Has The New Bull Market Just Begun?

November 2022 Newsletter

In my October Newsletter, I explained that I had implemented Phase 1 of my Bear Market Strategy. I purchased the worse performing Sector ETF, (VOX) right after a 25% drop in the S&P 500 index. Yes, I must admit it did feel a little counterintuitive to buy when everyone was selling. The end of the world was not that far away if you believed market sentiment. In fact, it’s quite surprising how often the end of the world comes around in the financial world. I was even so bold as to state that the best-case scenario for my strategy would be for the market to fall another 20%, triggering 2 more strategy buys. Click here for the full details strategy details.

One Month Later…

Since last month, the market has swung back and surprisingly gained almost 6%. Who saw that coming? Keep in mind it’s early days… not yet time to start counting chickens. Nonetheless, as this is a monthly newsletter, I think it makes sense e to observe the effects of this latest market move on the hobby portfolio and assess how the new strategy is working out.

My hobby portfolio has gained against the index and is now overperforming by about 5.5% – yeah! Looking a little closer, the new VOX ETF certainly helped by gaining 7%, but with such a small position, it does not explain such a big gain. After some analysis, it appears that 90% of the gain was simply natural over-performance by the portfolio itself. It’s too early for the strategy to have had any significant effect yet. Although disappointing from a strategy perspective, the portfolio is still up big time. Luck seems to be on my side and as I have always said, luck plays a huge role in investing.

The Relativity Game

As most of you know, I play a relativity game with the market. If I can beat the market, whether the year ends positively or negatively, I have a winning year. I generally try to beat the market by 1-3% annually. Attempting to beat the market by more than this would mean having to make bigger bets, which would be riskier and may not play out in my favour. I am not smart enough to consistently win big year after year. I also dislike the idea of underperforming for years, just to get that one big year. I would prefer to keep getting base hits one after another. There are times when I do like to swing a little harder – typically when Mr. Market gets a little stupid – and I am quite happy to take advantage of these moments. I never swing too hard just in case my strategy ends up being wrong for some reason… it happens! Never bet the farm on any strategy because Mr. Market will one day wipe you out.

The year is almost over, and if it ended today, it would be a huge win for the portfolio. In addition to being 5.5% ahead of the market, the portfolio has an exchange rate gain of almost 6%. I do not include currency gains in my stock performance because they have nothing to do with stocks, they are mere currency exchange luck. It’s not much different than if Grandma gave me a bag of money for Xmas. Would I add that to my stock performance? No.

Can I Still Win if I Lose Money?

Answer: Absolutely! Despite currently beating the market by 5.5%, my return so far this year is negative. I realize that most people feel bad about having a negative return even if they beat the market, but you need to realize that the game is won over the long run, which is always positive. If you can beat the market by a point or two every year (even in the negative years), it makes a huge difference. This small percentage point can mean a difference of hundreds of thousands of dollars over 20-30 years. What most people don’t realize is that it’s actually easier to outperform the market in down years because everyone loses their mind when the market falls hard. They get emotional and make bad decisions. It’s much easier to find deals on stocks in an environment where people are panic selling.

What About Crypto?

Everyone is talking about the FTX exchange bankruptcy. All Cryptocurrency prices have been hit hard by the demise of FTX, the company with the 5th largest exchange platform in the world. It’s a huge confidence blow to the industry. I won’t get into why that happened as there are plenty of people offering that analysis. It’s a pretty fluid situation and the full ramifications have not yet been understood. Many people think of me as anti-Crypto, which is not entirely true. My Economics background allows me to understand that creating alternative money is extremely complicated. All money is not “real” in my opinion; it’s a human construct and although brilliant, it’s subject to human limitations. That being said, I’m of the opinion that Crypto is speculative. Sure you can buy some, but not more than your risk profile allows… maybe 2-5%. In other words, I am not anti-Crypto. I am pro-understanding your risk. Lots of people have spent too much time trying to convince the market that crypto was the best thing since sliced bread. You have to be wary whenever you see huge amounts of promotion in the financial field, especially in areas with little regulation. Good investing is boring, not exciting – that’s almost a rule.

Is This The End Of Crypto?

It’s likely not the end of Crypto. I think this latest event is survivable, but the world has certainly changed. Confidence is a cornerstone of the concept of money and confidence in Crypto has been damaged. Crypto could end up in the dog house for a few years, no one knows for sure. Thankfully there are a lot of believers who, no matter the data, will stand by the Crypto ship, even if it sinks. It could become a niche market as it once was years ago and survive in obscurity. Could things turn around? Who knows? It’s really hard to say because…it’s speculative!

What no one is talking about is a plausible scenario in which no matter how Crypto plays out, there could be a rotation in asset classes. Meaning that if you hold Crypto but feel less secure about it after what has transpired, you and a million other investors may start diversifying into other assets, including other stocks, for safety. This would put more selling pressure on Crypto and upwards pressure on other assets. The Crypto market is relatively small, but it could still cause ripples. The counterargument is that anyone who missed the first Crypto boat may feel that this is a time to get on board, and that could keep prices stable or possibly start moving them back up. Movies and books are already being planned to tell this story, even before it ends.

Looking Forward

I have to admit I was pretty lucky when I called for better days ahead last month. Are they here to stay? I have no clue in the short run. My view remains that given enough time the bull run will charge ahead. Is this the beginning? It’s too early to say, but it’s nice to see some positivity. That said, it would be in my best interest for the market to fall another 30% in order to trigger the last 2 buys of my strategy. Either way, things are looking good for the portfolio.

Marc’s Monthly Moves

Nada.

Marc’s Portfolio YTD Performance

My portfolio page is LIVE! I will continue to update it monthly. It contains a full list of my positions and the performance information that I’ve included below.

• Portfolio return: -4% (including currency gains)
• Portfolio return: -9.85% (without currency gains)

• S&P 500 return: -15.5%
• TSX: -3.95%

The portfolio overperformed the S&P 500 by 5.65 percentage points.

Happy investing.
M