Charlie Bilello, an American wealth manager and advisor puts out a very useful weekly blog – The Week in Charts. In this year end piece, he gives us 7 timeless lessons to follow from a personal finance and investing perspective. We share two of them here:
First, the futility of predictions basis how woefully wrong all expert investment strategists were in their price targets for the S&P 500 for 2024 at the beginning of the year:
“At 6,090, the S&P 500 is now 690 points above above the highest 2024 year-end price target from Wall Street strategists and 25% above the average target (4,861).
The most bearish target came from JPMorgan, the biggest bank in the world with access to some of the smartest minds and more data and information than anyone else.
What did they foresee? Lackluster earnings growth (2-3%), rising geopolitical risks, softening economic demand, and a price target of 4,200 with a “downside bias.”
And what actually transpired?
Earnings growth of 10%, stronger-than-expected economic growth, and a significant boost in investor optimism (17% multiple expansion).
At the start of the year, who could have foreseen this combination of events?
No one, which is precisely why you shouldn’t invest based on predictions.”
Second, the importance of diversification and why it is simple to understand as a concept but not easy to implement:
“The concept is simple: don’t put all your eggs in one basket.
By combining assets with different fundamental drivers you can achieve lower volatility, better risk-adjusted returns, and increase your odds of sticking with a portfolio over time.
So what could be difficult about that?
If you have a diversified portfolio, you’re always going to own something that’s underperforming and you’ll never be concentrated in the top performing asset class of the moment.
While the best and worst are frequently changing, outperformance trends can persist for years on end. Over the past decade plus we’ve seen the longest period of outperformance from US Large Cap Growth stocks in history. The temptation: keep these stocks and dump everything else in your portfolio.
Is that a good idea?
Only if you have a crystal ball that reveals who the winners of the future will be. There’s a cycle to everything and nothing outperforms forever. Just ask any investor who lived through 2000 to 2009…”
Don’t miss the last lesson about why time is more important than money:
“How is it December already? Where did the year go?
The most important lesson for investors each and every year has nothing to do with investing. It has everything to do with time and how you spend it.
As Naval once said: “Money doesn’t buy happiness – it buys freedom.”
The main benefit of building wealth is that it gives you the freedom to spend your time in ways that bring the most meaning to your life. Many who have that freedom don’t use it and fewer still use it wisely.”
If you want to read our other published material, please visit https://marcellus.in/blog/
Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
