My “Inner Nerd” Loves When Data Shatters Preconceived Notions

Wouldn’t you think that when markets are hitting new highs – that the chances of the market being up in 12 months is lower than at other times? Makes sense – gotta come down sometime? Well it turns out the market is up more than we realize. We tend to focus on the negativity we hear loudly when the market is down and it creates an incorrect perception. The data shatters that preconceived notion. Dimensional Fund Advisors studied this by looking at the S&P500 from 1926 through 2016, see the paper here. Each time a month finished at a new S&P500 high – they looked at the S&P500 12 months later and found that 80.5% of the time, the S&P500 was higher not lower! When they looked at ALL the months across those 91 years – 74.7% of the time, 12 month later, the S&P500 was higher. Very close numbers, very slightly favoring higher markets when starting at a new high!  Wow! I’ve presented data here previously that shows the market is up about 3 out of every 4 years across long time periods. So I guess I should not be surprised! I love it when proof – actual undeniable DATA smashes preconceived notions! I hope you do too!...

2016 Market Review (incl Q4) and Quarterly Model Portfolio Performance

It was a very good year. The small cap premium and value premium were potent in USA with Russell 2000 Value index up 31.7% vs Russell 2000 at 21.3%. In large cap the Russell 1000 Value Index was up 17.3% vs. Russell 1000 at 12.7%. S&P500 11.96%. Our models take advantage of these persistent and pervasive market behaviors by including them at slightly higher than  market cap weighting. MSCI Emerging Markets index up 14.9%. US REIT 6.7%. The rest of the world lagged with MSCI World exUSA Index +2.8%. Our most aggressive model, a mix of the above, assuming 1% advisory fee, +12.7% for 2016. Here’s a link to the Market Review (30 pages) and our Model Summary (2 pages)....