Week in Review (3/23)
by Zach Marsh on Mar 26, 2018
This morning, as I was considering what to write for my weekly note, I was marveling at how ill-timed a few of my guesses about market direction have been. At the same time I was thinking how valuable it is to employ a strategy independent upon forecasting, and rather built upon a systematic process.
It runs counter to human nature to announce: we don't know. If you'll ask for my opinion or belief, well, I'll be sure to give it to you, even as I would say to myself I have no idea. Predictions are there to stroke our ego, systems are there to protect us from ourselves. It's also in our DNA to want to help people in need, especially those closest to us. One of my biggest problems with parenting is my need to try and solve problems rather than provide comfort. I'm a manager not a nurturer. The funny thing is, I actually believe I can solve my kids' problems. Yet time and again the extent of my powerlessness over my kids' problems is hammered home. Managing money is similar. We put in place a systematic portfolio, well constructed, exhibiting strong performance throughout 80+ years of back-testing, covering nearly all types of market events, and yet urges arise to tinker. We see events occurring and we think we know how they'll play out, but in the end we don't know. That is why we believe in maintaining a course of action, but constructing your portfolio in the best manner possible to handle all types of environments. Trying too hard to predict and react as events begin to unfold can be problematic. I've heard it referred to as iatrogenics: harm caused by caregivers. You can also call it the Lennie Small syndrome, from Of Mice and Men, he just loved those bunnies so much that he couldn't help himself from smothering them. An investment manager can want to do right by his/her clients, but by trying to over-manage, they can end up doing more harm. It is the "care" for their clients which ends up being the biggest detriment to performance. Therefore, I offer you this vow: I promise never to care too much for you. That way you'll be much better off.
It was another down week for stocks, on what appears to be concerns over the expanding trade tariffs on Chinese goods. One helpful item for diversification was that bonds and gold were up this week. Back in February, when the market was selling off bonds and gold were little help. Where the S&P 500 closed today would constitute a successful retest of the closing lows set on Feb 8th. We'll see if these levels hold. The S&P also closed on its 200 day Moving Average which is support for many momentum following strategies. Breaking or holding this level is psychologically pivotal for the market. The market hasn't been below its 200 day Moving Average since the day after the Brexit vote in June 2016.
S&P 500 -5.96%
10 Year US Treasury Bonds +0.35%
Cboe Volatility Index: +60.38%
Thanks, as always, for your support
Zach and David