What to Make of History

Picking up where we left off... What to make of history... It's red apples to green apples... Where to look today... The most bulletproof sector of the economy... Dr. David 'Doc' Eifrig's legacy work...

We're picking up where we left off yesterday...

In yesterday's Digest, I (Corey McLaughlin) shared data gathered by Stansberry NewsWire analyst Kevin Sanford.

These numbers showed the performance of U.S. stocks in various time periods after historically awful years for the 60/40 stock-bond portfolio, which we've seen so far in 2022. In sum, history suggested that this portfolio allocation does well in the year or two after a big decline.

After reading at least some of yesterday's report (as you'll see why), paid-up subscriber Greg G. sent us this note with some excellent comments...

I have learned a lot from Stansberry and you have made and saved me thousands of dollars. I do tend to tune out when you compare today's market trends and data to those of the 1930s depression era and even more recent data from the 1970s. I think today's economy, stock market, mindset of investors and fund managers are so vastly different compared to decades ago, that I think the data is not comparing apples to apples.

Millions of dollars can be transferred in the blink of an eye today. In the 1930s, I believe most people were investing what they could afford from their paycheck leftovers for their future to be financially stable, while today, many people are investing exceptionally large amounts of money from their enormous salaries and company profits. I think fund managers can sway the market easily today because they are handling so much money compared to decades ago.

For the everyday investor, like me, we are at an enormous disadvantage because we do not have the inside data compared to these large financial institutions and money managers to the point that it is almost the equivalent of gambling without research like Stansberry.

First, I want to thank Greg for the note. One of our goals at Stansberry Research is to level the playing field for everyday investors, so I'm glad to hear that we've helped you... Second, you bring up some great ideas, which we think about often.

So rather than wait until the end of today's Digest to reply, we'll respond to your feedback at the start and go from there...

What to make of history...

This is the crux of the question stemming from yesterday's discussion about the 60/40 portfolio, which is down an inflation-adjusted 23.5% in 2022...

As Kevin showed, there have been only five other years in the past 95 in which a 60/40 portfolio had an annualized "real" loss – accounting for inflation – of more than 15%.

The years were 1974 (a 24.1% loss), 1937 (22.8%), 1931 (19.9%), 1946 (18.6%), and 1941 (16.8%). We then showed that the average return for the S&P 500 Index over the 12 months after each of these years, with dividends reinvested, was 15.6%... and the average two-year return was 36.6%.

Rebounds in 1942 and 1943 (50.9%) and 1975 and 1976 (68.6%) were especially strong.

The circumstances of today's investing environment are definitely different from the 1930s, '40s, or '70s. For one example, algorithmic-based trading wasn't around back then. Now, huge amounts of money can change hands in the fraction of a second it takes for an order to be computed.

At the same time, protective measures exist now that weren't around back then either, like the "circuit breakers" in the U.S. stock exchanges designed to prevent flash crashes. (Those started following the October 1987 crash.) Plus, the stimulus and inflation story of the post-Depression era and inflation realities of the 1970s are similar to today.

Yes, the details are different, but here's why history matters to me...

You've probably read in our newsletters once or twice that "history doesn't repeat, but it often rhymes."

I won't speak for every one of our editors or analysts, but I believe if we look at the right history, it can provide useful context. This is especially true for situations that most people think "never happened before"... only because they haven't experienced them for themselves yet.

The vehicles may change – like the tech-stock craze in the late 1990s or tulip-bulb mania in the 1630s. But some things remain constant, like the importance of a business's fundamentals over the long run and human emotions (like fear or greed).

It's not exactly apples to apples...

To use Greg's analogy, historical comparisons aren't apples to apples – agreed – but more like green apples to red apples, or apples to pears. They look different, but they share a lot of characteristics.

Manias are manias. Recessions are recessions (no matter what anyone tries to call them). And the 60/40 stock-bond portfolio has had some pretty terrible years before, though not exactly like this one, and rebounded afterward.

Various cycles or patterns, whatever they may be – like interest-rate cycles or bull and bear markets – have repeated enough times that I don't want to ignore them completely. Historical precedents can help us make money and then protect it.

Some folks may go far as to create entire trading strategies around long-term or recent history. Done the right way, that can work... Still, history isn't an indisputable indicator of the future.

