I’ve published something like 15,000 blog posts and articles over the last 12 years. These three did more for my readers (and myself) from an investing standpoint than all of the rest. When I think back on everything I’ve ever said, these are the big ideas that were probably the most useful for anyone who came across them…
This was probably the first time anyone explicitly tied the secular change in wealth management business models from transactional to advisory with the way the market had begun to behave. It prophesied a continuing environment in which index funds, smart beta strategies and ETFs would calmly allocate to dips and shorten the length, depth and severity of every correction as advisors prioritized asset allocation and rebalancing over trading for commissions. This phenomenon has remained in force for the ensuing seven years and has now become a widely accepted backdrop to the secular bull market that had begun in the spring of 2013. This behavioral change in the stock market continues still, dampening volatility and quickening the pace of bear market recoveries.
Accurately foresaw the onslaught in investor demand for technology stocks and innovation investments of all kinds, at the expense of every consideration – from valuation to concentration. “Owning the robots” built on the premise of people being so terrified about their future employment and place in the digital future, that they’d begun seeing technology stocks as a way to hedge against their own obsolescence. The Nasdaq 100 ETF (QQQ) is up 115% since this post while the S&P 500 Technology Sector ETF (XLK) is up 120%. Technology has since become something like forty percent of the US stock market by capitalization.
My diagnosis for why value stocks have now been underperforming growth stocks on every important time frame you could measure – one year, three years, five years, ten years, twenty years, thirty years, etc. The eventual victory of growth over value has nothing to do with investor preference and everything to do with how our economy has evolved into a digital, asset-lite, on-demand, brand- and intellectual property-based one from an industrial economy rooted in heavy machinery and hard assets. Valuing today’s market leaders on metrics used a hundred years ago – such as price to book value – misses all of the important reasons for why stocks go up and modern companies become more valuable. This would prove to be especially prescient as the pandemic environment took all of my conjecture and rendered it into a clear and plain reality for all to see.
I’m still writing all the time. Most of what I write from one day to the next isn’t meant to be particularly profound or poignant. But every once in awhile, the cumulative effect of all the reading, researching and writing I do results in something that really is a meaningful insight. It’s impossible to know when these mini epiphanies are going to hit, so I keep going and try to use this process to sort out what I really believe and what I should try to learn more about. I’m glad to have you with me on this expedition. Let’s try to learn even more together in 2021.