“Just Buy The S&P Bro”

One of my least favorite arguments on social media is when some rando gets on and says if you just sat back and bought the S&P you’d be better off.

 

Because a lot of times, as lazy as it is to say, they were right.

 

Let’s Not Forget

 

Before we get too deep into things, I just want to point out one major factor when it comes to people who jump out of the bushes and say things like this.

 

They don’t invest.

 

They probably haven’t invested anything ever in their lives.  At least not successfully.

 

And then they get 3 likes on their S&P post, and it makes them feel awsome and validated.

 

Remember this as we go forward.

 

These are what we call in the US “Monday Morning Quarterbacks”.  People who don’t play football, but want to form an opinion about everything football-related after it already happens.

 

The S&P Has Been a Beast

 

Any time you valuate the performance of a stock/ETF/index over time, you want to look for something called the Total Return.

 

Total Return calculates what you would have made over x period of time if you had simply held onto it and done nothing else.

 

I like it because it’s a much more of a real measure.  It factors in all fees, dividends (reinvested), etc.

 

We will be talking about dividends on the next episode of the 10-Minute Contrarian Podcast.

 

My favorite place to go to reference total return is Dividend.com, and this is what we will be using today.

 

On Dividend.com, you search for an instrument, then click on the “performance” tab, and you’ll see its year to date, 1 year, 3 year, 5 year, and 10 year total return.  You can also go year by year.  Pretty nice.

 

What is also cool to reference, is its “category performance”.  How well did it perform amongst its group of peers.

 

The unfortunate part, is I don’t 100% know which stocks/ETFs/etc make up these categories.  I can guess, you’re about to see something called a “Primary Theme” on an upcoming table, so at least we know what these vehicles are being measured against.

 

When it comes to category performance, you want as low of a number as possible.

 

1% is elite for example, and 95% is really bad because only 5% of the group performed worse.

 

Make sense?

 

So let’s take a top performer, the iShares Semiconductor ETF, ticker symbol SOXX:

 

 

Gem of an ETF.

 

In the table, you’ll see the “Category Low”, or worst performer in the group, and the “Category High”, the best performer in the group.

 

But as stated earlier, pay attention to the “Rank in Category %” metric.  This is how it scored amongst its peers.

 

SOXX was either at or near the top 5 percentile, or at its worst performance was still in the top half.

 

For those scoring at home, this is tremendous.  If you are a long-term holder, which we are here, you will not shoot the lights out every year.  But if you can simply lose less on the down years, while still outperforming in the good years, this is exactly what you want.

 

The table I like the most here, and what I think is the most relevant to us going forward however, is called the Trailing Return Ranking.

 

This takes a bit more thinking, but it really is a superior measurement IMO.  Take a look, and we’ll talk about it.

 

 

If you want to know what it would have been like to hold this ETF for 1, 3, 5, or 10 years, this is the table you want to focus on the most.

 

After all, I don’t plan on getting cute and trading my dividend investments, especially not the ETFs when you consider the fees you’ll be paying every time you buy one.

 

I want to buy, hold, and let the income roll in.

 

And when you factor this in, SOXX has been an elite performer, and has made their investors very happy.

 

Yes, I’m aware, SOXX does not pay a dividend, but I’ll address that later on.  How much “later on”, I’m not sure yet. 😉

 

But let’s look (GASP!!) one level deeper, shall we?

 

SOXX appears to have “underperformed” in the past year compared to what it normally has.  But let me ask you this…

 

How many leveraged tech ETFs have been approved in the past two years?  This factors in, when you have a bull market in this particular space.

 

I have little to no interest in investing in leveraged ETFs as a long-term investment vehicle.

 

So if you take those out, SOXX’s performance for the year certainly goes up.

 

Of course you would also have to take into consideration the future of tech and semis, but I will try to better answer that question in the next podcast episode.

 

Just for fun, let’s look at the opposite of this, Cathie Wood’s giant steaming turd of an ETF, ticker symbol ARKK, starting with the yearly rankings:

 

 

Quiiiiiiite the discrepancy, no?  ARKK either crushed it, or got you rekt.

 

All depends on when you got in, right?

 

Wrong.  And this is why I like the “Trailing Return Ranking” table a lot better.  It’s far more relevant for long-term holders, and tells the real story.  You’ll never see CNBC show you this table:

 

 

It would have been really really really hard to do worse.  Almost impossible.

 

Yet Cathie still gets all the attention for being this great visionary, because she makes these outlandish predictions, especially in Bitcoin, which makes the more dimwitted BTC fans all excited and happy.  And also because……of a reason I shouldn’t say out loud.

 

But I digress.

 

This level of futility is God-tier, but it just goes to show how strong marketing can be.

 

So going forward, whether you want to go the dividend route, the non-dividend route, or both — performance matters.  Total return matters most.

 

And this is how we locate an investment vehicle’s past performance.

 

What About the S&P?

 

So based on what we have learned so far, let’s give the main vehicle your average person would be using to invest into the S&P 500, ticker symbol SPY, a similar look on its Trailing Yearly Returns:

 

 

By all accounts, it has been a very good place to park your money.

 

SPY does pay a small dividend too, and has SPY’s total returns have beaten a lot of things we like to hold in our current portfolios?  Yes, absolutely.

 

But again, anyone who wants to throw that “You could have just put it all in the S&P, bro” line out there is absolutely doing it in hindsight, and likely has no money to invest.

 

Let’s go over the reasons why:

 

1. Although certainly not a bad choice, the category performance was, obviously, performance measured against other large equity ETFs, not all ETFs.  There was a lot of room for better performance out there.
2. The 10-year performance was really great, but you must keep in mind, the majority of ETFs have not been around for 10 years, and would not be included in that score.
3. Let’s not forget what has gone on in these past 5 years.  7 Trillion dollars in needless stimulus from the FED.  An extremely top-heavy market which we have never seen in our lifetime (S&P is a weighted index and took huge advantage of this).  Absolute anomalies, not one person called this in advance.
4. A lot of people want to argue you should invest in the S&P instead of trading.  So nice of them to reference this in the largest bull market of our time.
5. We trade for the present, and we invest for the future.  What are the chances we see an anomalous bull market like this ever again?

 

And because we do invest for the future here, we have invested in things we believe will be quite scarce, valuable, game-changing, or some combination of those three things.

 

Did we miss out on a nice total return on our investment by not investing in the S&P 500?  I guess.

 

I mean, a lot of that money did go to gold, silver, Bitcoin, Ethereum, etc.  Check those total returns at your leisure.

 

And will the S&P 500 remain a strong performer in the next 3-5 years?

 

Highly debatable.  But we will have plenty of time to discuss that.

 

 

— VP