401(k), Fiduciary

WHERE THE BLACK SWANS HIDE

Author and portfolio manager Meb Faber, of “Where the Black Swans Hide,” states, “We continue to advocate that investors attempt to avoid declining markets where most of the volatility lies and conclude that market timing and risk management is indeed possible and beneficial to the investor.” Faber’s findings certainly make a strong case for avoiding loss. His statistical finds are interesting. He discovers; 10 Stocks generally have gone up around 66% of the time. 2) Markets are a lot more dangerous than standard distribution models predict. 3) If you missed the best 1% of all days, your return drops all the way from 4.86% down to – 7.08% annually. However, if you miss the worst 1% days, your returns jump to 19.09% per year. And if you miss both the best and worst 1% days, your return is still higher than a buy and hold approach. 4) Around 60-80% of the best and worst days happen after the market has already started declining. 5) Markets are more unstable when they are falling, and when the more volatile days occur, they cluster. Therefore, as a portfolio manager, limiting loss (and volatility) may be essential to boost overall gains than only capturing outsize gains.

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