I hate it when my stocks go down. I would prefer each one to advance upward every day. Wouldn’t that be nice? Sadly, stock prices fluctuate. When stock prices go down, I am reminded that there is a price and a value to every stock. The value is what the stock is worth and the price is what investors are willing to pay for each share. Bernard Baruch was paraphrased by Art Cashin who said, “The stock market is a perception market. When it believes that two plus two equals five it will pay four and three quarters all day long”.

My corollary is this: “When people change their mind and believe that two plus two equals three and one quarter, what they paid 4 ¾ for they will sell for 3 ¼ all day long.” I just want to buy stocks at 3 ¼ and sell at 4 ¾.

I am what they call a strategic or fundamental investor. I check the financials, products, and history and estimate what the value of each share of stock is worth today and what I estimate it will be worth in one or two or ten years. If that analysis is attractive, then I check the price to see what other people are paying. If the price is less than what I project the future value will be, and the growth of the future value meets my criteria, then the stock is a candidate for client portfolios. 

The idea is to hold for the longer-term to realize the value of the stock.

There are any number of money managers who claim they can tell just by watching the stock price whether a stock is going to go up or down. Theses managers are the momentum or tactical investors. Some trade daily, some less frequently. They claim to see “signals” that tell them when to buy and when to sell.

Their story is so appealing. We all know the way to make money in the stock market is to buy low and sell high. So why not use those signals and sell at the top and buy at the bottom? It is such an enticing story.

I have just one problem with it: DOES TRADING WORK? IS IT JUST A STORY?

In football, at the end of the game you can look at the score and see who won. So why shouldn’t it work the same way for money managers? Why do many who have a great story not share how their clients are doing? If traders and algorithms were really beating the market why wouldn’t they post their client returns?

At Adams Financial Concepts we do post our track record. Our custodian is Interactive Brokers. We have hired Morningstar, an independent third party most people know, to  collect daily additions, withdrawals, trades, fees, expenses and costs for each and every account. At the end of the quarter, Morningstar compiles that information and produces a quarterly performance report for each and every client.

The performance we post are net of all fees, costs, and expenses. For all clients who have had an account open for more than one quarter, those performances are compiled into a composite. That composite is what we report every quarter as our track record.

It includes clients that have been with Adams Financial Concepts from day one to those clients who have been with us for just over one quarter. It includes clients who started when the stocks were down and clients who started when the stocks were at new highs. It includes clients who have terminated their accounts.

In other words, the composite includes every client account. Every account at AFC is custom built to client objectives and risk tolerances. The composite includes accounts that are conservative, moderate and a few aggressive.

I am a numbers guy. I like to hear the stories, but what I really want to know is this: SHOW ME THE PROOF! Don’t show me a model. Don’t show me hypothetical. Don’t show me one year or two years. I want proof that your strategy works through up and down cycles. I want proof through bull and bear markets.

Every year Standard and Poor’s produces a report on the performance of mutual funds. The report for the year 2020 showed that of the top 25% of US domestic equity funds in 2019, 48% remained in the top quartile in 2020. Of the top 25% of domestic equity funds in 2017, 38% remained in the top quartile. But of the top funds from 2015, only 1.5% remained in the top quartile by the end of 2020.[1]

Just 1.5% of all US domestic funds remained in the top quarter of mutual funds after five years. Many did for three years. Then the drop came. It was not just the pandemic and 2020. The 2018 report also showed a big drop off by the fourth year.[2]

These reports discuss the top quartiles. They are not reporting how well the funds did compared to the S&P 500TR. The statistics there are worse.

So I come back to the same issue: SHOW ME THE PROOF! SHOW ME HOW CLIENTS ARE DOING. I don’t care about the model. I don’t care about the hypothetical. I don’t care about one or two or ten stocks that were recommended that did well. Show me how your clients did!  Isn’t that what you should be asking?

The NFL does not pick the teams for the Super Bowl by which team has the best story. Before each game the coaches and the sports columnists discuss the story. Lots of teams have great stories. But it is not the pre-game story that counts. The NFL picks the Super Bowl teams by looking at the scores. The NFL doesn’t just look at one brilliant game. The NFL looks at an entire season.

