This Monday, April 20, there were corrections in all the indices globally. These falls were close to 2% (SP500 -1.74%; Nasdaq -2.23%; Russell -2.48%; MSCI China -2.69%), which represents a fall of 4–5% from highs . To put all these data a bit in context, the SP500 has historically grown an average of 7% annually, in 2020 it grew by 15% and this year it currently has 17% YTD. It seems logical that there was a (small) correction.

This has meant, how could it be otherwise, that a large part of the investment community sees extreme risk in the markets when just a few days ago they had ‘All In’ portfolios. One of the most notorious cases or at least that we follow the most, perhaps we find ourselves biased, is that of an investor who just a few days ago advocated having a 100% invested portfolio.

And in a matter of a couple of weeks, or rather a small drop, he has sold his entire portfolio.

We have gone from ‘All In’ to ‘All Out’ in just a few hours, due to various news. This is precisely where we wanted to enter and it is in the stochasticity of the markets and the impossible that it is to predict them. Therefore, it is absolutely necessary to have an investment style that is totally systematic and never based on several headlines that predict a catastrophe in a matter of two days. But unfortunately, this is how markets work and retail investors tend to follow these types of accounts because of the hype of investing in ‘sexy’ assets.

Without going any further in the following graph we can compare the returns of the SP500 doing Buy and Hold or Buying The Dip, understanding as Buying The Dip in buying at the close on low days, the rest remain liquid. As we can see historically this has never worked and it seems unlikely that it will now.

Maybe the Evergrande thing is the tip of the iceberg or maybe not. What is clear, and this we have been warning about for a long time is that the markets are tremendously overvalued and all excesses are paid dearly, we have seen it from professional athletes to billionaires, and in the case of money printing (for free) will not be less.

In addition, this week there is a meeting of the FED where they should have tapered earlier this year, the window opportunity is getting smaller and smaller, just at the moment that the VIX seems to start to wake up.

As Spitznagel says:

“We only learn, we never learn from the past”.

For our part, we remain faithful to our investment style, we know that the markets can continue to decline and do so at levels not seen for several years, or this week the FED may say that it will continue to print banknotes and recover these falls in a matter of few days. For this, our portfolio is prepared for all these situations and we will act according to what the market tells us in a systematic way. If you want to know our portfolio in detail, do not hesitate to subscribe to our newsletter.

This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.