Our Vision
MARKET CYCLES
Markets seem to behave in a cyclical fashion
Daily and Short-term “ups & downs”
Longer Cycles (e.g., 7-year Bull market then 2-year Bear market)
Generational Cycles (Current generation repeating previous generation’s missteps)
Appearance of Cycles does not imply markets are predictable
But random investing is not a sound strategy
Falling Inflation/Rising Inflation
Interest Rate rise/Interest Rate cut
Fiscal Stimulus/Deficit Spending
Change in Consumer
Sentiment/Confidence
Economic or Fiscal
Response to a Societal Crisis
Market Cycles can flow from any combination of the following
GOVERNMENT ADJUSTMENTS AND CONSEQUENCES
In a crisis, Government acts to adjust markets and calm investors
Recent government adjustments include:
Fiscal Stimulus
Deficit Spending
Interest Rate Cuts
Reviewing historical market activity reveals consequences of government adjustments
Our analogy between “artificial interest rate reductions as fiscal stimulus” and holding a volleyball underwater
Holding a volleyball under water is unnatural and requires force. Similarly, we believe holding interest rates below the inflation rate is unnatural and requires force.
Eventually, inflation regains buoyancy just like the volleyball.
Consequence: Fed Reserve loses control of interest rates.
GOVERNMENT ADJUSTMENTS AND CONSEQUENCES
Government adjustments can only temporarily contain the organic movement of a free market.
Government adjustments stimulate a market cycle
The pursuit of “GROWTH” assets has been a popular strategy due to suppressed interest rates
Some Advisors recommend “full GROWTH” as a cradle-to-grave investment strategy
But Advisor reliance on a GROWTH market cycle implies a belief that markets are predictable
Actually, market cycles reveal the need for flexible investment strategies
HABIT IS NOT AN INVESTMENT STRATEGY
When Advisors act habitually
They promote the GROWTH investment strategy despite economic or fiscal events
They promote “buy-the-dip” despite current rising interest rates and high P/E ratios
What happens to investors when advisors act habitually without considering an alternative?
HISTORICAL STUDIES
Our historical studies were initiated by the appearance of market cycles
We cross referenced P/E ratios, consumer sentiment, and Federal reserve policy
We devised algorithms from the data to allocate our GROWTH & VALUE models
We believe that GROWTH will prove best for the sprint and VALUE will prove best for the marathon
GROWTH FOR THE SPRINT VALUE FOR THE MARATHON
VALUE IS TODAY’S ALTERNATIVE
Today, we believe VALUE is best used as a foil to high-priced markets within a high inflation context
Our models do not deny the importance of GROWTH
Our objective is to outperform GROWTH by using a balanced blend of equities which lean toward VALUE when there are extreme P/E ratios and high consumer confidence after a period of dramatic fiscal stimulus, followed by dramatic inflation driven interest rate increases.
WE BELIEVE THERE ARE SIMILARITIES BETWEEN BOTH ENDS OF THIS CHART WHICH ARE NOT COINCIDENTAL
QQQ (GROWTH ETF) AND TRBCX (GROWTH ETF) VS OAKMX (LARGE CAP VALUE ETF)
Source: Yahoo Finance. Data as of 10/27/2022 and for the period 3/1/1999 through 6/1/2006. This chart is for illustrative purposes only. All investments involve risk, including the loss of principal. Past performance is no guarantee of future results. Please note that references to specific securities within this piece should not be considered an offer or recommendation to purchase or sell that specific investment. It is important to note that investments in securities involve risk and will not always be profitable. ETFs, like all investments, carry certain risks that may adversely affect their net asset value, market price, and/or performance. An ETF’s net asset value will fluctuate in response to market activity. Because ETFs are traded throughout the day and the price is determined by market forces, the market price you pay for an ETF may be more or less than the net asset value. ETFs are not actively managed; therefore, their value may be affected by a general decline in the U.S. market segments related to their underlying indexes.
THE 2000 INVERSION “PIVOT POINT”
IS THE RUN UP IN “GROWTH” WHICH LATER PROVED TO BE SHORT LIVED, FUELED BY WITHDRAWLS FROM “VALUE”
3/1/1999 – 6/1/2006 QQQ (GROWTH ETF) AND TRBCX (GROWTH ETF) VS OAKMX (LARGE CAP VALUE ETF)
Source: Yahoo Finance. Data as of 10/27/2022 and for the period 3/1/1999 through 6/1/2006. This chart is for illustrative purposes only. All investments involve risk, including the loss of principal. Past performance is no guarantee of future results. Please note that references to specific securities within this piece should not be considered an offer or recommendation to purchase or sell that specific investment. It is important to note that investments in securities involve risk and will not always be profitable. ETFs, like all investments, carry certain risks that may adversely affect their net asset value, market price, and/or performance. An ETF’s net asset value will fluctuate in response to market activity. Because ETFs are traded throughout the day and the price is determined by market forces, the market price you pay for an ETF may be more or less than the net asset value. ETFs are not actively managed; therefore, their value may be affected by a general decline in the U.S. market segments related to their underlying indexes.