Circumstances can change. Looking at history is only part of the investing puzzle. Whatever happened in the past might help or give us a sense of comfort that "this isn't the first time," but we still need to find the right investments for today.

We can be aware of history but still can – and should – use new tools, research, expertise, trusted methods, and resources. Don't blindly follow history into the future, but respect it as potentially useful information as you pursue making investment decisions that align with your goals for your money.

A practical takeaway...

OK, enough with the philosophical discussion. You probably want to know what any of this means for your portfolio. And the practical takeaway of this discussion is the same as what we wrote yesterday...

We're not suggesting going "all in" on the 60/40 portfolio and calling it a day.

First of all, depending on the path of inflation, bonds might face stiffer headwinds than Wall Street firms might be expecting or portraying as likely... in the form of high inflation, just not 40-year-high inflation.

And as we've been saying lately, certain sectors have been outperforming the broader markets in the past several months. It's perhaps a sneak peek that the leaders of the next bull run might not match the leaders of the past decade.

In other words, even when conditions are favorable for a conventional 60/40 portfolio, it's possible to build a portfolio that performs better still – if you know where to look.

As I've mentioned this week, one of those places is a sector that Stansberry Research partner Dr. David "Doc" Eifrig is particularly excited about today... In fact, he says it's the No. 1 way to save your portfolio before 2023.

You can't live without this...

Doc has worked in the financial world in one way or another for four decades, including as a former trader at Goldman Sachs and with Stansberry Research since nearly the beginning of the company. He has seen cycles come and go and come back and go again.

He believes the current economic downturn will pass – which fits with our discussion today about history pointing toward this outcome. But he also says today's market conditions present an opportunity for folks to get into a much better position when things do turn around...

In the coming years, Doc says you could see the same kind of gains in this sector as the best stocks of the Internet revolution. But they'd come from an entirely different yet wide-reaching industry that millions of Americans cannot live without.

The situation he is describing will still be with us 10... 20... 50... and probably 100 years from now, but rarely has there been a better time to act on Doc's vision than right now.

Without giving too much away, Doc says...

What it does involve is a massive story that almost no one understands... Unfolding in the biggest, most important, and most bulletproof sector of our economy.

In a presentation earlier this year, Doc explained how what he's talking about is a sector that famously beats inflation... and why millions of Americans will pretty much have no choice but to patronize a particular set of businesses in the decade ahead.

For a limited time only, Doc is re-sharing his important message...

He calls this his legacy work, and he wants to make sure everyone hears it before the best time to act and the biggest gains have already passed by.

Based on his experience, he says he can all but guarantee that the ideas he's talking about will be obvious to everyone in five years.

And the time to learn the details is right now. That's why he reopened the opportunity to access his ideas, so subscribers have the opportunity to take advantage of this trend now and position their wealth and health for a better future.

As Doc says in the presentation...

This research will be my legacy. I'm certain it could produce the biggest gains, by far, of my career. I don't think anything in the markets has one-tenth as much potential over the coming decade.

Without hyperbole, Doc believes this is the presentation he has been waiting his entire life to make. If you're willing to listen, he says it can transform your entire life in ways that go way, way beyond money – though it could massively change that part, too.

Click here to hear Doc's message with all the details.

Global Headlines Disrupt the Markets

Oil prices hit a fresh yearly low this week... The Chinese stock market fell on COVID-19-related shutdown news... And the Indian stock market hit its highest level ever. Matt McCall breaks down what to make of it all...

Click here to watch this episode of Making Money With Matt McCall right now. And to catch all of Matt's shows and more videos and podcasts from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.

New 52-week highs (as of 11/29/22): SPDR Bloomberg 1-3 Month T-Bill Fund (BIL) and RenaissanceRe (RNR).

We covered our biggest feedback of the day above, but we do have one more note to share about the Federal Reserve... Do you have a comment, question, or topic you want us to explore? As always, e-mail us at feedback@stansberryresearch.com.

"The Fed is 'pissing in the wind' with their rate increases. The only cure for high prices, inflation, is high prices. The inverse is also true. The biggest folly of mankind is thinking 'they can fix anything.'" – Paid-up subscriber Jim L.

All the best,

Corey McLaughlin
Baltimore, Maryland
November 30, 2022