Tudor October 2021 Commentary
Research-Based Investing and Guidance Since 1992
High Level Financial Care for Clients in Over 30 States

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This is What Utopia Looks Like

When 2021 began, a scan of the financial world after a big up year in 2020 provided signs that things were looking a little dicey for financial markets. These signs included historical triggers for bear market declines. Excessive speculation in high risk securities and crypto "currencies". New stock offerings issued to hungry investors. Excessive optimism all around. Yet two more quarters of market gains largely due to stimulus talks, more government infusions. While some of this speculation has tapered off, most recently in the Wall Street Journal the cover story was titled The Social Media Stars Who Move Markets. The related article profiled a number of “investing influencers”. This group of twenty-somethings with little-to-no investment experience have managed to attract massive audiences and earn millions by doling out investment advice on TikTock, Twitter, and YouTube. The unifying mantra among all of them? Be bullish. Always. It is all they’ve known.

A Smooth Journey Since Early 2020

Utopia in markets is all investors have known since February/March 2020 when the investment world was reeling from a 35% COVID market decline that lasted a mere few weeks. Nothing but a smooth trajectory since. A mini 5% pullback in October(1) was the first monthly decline since early last year.

In this environment, there is a generational divide among investors - with younger investors jumping onto robinhood trading and other platforms where they quickly cycle through meme storied stocks. In that world, of course, there is no logic to the up and down daily movements, just lightning fast shifts in supply and demand. An investment form of whack-a-mole.

And then there are the traditional, battle-scarred investors who have seen this all before (remember the late 1990's/early 2000's and the 2007 - 2009 Great Recession?) holding onto their slow, but steady and exceedingly boring securities. Securities that look stodgy and antiquated and out of touch relative to the fast-moving segments of the investment universe.

Enjoy the Glow but Keep One Eye...

Utopia can continue indefinitely, of course, but they won't ring a bell when markets begin moving away from utopia. And it takes about 90 days(3) of market declines before you can tell the difference between a garden variety correction and a more significant soon-to-be bear market. It is also important to keep in mind that gauging market direction in short timeframes is a money-losing pursuit.

Finally, while investors bask in a glow of utopia, we have communicated often in the latter half of this year regarding high market valuations and the challenge of finding undervalued securities. And true to form, markets have stalled, with the S&P 500 flat in the third quarter and the Dow negative(1). So, as we move into the final quarter of the year, markets are not much higher than they were in June.
Valuations matter over time and interest rates matter even more. You gotta watch both.

In this sunshine and utopia, we will soldier on while carefully watching over the steadily growing assets of valued clients across the U.S.
14
If History Repeats, the Number of Bear Markets Investors Can Expect Over
a 50 Year Investment Horizon(4)
2033
The year social security trustees estimate that the trust fund backing the payment of social security benefits will be depleted. This does not mean that social security payments will go to zero (workers continue to pay into the system from wages even if the "savings account" is emptied). It does mean that benefits will decline to 76% of their promised levels through the year 2095. (Source: Social Security Administration)

Social Security Stats

54 Million Americans Receive Monthly Social Security Retirement Benefits

42 Million Americans Receive Food Stamp Benefits

The Average Monthly Social Security Retirement Benefit: $1,503/Month

(Source: Social Security Administration, BTN Research )
Time is Your Best Friend

In the investment realm, never underestimate the value of time - a factor that often dwarfs the equally important benefits of annual compounding investment returns.

Compounding returns is very important to long-term financial outcomes. Buffett's sidekick, Charlie Munger, says: “the first rule of compounding is to never interrupt it unnecessarily.” There are many investors, mostly younger, that push the envelope to get the highest returns in every period to accelerate the compounding process. But this singular focus ignores the most powerful element of the formula: time.

Time is why Warren Buffett generated 97% of his wealth after the age of 65.(5) (He's age 91 now). Time is also why the investor that hesitates to invest is nearly always worse off.

So looking at this element of time...

Investor one starts with $10,000 and generates a 10% higher return than the market (11% annual compounding) for 25 years and ends up with $136,000, 13 times the original investment.

Alternatively, investor two takes the same $10,000, starts 15 years earlier, earns 20% less than market returns (8% annual more conservative compounding) but ends up with $217,000, which is 60% more than investor one and 20 times the original investment.

The secret sauce to extraordinary financial outcomes is time.

Clients that began with us several decades ago, and were urged to save vigorously, now see the benefits of leveraging the benefits of time with compounded returns. Many enjoying a financially successful, worry-free retirement.
"The challenges of economics is that it is too easy to explain, after a particular event has happened, why it should have happened, and too easy to explain, before it happens, why it should not happen. – M.G. Kendall
Dow Industrial Index

March 23, 2020 - 18,214 (2020 low)

October 14, 2021 - 35,294 (1)

93% Gain
Enjoy the week...
Grant S. Donaldson, MS, CPA
(1) yahoofinance.com, S&P500 historical data, Barrons, Morningstar.com, Vanguard benchmark returns
(2) Information available upon request
(3) How to tell a bear market from a bull market blip, Ken Fisher
(4) Ned Davis Research
(5) Last Man Standing, Morgan Housel
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