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Gain a retirement advantage™

If everyone knows there’s a recession coming, why would I put money to work now? Why not wait?

Every financial advisor in the industry is getting some version of this question right now - and it’s not a stupid question. It’s perfectly legitimate. It would actually be crazy to not wonder at the answer to it.

Which is why we ordered this masterpiece up from Chart Kid Matt:

What you’re seeing here is the only evidence you’ll ever need to see that stocks look through declines in earnings once they’ve already begun pricing those declines in. At the start of the pandemic - which we all agreed would cause a recession in real-time - stocks corrected at lightning speed and had already bottomed before earnings had even ticked down by one penny. In fact, the stock market reached its pandemic low a full 13 months before corporate earnings in the S&P 500 would bottom for the cycle.

This is a great example of why “waiting for the dust to settle” is not a profitable investing strategy. On the right pane of the above chart is yet another - during this same time period, real GDP growth bottomed a full 3 months after stock prices did. Had you waited for that to happen officially, you’d have missed 70% or more of the recovery in the S&P 500. Again, not the worst thing on earth, but a surefire way to underperform your own investments, which is something everyday investors chronically do. We have mountains of academic research to back this up.

Now here’s the part I want you to sit up for…

It turns out that stocks - on average through every bear market since the inception of the S&P 500 in 1957 - bottom in price a full 9 months before the earnings do. This is an extraordinary insight and the reason why the pros refer to stocks as an anticipatory vehicle. By the time earnings are reaching their cycle low, stocks have already been rallying for three quarters of a year in advance of that low.

This is why you don’t wait to get invested or attempt to sit out the economic or earnings downturns. It’s a flawed idea, costing you both potential returns and your sanity. No one can do it reliably and most of the time you’ll be late in both directions - the sell and the buy. Do not try this at home.

I don’t think I’ve ever seen it spelled out so clearly before this. When Michael and Chart Kid showed this to me I immediately knew we had created an instant classic. Feel free to download it, use it in your own social media, whatever. And if you’re an advisor and you’d like to see these charts recreated with your own colors and logo, check our Matt and Michael’s new company, Exhibit A.

Jenny, Jenny, who can I turn to?

We talked about the charts above and so much more with our friend Jenny Van Leeuwen Harrington aka The Duchess of Dividends on an all new episode of The Compound and Friends.

Jenny has been managing her Equity Income strategy at Gilman Hill since 2006 and she had a lot to say about current environment from the perspective of a money manager and stock picker. We ended the show with seven of her favorite dividend stocks you can buy right now.

I hope you love listening to our conversation as much as we enjoyed recording it!

You can listen to it here:

Or watch the full episode on YouTube here:

Crowdstrike’s George Kurtz

George Kurtz is the founder and CEO of one of the most successful software companies in America, Crowdtrike. He’s also a fan of The Compound and we love having him on to bring us up to speed on the state of cybersecurity.

This year, enterprises will spend $116 billion on cyber protection and this market is expected to reach $250 billion by end of decade (according to investment bank Stephens). If that’s even close to where things land, that means an amazing secular growth opportunity for investors. There are a handful of large publicly traded companies in the space and a few thematic ETFs you can buy. I chose Crowdstrike as a core holding shortly after it came public a few years ago and I’ve been a shareholder ever since.

If you’d like to hear directly from George about how he sees the opportunity and why he’s built his business into a platform rather than merely a product, I recommend listening to him explain it here:

Okay, that’s it from me this week. Have an awesome weekend, talk soon! - Josh