocation: 1.775% (unchanged from last week)
Current Per-Coin Price: $10,608.48 (unchanged from last week)
Current Status: +2.576%

Bitcoin’s little rally has been interesting and some shifting lower trend lines resulted in me further adjusting my buying targets and quantities a bit this week.

Between my current tiny allocation and small profit, I’m opting to let my position run with the intent to add lower if the rally fails rather than to think about an exit strategy at this time.

Bitcoin Buying Targets

Using Moving Averages and supporting trend-lines as guides, here’s my plan of buying quantities and prices:

0.888% @ $9668
0.888% @ $9257
0.888% @ $8827
1.110% @ $8187
1.110% @ $7705
1.722% @ $6816
2.415% @ $6339
2.876% @ $5927
5.646% @ $5331
8.380% @ $4767

Why the differing quantities at each level instead of a flat percentage?
Rather than buying an equal percentage, I change my buying quantity at each stage as a reflection of how likely Bitcoin could bottom and rebound from that stage. Rather than increasing my quantity on the way down, I’m used a fixed amount of money, so I’m basing how much I buy by how likely I think Bitcoin will drop to a certain level. In this case, I don’t think it’s likely Bitcoin will be able to break its $3128 low, so my quantities under that price point are less to account for the chances it will get to them.

No price target is unrealistic in the cryptocurrency space – Bullish or Bearish.
While traditional stock market investors and traders may think the price targets in the cryptocurrency space are outlandish due to the incredible spread (sometimes a drop of near -90% or a gain of up to +1000% or more), Bitcoin has demonstrated that, more than any speculative asset, its price is capable of doing anything.

Here are just a few recent price movements over the past couple of years:

• Bitcoin rose +2,707% from its January 2017 low of $734.64 to make an all-time high of $19,891.99 in December of the same year.
• Then, Bitcoin crashed nearly -85% from its high to a December 2018 low of $3128.89.
• In the first half of 2019, Bitcoin rallied +343% to $13,868.44.
• From June 2019, Bitcoin dropped -54% to a low of $6430.00 in December 2019.
• From December 2019’s low, Bitcoin rallied +64% to $10,522.51 in February 2020.
  
• In March 2020, Bitcoin dropped -63% to a low of $3858.00, mostly in 24 hours.
• From March 2020, Bitcoin rallied +224% to $12,486.61 in August 2020.
• Where will Bitcoin go from here? Truly, anything is possible…

What if Bitcoin’s headed to zero?
The only reason I speculate in the cryptocurrency space is I truly believe Bitcoin isn’t headed to zero.

I am prepared for that possibility, however, by knowing I could potentially lose all of the capital I’ve allocated to this speculative investment. Professional advisers recommend speculating with no more than 5% of an investor’s overall assets. Personally, I’ve allocated less than 2% of my assets to speculating in crypto.

I feel that anyone who doesn’t fully believe in the long-term viability of cryptocurrency would be better served not speculating in the space.

On a good day, this asset class isn’t suitable for those with weak stomachs. On volatile days, the sector can induce nausea in the most iron-willed speculator. If a speculator isn’t confident in the space, the moves will cause mistakes to be made.

DISCLAIMER: Anyone considering speculating in the crypto sector should only do so with funds they are prepared to lose completely. All interested individuals should consult a professional financial adviser to see if speculation is right for them. No Get Irked contributor is a financial professional of any kind.