A When to When Tale
(Perception and Reality)
I received a phone call in late June of 2019 from Vincent that wanted some advice with respect to the selection of investments in his company retirement plan. We have always provided retirement plan reviews as a complimentary service for our clients and so I took a look. It was a perfectly fine allocation and Vincent was contributing the maximum each year. I saw nothing wrong and recommended that he stay the course and told him so.
Here’s where it gets curious. Vincent was unhappy and I quote, “The stock market is going crazy, it keeps going higher and my portfolio is up less than 2% over the last year and a half.” This is where perception and reality clash and why I call this a When to When Tale. The period that one uses to measure is critical. Measuring from when to when is important because there are an unlimited number of when to when ways to measure.
You see, if you look at where the S&P 500 was in late January of 2018 and compare it to where it is today, it’s up a little less than 5%. In the meantime, if you owned an index fund or ETF that invested in the S&P 500 you went through a temporary 20% loss during the end of 2018 and just recently recovered to the 2018 highs. This is the reality. The perception is that stocks are going crazy and we are in a raging bull market.
Let’s take a deeper look at stocks and see how they are doing in general. There is something called the World Index and one of the best proxies for owning a diversified portfolio of stocks around the world is an ETF with the symbol VT. It has approximately a 60% allocation to US stocks, a 30% allocation to European and Pacific stocks and a 10% allocation to emerging market stocks. How has VT done during the time frame Vincent measured? It’s down a few percent. So, if the S&P 500 is up and VT is down that means that international stocks have been down over the last year and a half. We took a peek at two popular international ETFs with the symbols EFA and EEM and sure enough, they were down 8% and 15% respectively. Things added up.
I next looked at how sub-sectors of the US stock market were doing and not just the largest 500 US companies. What did I find? During the approximately 18-month period, medium sized US companies were down about 1% and small companies were down about 4%. I was starting to wonder how Vincent was even up the 2% he was complaining about. So I took at peek at how an aggregate bond index has performed over the last 18 months and found my answer. Bonds were up about 6% during the time frame he was measuring.
What can we learn from Vincent? Perceptions and reality are quite different. The financial media and select interest groups would like you to think things are different than reality. They have a vested interest in distorting the facts. When I explained the facts to Vincent, he realized that his retirement portfolio was well constructed and that since he was over-weighted towards US stocks, he had actually outperformed a world index. He was much happier.
Let’s look at another “when to when” and focus on perception vs reality. The current political pulse, and I may be wrong about this but I hear it on even liberal leaning networks, tells us that President Trump is good for the US economy and that his campaign for re-election is based on his ability to keep the US economy humming for the next year and a half or so. By President Trumps own words, the US stock market is the best measure of his success. So, as always, I decided to measure. How has the S&P 500 performed under President Trump vs over a similar time frame under his predecessor?
Here’s what I found, by the end of June 2019, President Trump has had 662 trading days under his tenure since the day he was elected. A $10,000 investment in the S&P 500 would have grown to $14,432.21 while under the first 662 days under President Obama it would be less at $13,602.67. 1-0 Trump vs Obama.
But what if we measure from when they both were inaugurated? This is a difference of just 59 trading days vs election day. President Trump has had 613 trading days since January 20, 2017 and a $10,000 investment would have grown to $13,548.45 while in the first 613 days of the President Obama administration it would have grown to $16,572.69. Wow measuring matters. They are tied now at 1-1.
Let’s take a look at how they compare over the last 578 trading days. This is a difference of just 84 trading days. Can 84 days make such a difference? In this case, the results are even more startling. A $10,000 investment under President Trump over the last 578 days would have grown to $12,917.77 but under President Obama it would have almost doubled to $19,892.02. Results are in, 2-1 Obama over Trump.
Is this a fair comparison? Of course not, there are so many extenuating circumstances. But the measurements are correct. It is instructive however, to listen to the news narrative and see how easy it is to make a case one way or another based on the time frame one uses and the point one wants to make or the influence one wants to exert.
The moral of this tale? Don’t let the news, real or fake, distort your reality. Measure.