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

2 weeks 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

February 23, 2021

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.  

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The COVID-19 health epidemic has had substantial global economic impact on financial markets. As of March of 2020, restrictions to travel and business spanning the economy for activities not deemed essential have been imposed throughout the United States. These restrictions have caused unprecedented volatility and uncertainty in capital markets and have negatively impacted the economy. It is unknown how severe the impact to the economy and capital markets will be if the epidemic persists for an extended period of time. The epidemic may have a material adverse impact on Cabana’s investment advisory business including, but not limited to, the performance of our portfolio strategies.  

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