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One thing to think about for your 2023 financial life. It will matter.

January 20, 2023

Several years ago I asked a friend of mine, who ran a division of over 100 Advisors at a national firm, if he had seen any Advisor statistically outperform over the years. "Oh yes," he said, "We had an Advisor who was not a great investor whose clients were among the wealthiest in my division."


"For a long time his clients didn't even like him. He was kind of annoying to them, but he did one thing right, and he did it well, and now they are forever grateful."


"He got them to save money. He was relentless about it, almost religious about it, and it worked. You cannot be a capitalist without capital, and generally you can't get capital without saving. Those behaviors injected into an even mediocre investment program produced fantastic results." (1) (2)

So it's January, and it's time to get our school-marm hat on here. The good news is you don't need to make Mark Zuckerberg richer to get your daily dose of endorphins! You can get endorphins from *cutting* personal expenses, and January is a good time to do it.

Then talk to your advisor about what we call "Pay Yourself First," where we set up an automatic savings plan into your investment accounts. I cannot recommend this idea enough; in my opinion it is *by far* the best financial planning approach I have seen. Putting things on autopilot works; it solves many of the behavioral challenges that plague investors. If you do this three years from now it is nowhere near as good, mathematically, as doing it next week. The math of savings with an excellent investment plan compounds geometrically. But you have to do both: save, then invest.

The U.S. personal savings rate dropped to 2.3% last fall, which is near record lows. If this does not rise next month we know either 1. the entire United States is not on this newsletter or 2. They all are, but are ignoring me. Here is the U.S. savings rate chart from Federal Reserve data:

People ask me all the time where I think the markets are going. From the extraordinary investor John Templeton (who, I note, was extremely thrifty himself. Even today his foundation encourages thrift, saving, and investing.):

Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria,” he said.

Sentiment matters. The good news is that a lot more people dislike the markets than a year and a half ago. I'm not sure we've reached peak pessimism in either the markets or the economy. But the period where it was fun and appeared to be an easy game is over. Lots of novices got wiped out. As an investor you do not generally want euphoria (unless you are only selling). So the increase in general pessimism is definitely a positive signal for future returns.

Dan Cunningham

1. This conversation is paraphrased a bit as I wrote parts of it down but don't have the exact wording.
2. We prefer an excellent investment program, but the point is made.

2022, and winning the loser's game

December 28, 2022

For almost everybody who didn't own an oil well, the investment process in 2022 got less fun. In reality the market started its sobering process in many asset classes in 2021, and it may well continue for some time.

This is ok, and to be expected. Having lived and invested through several of these cycles, one thing that is going to happen in 2023 is a refocusing process. Capital costs more now, and as a business manager if you cannot show how your return is going to exceed the risk-free rate, you are going to get less capital. As any gardener knows, pruning is critical to future growth, and 2023 is going to be a pruning year.

As investors limp away from 2022, for some time (though not forever), they'll remember that it wasn't fun. Actually, it's just a perception that it's ever fun. Charles Ellis in 1975 called investing in the market "The Loser's Game." Almost everyone loses relative to the indexes, even in years with high returns, though only a percentage of those people realize it. As an example, just one large behavioral error over a *lifetime* and you'll likely lose. Though one is better than many!

So why play a game that almost everyone loses?

Two reasons. First, you don't really have a choice. Social Security is not going to cover your retirement in full, and as people learned in 2022, inflation is the enemy. If you don't construct some type of program that puts you on the receiving end of inflationary increases, you're in trouble.

Second, the upside to winning the loser's game is enormous, particularly if you do so over a medium to long period of time. And unlike Las Vegas, there is a high probability of winning if you do things a certain way. An approach based on a pattern that leads to a highly desired outcome is attractive. That is something you want to be involved in.

In other words, as an investor you have to understand, in an unemotional way, why almost everyone is losing, and then be willing to play in your own, different sandbox.

For those of you who are clients, a sincere thank you for playing in our sandbox. We know it's not a game, and we don't take it lightly. There are now thousands of retirements, college tuitions, future vacations, fun weddings, and even kitchen remodelings riding on the outcomes.

The 17 employees and Advisors of One Day In July also thank you for helping us spread the word. Stay positive and have a happy last few days of 2022!

Dan Cunningham

2022 Growth and Value + Businesses start to scale back.

December 16, 2022

It probably doesn't feel like it, but 2022 brought us a lot of normalization. Millions of people discovered the severe downside to meme stocks, crypto has one foot in the grave soon to be two, interest rates are returning to historical norms, supply chains are gradually improving, and speculative venture capital is drying up. It's not all normal: for example there is a mind-boggling amount of money that has been printed/committed and hasn't flowed through the system.

Let's dig into one effect that is striking.

As of today, the total return gap between large-capitalization value (red line) and large-capitalization growth (blue line) stocks is 30% for 2022. That is a large gap! If you held all-value stocks, and had reinvested the dividends, you would be roughly break-even for the year (last week you would have actually been up about 3%):

What is going on? Aren't these tech and bio companies the future? Why did investors get so negative on growth stocks in 2022?

1. First, and remember that this pertains to other performance returns as well: we came off a huge 2021, and a huge 2020. So stock prices were high in growth stocks, and they peaked right at the end of last year. So they are retreating from what looked like the top of Everest in hind sight.

2. Growth indexes assume rosy and improving corporate results in the future. However, if interest rates rise, an investor can make more money in a less-risky bond in the meantime. This means that the investor has to get more value today, when compared against the less-risky alternative. To get more value, the price of the growth stock needs to fall. Because the reward is delayed so much in time with growth stocks, the magnitude of the swing will be greater.

3. Similar to, but not the same as the previous point. Growth stocks are valued on events in the future, sometimes far in the future. The further something recedes in time, the more risk there is that the desired outcome will not be achieved. In times of economic uncertainty or recession, people like to batten down the hatches and shy away from this type of risk.

There is good news here. We really, really (that's two really's!) like it when asset classes do not correlate. There are all kinds of opportunities that open up on the rebalancing side of the operation. Big moves in asset classes often reflect investor emotion, either positive or negative, and a good investor is trying to take advantage of the fact that many investors do not have enough emotional control.

It's natural. At this time of year people want a sense of what is coming next. You need to remember that the stock market is a forward-looking vehicle. It is trading today on where it expects things to be probably 9 to 12 months from now. Because of this, if we enter a recession, or if we're in one and it gets deeper, the market might start to turn right as we go through the worst period. This trips people up all the time, they think the market reflects what they see in the news. It doesn't.

Burta Kelly runs our HR and operations here at One Day In July and she's plugged into all kinds of HR channels. Layoffs are coming early in the new year. The financial industry will start (although One Day In July is hiring!), as it tends to react quickly, and it will spread. It's not clear how deep things will get, as there are still job openings. The depth is anyone's guess.

If you do get laid off or lose hours and you are a client please be in touch with us. Jobs are jobs, it's not a statement about you. We realize it is stressful and we want to help.

Dan Cunningham

p.s. I'll recap a few other things next week, so not quite signing off for the year yet. Contain your enthusiasm!

1. Chart graph credit StockCharts, VYM ETF represents large-cap value, VUG ETF represents large-cap growth.

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