The same should apply to investing. Investors may listen to the stories but to gain the most, investors need to look at the “score” and not just one year, but over the longer term.

Here is our score. If you are not a client now you should plan to become one. Now is a great time to get in while our stocks are down.


Disclaimers:

  1. Past performance is no guarantee of future performance
  2. AFC uses the S&P 500 with dividends reinvested as the comparable index for all accounts.
  3. AFC Managed Accounts returns include all active accounts as well as all closed accounts with the same objective: to beat the S&P 500 over the longer-term (10 years).
  4. Adams Financial Concepts (AFC) Managed Accounts results are net of all fees and expenses. The results are net, net, net.
  5. AFC Managed Accounts do not include the results of the Incentive Profit Sharing Accounts.
  6. The performance presented is that of actual client accounts and includes all equity Growth Accounts with one quarter or more. These are not hypothetical, models or back tested.
  7. Portfolios are concentrated in as few as 8 equities. Since William Sharpe received the Nobel Prize for showing there is no significant difference in volatility risk for portfolios of 8-9 stocks as compared to 300 stocks. In other words, AFC subscribes to the Mark Twain philosophy of putting all our eggs in one basket and watching the basket.
  8. AFC Managed Accounts include capital gains and losses, both realized and unrealized, but do not include the impact of taxes on capital gains.
  9. “I’m always fully invested. It’s a great feeling to be caught with your pants up” – Peter Lynch AFC accounts are always fully invested.
  10. AFC accepts that there will be times when there will be periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare us out of the market.
  11. Eugene Fama shared the Nobel Prize in 2013 based on showing fewer than seven percent of professional money managers do as well as their index and fewer still beat the index.  “Luck versus Skill in the Cross-Section of Mutual fund Returns”, Eugene Fama and Kenneth French, The Journal of Finance, October 2010

[1] 2020 SPIVA Report: U.S. Persistence Scorecard. S&P Dow Jones Indices, Belinda Liu and Gaurav Sinha

[2] 2018 SPIVA Report: US Scorecard, S&P Dow Jones Indices, Aye Soe and Ryan Poinier.

AFC’S REAL RETURNS

Past performance continues to be no guarantee of future results.
Once more, past performance is no guarantee of future results.

Disclaimers:

  1. Past performance is no guarantee of future performance
  2. AFC uses the S&P 500 with dividends reinvested as the comparable index for all accounts.
  3. AFC Managed Accounts returns include all active accounts as well as all closed accounts with the same objective: to beat the S&P 500 over the longer-term (10 years).
  4. Adams Financial Concepts (AFC) Managed Accounts results are net of all fees and expenses. The results are net, net, net.
  5. AFC Managed Accounts do not include the results of the Incentive Profit Sharing Accounts.
  6. The performance presented is that of actual client accounts and includes all equity Growth Accounts with one quarter or more. These are not hypothetical, models or back tested.
  7. Portfolios are concentrated in as few as 8 equities. Since William Sharpe received the Nobel Prize for showing there is no significant difference in volatility risk for portfolios of 8-9 stocks as compared to 300 stocks. In other words, AFC subscribes to the Mark Twain philosophy of putting all our eggs in one basket and watching the basket.
  8. AFC Managed Accounts include capital gains and losses, both realized and unrealized, but do not include the impact of taxes on capital gains.
  9. “I’m always fully invested. It’s a great feeling to be caught with your pants up” – Peter Lynch AFC accounts are always fully invested.
  10. AFC accepts that there will be times when there will be periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare us out of the market.
  11. Eugene Fama shared the Nobel Prize in 2013 based on showing fewer than seven percent of professional money managers do as well as their index and fewer still beat the index.  “Luck versus Skill in the Cross-Section of Mutual fund Returns”, Eugene Fama and Kenneth French, The Journal of Finance, October 2010

[1] 2020 SPIVA Report: U.S. Persistence Scorecard. S&P Dow Jones Indices, Belinda Liu and Gaurav Sinha

[2] 2018 SPIVA Report: US Scorecard, S&P Dow Jones Indices, Aye Soe and Ryan Poinier.