Why Wall Street is Wrong!
When it comes to investing, a number of people have come to realize that some of the assumptions they believed to be true are not, that blindly accepting industry narratives based on outdated theories has cost them a lot of money, and that many in the media have given up any pretense of objectivity in favor of biased reporting rather than providing accurate information.
In stark contrast, having fact-based knowledge of a few enduring principles can generate wealth that can last a lifetime. For more than two decades, our clients have come to trust us with their most important financial decisions based upon those principles.
Our clients do not want to settle for average. They do not believe in the “one-size fits all” approach. Like us, they have never thought the “rules” made sense. Are we to believe that the markets are always efficient and investors are mostly rational because of a paper written 50 years ago? Should we cling to a hypothesis that was developed before the internet, before e-commerce, before social media, before zero percent interest rates, before quantitative easing, and before trading algorithms?
Moreover, is a diversified portfolio of many stocks better than one with fewer companies that are leaders is in growing markets? Should we blindly accept that as fact because Wall Street says so?
The reality is that there is a wide gap between investment theory and the real world. In all walks of life there are elite performers: surgeons, musicians, chefs, actors and, yes, money managers. One of those elite managers who averaged a 30 percent return for 30-years, with no down years, called diversification “nonsense.”
Charlie Munger, the billionaire Vice-Chairman of Berkshire Hathaway said “The academics have done a terrible disservice to intelligent investors by glorifying the idea of diversification.” He then made an important distinction between what people say and what they do. Munger said “One of the greatest economists in the world is a substantial shareholder in Berkshire and has been for a long time. His text books always taught that the stock market was efficient and nobody could beat it. But his own money went into Berkshire and made him wealthy.”
By incorporating the principle of non-diversification when it comes to investing, the value that good managers can add to a portfolio’s return over time can be seen below.
Past performance is no guarantee of future performance. Please refer to end notes.
For example, a non-diversified fund we have used in a number of accounts generated a return of more than 180 percent between 2015 and the third quarter of 2020. Another non-diversified fund returned 130 percent over the same time period, while a third fund that has approximately 67 percent in equities with the balance in other assets such bonds and cash returned about 74 percent. These compare with the S&P 500 index return of approximately 63 percent over the same time period.
Another principle is understanding market conditions, whether they are favorable, unfavorable, or neutral. The reason is simple: 9 of the last ten bear markets began with the onset of an economic recession, and all nine of those were preceded by an inverted yield curve, including in February 2020.
Investing can be challenging. Unlike Wall Street, we try to simplify it by focusing on two critical factors that determine investment success: market conditions and asset allocation. By focusing on critical and relevant information and eliminating all non-essential noise – opinions, predictions, headlines, or narratives – you won’t get distracted by other people’s agendas.
There is a sign on a wall in a NASA meeting room that says “None of us is as dumb as all of us.” Far too many people simply follow the crowd when it comes to investing thinking “they” must know more. The gravitational pull of Groupthink is very powerful.
Yet consider this: nine of the top ten people who have amassed the greatest wealth in the U.S. did it with concentrated stock positions – companies that were/are the leaders of fast-growing markets within powerful trends. If that is the case, then why do so many on Wall Street and in the investment industry preach a different approach?
If you are not OK with the industry’s version of average products for average people, and prefer principles with a record of success over abstract theories, there are remarkable opportunities. Enduring principles can produce a lifetime of results.
Our goal is to perform for our clients in a way that allows us to help them realize their investment goals. Call us today at 877-282-4609. We are confident that we can help you too.
Disclosure: This is for informational purposes only and is not a recommendation or offer of any particular security or investment product. Advisory services are only provided to investors who become TJT Capital Group clients pursuant to a written agreement, which investors are urged to read and carefully consider before becoming a client. Past performance is no guarantee of future results. Past performance may reflect the performance of assets for a finite period of time, or during a period of extreme market activity. All investments involve risk and may lose money and may not reflect actual future performance. Past performance may also reflect the reinvestment of dividends, and is net of applicable transaction fees, TJT Capital Group LLC’s investment management fee (if deducted directly from the account) and any other related expenses. Account information has been compiled solely by TJT Capital Group, LLC and has not been independently verified, and does not reflect the impact of taxes on non-qualified accounts. In preparing this information, TJT Capital Group, LLC has relied upon data and information provided by the account custodian. The investment objective selected for illustration purposes is the TJT Capital Group Classic Growth Portfolios, a collection of actual client accounts with a Growth objective that are almost entirely invested in equity ETFs or Funds. These accounts were all established between the inception of TJT Capital Group LLC and December 31, 2009. For illustration purposes, these portfolios are compared to the S&P 500 Index, an unmanaged index that you cannot invest directly into. The return provided for the S&P 500 does not reflect fees, expenses or sales charges. The investments shown herein are subject to more risk than those considered appropriate for more conservative investors. TJT Capital Group LLC feels that the comparison in the illustration is appropriate as the TJT Capital Group Classic Growth Portfolios invest almost entirely in equity securities. This illustration is not intended to be a representation of any past recommendations, nor does it suggest that any past recommendations would be profitable. Please contact us at 877-282-4609 for more information and further disclosure.