Looking Back on the Past Two Years: Market Commentary from Cabana’s CEO – January 3, 2022

6 months ago

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Well, 2022 is officially here. The last two years have really been a blur to me. I am sure the feeling is pretty much the same for everyone else. I am paid to talk about the markets, so I will.  

I think it is beyond remarkable that the broad stock indices realized up years in both 2020 and 2021. Looking back at the spring of 2020, I would have bet the house that 2020 ended deeply in the red. Given the continuing struggles in 2021, break even should have been a blessing. Yet here we are, having booked two big up years in the face of unimaginable difficulties. I understand the argument (and frequently make it myself) that the market cap indices don’t reflect the whole story and that many individual stocks and other indices have struggled, but the fact remains that for the most part we are solidly in the black. I believe there are two important takeaways for investors. First, markets are incredibly good at discounting future information. Whether good news or bad news, the collective wisdom of millions and millions of investors sees all and sees it first. The absolute resilience and ingenuity of human beings underpins all investing, and the markets discounted that “good news” almost immediately. The earth is still turning, and we have adapted – bruised for sure, but maybe better. The price of the S&P 500 today reflects that. The second takeaway is one that we preach constantly. You must have a process to be successful investing over the long term. If you do not, you are simply gambling. You are gambling that you know more than somebody else. You are gambling that you know more than all the collective wisdom in the world. I think that is a suckers bet, and the past two years is the best example I have seen.  

I would lastly like to discuss an often-underappreciated component of successful investing. That is the importance of dividends in a portfolio’s total return. Depending on the index, dividends have made up as much as 50% of the total return of stocks over the past 100 years. Dividends do a number of good things. They get you paid while you wait for markets to sort things out. I am a big believer in getting paid. They can be reinvested and compound over time. That compounding is huge when it comes to long term growth. It is how many of the wealthy get wealthy. They can also provide a source of stability when things become volatile. A company must have sufficient positive cash flow to pay a dividend in the first place. Dividend payers tend to hold up better in times of trouble than non-payers. Remember dividends when thinking about your portfolio. It is the total return that matters, and dividends can be a big part of that.

Disclaimers

June 22, 2022

This material is prepared by Cabana LLC, dba Cabana Asset Management and/or its affiliates (together “Cabana”) for informational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. This material may only be distributed in its original format and may not be altered or reproduced without the prior written consent of CabanaThe opinions expressed reflect the judgement of the author, are as of the date of its publication and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Cabana to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Cabana, its officers, employees or agents.  

This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. All investment strategies have the potential for profit or loss. All strategies have different degrees of risk. There is no guarantee that any specific investment or strategy will be suitable or profitable for a particular client. The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal.  

Cabana LLC, dba Cabana Asset Management (“Cabana”), is an SEC registered investment adviser with offices in Fayetteville, AR and Plano, TX. The firm only transacts business in states where it is properly registered or is exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. Additional information regarding Cabana, including its fees, can be found in Cabana’s Form ADV Part 2A or Form CRS. A copy of which is available upon request or online at www.adviserinfo.sec.gov/. 

Past performance is no guarantee of future results. All investment strategies have different degrees of risk and the corresponding potential for profit or loss. Asset allocation and diversification will not necessarily improve returns and cannot eliminate the risk of investment losses. “Target Drawdown” is merely a descriptive term used to describe the general strategy and objective of the portfolio, it is not a guarantee, nor should it be construed to suggest safety or protection from loss. There is no guarantee that portfolio performance will remain consistent with the targeted drawdown parameter. While risk tolerance and targeted “drawdown” are identified on the front end for each portfolio, Cabana’s algorithm does not take any one client’s situation into account and there is no guarantee that Cabana’s strategies will be suitable for any investor. Investors and advisors should not simply rely on the name of any portfolio to determine what is suitable. It is the responsibility of investment advisors to determine what is suitable for their clients. Cabana manages assets on multiple custodial platforms. Performance results for specific investors will vary based upon differences in associated costs and asset availability.  

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All recommendations made in the prior 12 months are available upon request. Cabana’s allocation history is available here. For additional information regarding our services, including performance disclosures and award methodology, please visit https://thecabanagroup.com/disclaimers/. 

Commonly used index/benchmark definitions:  

All indices and categories are unmanaged and an individual cannot invest directly in an index or category. Index returns do not include fees or expenses. Benchmark indices will likely materially differ from Cabana’s portfolio strategies. Detailed information as to how the returns are calculated can be obtained online from the following link: https://thecabanagroup.com/disclaimers/performance-reporting-methodology/. 

Morningstar’s Moderate Target Risk index  follows a moderate equity risk preference and is based on well-established asset allocation methodology from Ibbotson Associates, a Morningstar company.  

Morningstar’s Tactical Allocation category includes portfolios that seek to provide capital appreciation and income by actively shifting allocations across investments. These portfolios have material shifts across equity regions, and bond sectors on a frequent basis. 

The S&P 500 Index is a market-capitalization weighted stock market index of 500 widely held large-cap stocks often used as a proxy for the U.S. stock market.  

The Russell 2000 and 3000 indices are market-capitalization weighted stock market indices that include, respectively, 2000 and 3000 of the most widely-held stocks and are often used as proxies for the U.S. stock market. 

The Nasdaq Composite Index is a market-weight capitalization index that covers more than 3,000 stocks listed on the Nasdaq Stock Market. What is the Nasdaq Composite, and What Companies are in It? | Nasdaq