Writing A Book for You

“There's no trick to being a humorist when you have the whole of government working for you."

-Will Rogers

​​The Portfolio Performance

The portfolio is up 6.21% YTD

Closing the year

I'll be closing the year tomorrow, recording and archiving the 2021 portfolio, and preparing for 2022. Mom said I "MUST" continue this blog, even if it only helps one person. While it is clear that the portfolio will underperform the S&P 500 index, the portfolio did make money, achieving Rule #1 and #2 (see below).

With the average investor underperforming the market by as much as 50%, half of all retail investors lose money, and investors who use a professional adviser expect to accept returns in the 3-4% range (not from me), I think our 6%+ return isn't all that bad.

Since inception in 2016 the Stay Invested portfolio has delivered a +261.80% total return and a +33.77% average annual return.

The macro-environment will send a tremendous amount of information to digest, which will make it difficult for the historically high cash inflows coming to the market to hold steady with "diamond hands." 2022 will deliver more volatility, not less, and more surprises. Investors using a professional adviser would be very wise to be confident that their advisers have solid discipline in their strategy and don't chase sector trades. Please invest with a 5-10 year horizon versus a quarterly or annual return in mind. As I'll point out below, this is critical to your success going forward. If you don't have that confidence, I suggest having a portion of your investable assets with an adviser or a fund that uses an equity-long only strategy.

Investors don't like uncertainty; they sell first and ask questions later. When I express concerns over 2022, here's what's on my mind. Just trying to share what's bouncing around in my head is messy, difficult to connect with investing, and sometimes challenging to connect the dots. Therefore, I expect volatility to increase.

Institutional investors have completed their tax-loss selling, so the primary drag on the stock market is behind us. Inflows are still very high; in fact, inflows are at historical highs. In October, inflows to equities were the highest in seven weeks, and the expectation is that inflows will continue to historic highs. I think January and February could see a lot of money come into stocks, particularly value names and big tech. The everything Santa Claus rally appears to be in effect but not a 'risk off' buying frenzy. I think we could see a 5-10% decline in Q1; I'm averaging all of the bear thesis I'm reading and hearing. Dan Niles at the Santori Fund thinks we could see a 20% decline or more in 2022. 20% isn't a decline; that's a bear market. In that environment, I'd want to own big tech (Facebook, Microsoft, Apple, Amazon) and some value names along with utilities.

Mid-term elections could have market effects. The 2022 United States elections are on Tuesday, November 8, 2022. During this midterm election year, all 435 seats in the House of Representatives and 34 of the 100 seats in the Senate will be contested. Thirty-nine state and territorial gubernatorial and numerous other state and local elections will also be challenged. The Mid-term election will be the first election affected by the redistricting to follow the 2020 census. Historically, inflation is a significant determinant of re-election, so we could see a lot of flipped seats by November. I'm expecting lots of disruptive rhetoric to focus discussions on anything but inflation or anchor the blame on one party.

Investors will give all this rhetoric way too much attention (volatility) because no matter which side you prescribe to follow, the discussion will be wrong. China has a GDP problem as it bashes its biggest technology companies and publicly traded companies. China also has problems globally with the U.S., Taiwan, Hong Kong, and a few other nations where China's military presence, economic pressure, and social justice are escalating tensions. Taiwan Semiconductor is racing to build a massive new foundry in Arizona as tensions with China escalate. OPEC+ is likely to maintain the current policy and increase production slowly to preserve profits amidst very high demand. Supply chain disruptions continue to increase consumer prices and input costs. I don't think this will resolve itself quickly, but I expect to see substantial improvement by the end of 2022. Consumers simply need to back off and stop spending with so much enthusiasm. Last quarter, U.S. consumers had personal balance sheets that were some of the best recorded. Post Christmas, those balance sheets are looking a bit depleted as many households went into debt buying stuff for Christmas. There is no better recipe for flipping politicians' seats in the House and Senate than to have weaker personal finances combined with rising costs and fears of more inflation. The market spent most of 2021 flip-flopping between growth stocks and value stocks as fears of interest rate hikes convinced investors to shift strategies and sell off overvalued growth stocks. Will investors keep selling those stocks that are now mostly oversold? Yes, I think so, but that shouldn't be a reason to leave the growth investment strategy.

