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  • Writer's pictureRobert Dunn, CFP®

Predictions or Perseverance: Comparing Methodologies in a Volatile Market

As humans, most will have at least a little concern with what is taking place in the world today. With a war in Ukraine, supply constraints, and high inflation around the globe; most investors are looking for answers. As a Wealth Manger at Novi, part of the responsibility is to provide investment guidance to our clients for their financial well-being. We gladly put this burden on our shoulders to ensure successful outcomes. So, during these times, no stone goes unturned. It does not mean we stray from our principles, but it would not be prudent for us to just stick our heads in the sand either.

While peaking under these stones, I went to sources that I trust and sources that provide a perspective that most of the public hears. One has a very intriguing pitch, while the other is boring and repetitive, but does not feed the panic. Below is a comparison of the two different approaches. The explanation is intended to shed some light on the differences in perspective and objective.

There is no objective to call out any particular companies so their respective names have been changed to “Crystal Ball” and “Dinosaur”. It feels appropriate to start with a portion of some marketing material that can be found on each of their websites.

  • Crystal Ball’s proprietary methodology engine blends forensic and fundamental equity, ETF, and mutual fund research approaches to deliver actionable research for improved investment and business decision-making.

  • Dinosaur’s investing is about providing a successful investment experience. That means more than just returns. It means offering peace of mind because investors know that a transparent approach backed by decades of research is powering every decision. Markets go up and they go down. The goal of Dinosaur’s Investing is to help people be prepared, so they can stick with their plan.

Now by the names and how I have changed them along with the message they deliver, you may believe that I have an affinity for the first. Before you arrive at your conclusion, I would like to share some facts regarding Crystal Ball’s performance. Crystal Ball provides research and guidance to active institutional and professional investors. They offer portfolios that compete with investing in the US Stock Market. During my research today, I found their return numbers for two of their investment ideas. The returns were not that bad over the past 10 years, 12.24% annualized for their total return domestic strategy. The only issue, the equal-weighted S&P 500 return during the same time period was 12.9% annualized. The latter is very easy to invest in and likely has lower expenses and tax consequences. (I will skip the deep dive into taxes, but they play a huge role in net after-tax return. We believe taxes play a very important role in client outcomes.)

But the really scary part was what I came across next. They have a strategy that is to pick the 10 best stocks that are well-positioned for high total return over the next 12 months. They are their highest conviction assets. Through April 30, 2022, the 10 year annualized return was 9.39%. This is significantly lower than the 12.9% just offered by an index fund.

Why am I going through all this? Most of us are searching for answers. The answers do not present by leveraging the "proprietary methodology engine blending forensic and fundamentals". The better strategy is offered to those that can abide by a few principles; markets work, global diversification, minimizing expenses, and most important and trying to address today, good behavior. Simply investing in the equally weighted S&P 500 would have provided better returns, with likely lower taxes and expenses.

To provide some additional perspective, please take the opportunity to read a piece written by a person our firm respects and trust to provide sound guidance. The article is written by David Booth from Dimensional Fund Advisors. I hope this contrast can help you make some sound decisions about your investment plan. In addition, the article may help you understand why we are not panicking at this time. Is it difficult, yes, but if you have a financial plan, cash flow plan, and an investment plan in place, you will be able to make it through another volatile market environment. And, as always, if you are still nervous or know someone who could you a professional opinion, we encourage you to contact us.


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