TODAY’S INVERSION?
IS THE RUN UP IN “GROWTH” WHICH LATER PROVED TO BE SHORT LIVED, FUELED BY WITHDRAWLS FROM “VALUE”
2/1/2004 – 1/20/2022 QQQ (GROWTH ETF) AND TRBCX (GROWTH ETF) VS OAKMX (LARGE CAP VALUE ETF)
Source: Yahoo Finance. Data as of 10/27/2022 and for the period 2/1/2004 through 1/20/2022. This chart is for illustrative purposes only. All investments involve risk, including the loss of principal. Past performance is no guarantee of future results. Please note that references to specific securities within this piece should not be considered an offer or recommendation to purchase or sell that specific investment. It is important to note that investments in securities involve risk and will not always be profitable. ETFs, like all investments, carry certain risks that may adversely affect their net asset value, market price, and/or performance. An ETF’s net asset value will fluctuate in response to market activity. Because ETFs are traded throughout the day and the price is determined by market forces, the market price you pay for an ETF may be more or less than the net asset value. ETFs are not actively managed; therefore, their value may be affected by a general decline in the U.S. market segments related to their underlying indexes.
TODAY’S “PIVOT POINT”?
DOES THE BUBBLE POP IN GROWTH SPILL BACK TO VALUE TEMPORARILY?
10/1/2021 – 10/20/2022 QQQ (GROWTH ETF) AND TRBCX (GROWTH ETF) VS. OAKMX (LARGE CAP VALUE ETF)
Source: Yahoo Finance. Data as of 10/27/2022 and for the period 10/1/2021 through 10/20/2022. This chart is for illustrative purposes only. All investments involve risk, including the loss of principal. Past performance is no guarantee of future results. Please note that references to specific securities within this piece should not be considered an offer or recommendation to purchase or sell that specific investment. It is important to note that investments in securities involve risk and will not always be profitable. ETFs, like all investments, carry certain risks that may adversely affect their net asset value, market price, and/or performance. An ETF’s net asset value will fluctuate in response to market activity. Because ETFs are traded throughout the day and the price is determined by market forces, the market price you pay for an ETF may be more or less than the net asset value. ETFs are not actively managed; therefore, their value may be affected by a general decline in the U.S. market segments related to their underlying indexes.
WHY IS THE “PIVOT POINT” SO IMPORTANT?
ADJUSTING TODAYS AXIS BACK TO THE PREVIOUS PIVOT POINT MAKES VALUE OUTPERFORM?
10/1/1999 – 10/20/2022 QQQ (GROWTH ETF) AND TRBCX (GROWTH ETF) VS. OAKMX (LARGE CAP VALUE ETF)
Source: Yahoo Finance. Data as of 10/27/2022 and for the period 10/1/1999 through 10/20/2022. This chart is for illustrative purposes only. All investments involve risk, including the loss of principal. Past performance is no guarantee of future results. Please note that references to specific securities within this piece should not be considered an offer or recommendation to purchase or sell that specific investment. It is important to note that investments in securities involve risk and will not always be profitable. ETFs, like all investments, carry certain risks that may adversely affect their net asset value, market price, and/or performance. An ETF’s net asset value will fluctuate in response to market activity. Because ETFs are traded throughout the day and the price is determined by market forces, the market price you pay for an ETF may be more or less than the net asset value. ETFs are not actively managed; therefore, their value may be affected by a general decline in the U.S. market segments related to their underlying indexes.
WRAP-UP
IN CONCLUSION
Markets seem to behave in a cyclical fashion
Appearance of cycles does not imply markets are predictable
Government acts during a crisis to influence markets and calm investors
Government adjustments can stimulate a cycle
Habitually using one investment strategy in a cycle is suspect
When advisors act habitually in a cycle without considering alternatives, we believe investor confidence declines.
Market Cycles require flexible investment strategies.
BLWM does not MARKET TIME, we try to PAY ATTENTION to the circumstances.
We believe that a consistent growth-based strategy or a consistent value-based strategy would each be a viable method for a reasonable responsible long-term return, however a model which attempts to gravitate into growth for the sprints, and weight back into value for the “inversion” and “pivot point” would have a high propensity to outperform either strategy alone, as long as it could effectively identify those pivot points in advance
GROWTH for the (sprint) market run up - VALUE for the (marathon) correction and rebound