I could write a few more pages of concerns, but I think you get the idea, there is a tremendous amount of information to sort through in 2022. All that information creates uncertainty. Uncertainty in an election year just makes everything harder.

"Investing is hard; it's harder if your stupid"

Writing A Book For You

As I type these words, I'm filled with emotions that tell me this is absurd. As a blogger, I write short, condensed thoughts about a complex subject in the most simplistic way I can. A book is a whole other can of worms. Putting the project out here for everyone to read is my way of lighting a fire under my ass to get it done. As you might guess, my book is about investing from a perspective that I've never heard in the financial news and only resides in the most obscure crevices of the world's finest institutions. Maybe the fact that I don't know what I'm getting into is a benefit as I attempt to write a book for the benefit of all investors. I'm sick and tired of watching people lose money, give away too much in fees, and stress over their investments, which is another way of expressing that they don't trust themselves or their adviser. I think that data, delivered in a human, approachable format, can help everyone find peace in investing. Whether you're an individual investor buying index funds, an institutional investor with a multi-billion-dollar fund, a venture capitalist, or a private equity investor, there is something in my thesis question for everyone.

The question I'm seeking to answer is,

"Who has the best investment strategy?"

That question is the underlying premise of every investment book, financial news broadcast, hedge fund specialization, investment adviser, newsletter, and talking head on CNBC and Bloomberg TV. Every purveyor of a strategy will tell you why their approach is the best, but they are all wrong. This book will illustrate why every investment strategy can be the best when combined with some critical skills. In the long run, your strategy isn't important. While the indexes are revered, and even Warren Buffett has proclaimed that nobody can consistently beat the indexes, my preliminary research suggests that any investment strategy can outperform the indexes. Even if your strategy uses simulated monkeys throwing darts at the stock page (this was done), you can produce above-average returns. Time, temperament, and tenacity are the critical skills that separate successful investors from the masses that constantly lose money. Why do the indexes outperform? Because there is no time imposed on an index, no bonuses or investors are asking troubling questions. Time is just an investment horizon; how long are you willing to wait for above-average returns. The index is not subject to human emotion and does not need to do anything except report the data that the index component companies deliver. Duplicating an index requires that you do the same, ignore time, have an even temperament, and tenaciously follow a rigorous discipline. Temperament is tricky because this requires that an investor never infuse an investment with emotion, even when the market declines 20-30 even 50%. If you invest with emotion, please interview advisers. Time and temperament are critical investment skills that anyone can learn to use, but sadly not everyone can master, and mastery is a requirement. Tenacity is simply a discipline that you follow for every investment decision. Combining Time and Temperament with Tenacity is the winning combination of behaviors that must exist to produce anything other than luck. For those that cannot master these skills, I plan to provide some insight on selecting an investment adviser.

"If this book concept sounds like something that you'd read or give as a gift I'd like to hear from you. You can send your questions and start a discussion in the comment section below or through an email. "

Standing Note to My Subscribers

I'm going to leave this note in place until I take action to telegraph what I'm planning to do. I'm looking at selling the (GLD) gold position and the iShares Clean Energy Fund (ICLN) within the portfolio. We have enough cash in the portfolio that I don't need to sell those positions yet, but neither of them is doing what they are supposed to do for the portfolio. The ICLN was intended to provide global exposure to clean energy, whereas the CNRG primarily provides U.S.-based exposure to clean energy. The CNRG is proving to be the better stock to own. The GLD was added long ago as a hedge against all uncertainty. The stock market seems to be changing, where gold is not long considered the safe-haven asset. Bitcoin might be replacing gold, bond market proxy stocks, or high quality/high dividend stocks may be taking over that role. I'm observing those positions and thinking about where that money could be better deployed.

"Markets don't go to zero, Portfolio's do.

Buy quality, be patient...and look twice for motorcycles."

- Clay Baker

Stay Invested,

Clay Baker



Keep Me Honest 2021