Casper writes about highly volatile stocks and ETFs, looking for a reliable inflation hedge.
You, Won’t Beat The Market — Stick to Exchange Traded Funds.
Active investors rarely beat the S&P500. A 1991–1996 case study proved the annual net return of the S&P500 was 17.8%. An average investor netted a return of 16.4%. Think of what these numbers would have looked like with investors having access to a trading platform on the go. The study also showed that the more investors trade, the more they lose, making a strong case for passive investing.
Only a handful of active investors outperform the SNP500. This is partially due to transaction costs biting a chunk of the gains. This is also the case for expert traders. A study by Barber and Odean highlighted that top-performing investors outperform the market by a mere 6%.
The conclusion is simple: data suggests passive investing beats active investing.
A Bear Market?
A bear market happens when the market declines by 20% from its recent ATH. The bear market correlates with high unemployment, negative GDP, and a pessimistic market outlook. There have been around 26 bear markets since 1928.
Investors look at a few tools to predict an oncoming bear market. The most common tool is called the yield curve. Short-term bonds pay better than long-term bonds when the yield curve becomes inverted. This indicates a greater risk to the economy in the short run than in the long run.
In March 2022 the 2 year and 10-year yield curves inverted, warning of a recession.
Tech-Heavy ETFs are suffering. Get Out While You Still Can. Here are 3 ETFs you don’t want to invest in!
Many analysts are advising clients to trade carefully in this bear market. As stocks continue to fall off a cliff, we are heading for a bloody second quarter of 2022.
Here are some examples of Underperforming ETFs.
QQQ: Invesco QQQ ETF. A tech ETF which is down almost -22% since the beginning of the year. The ETF invests in growth and value stocks or large-cap companies. The 10 most significant holdings include Apple, Microsoft, Amazon, and Tesla.
The vast majority of QQQ’s holdings have suffered during the recent selloff. Companies such as Microsoft, Apple, and Tesla are all struggling to meet market demand. The inability to meet demand is linked to supply chain issues. QQQ holdings’ revenues are also expected to decline as companies mature.
SOXX: iShares Semiconductor ETF is also down in the dumps this summer. Year to date, the ETF dropped over -21.53%. The ETF’s most extensive holdings are NVIDIA, Broadcom, and AMD. NVIDIA and AMD were both beneficiaries of the COVID-19 work from home orders which skyrocketed the demand for chips. This is bound to end as workers return to their offices and computer sales plateau. Furthermore, further manufacturing concerns may arise with various supply chain issues and lockdowns.
As Bitcoin and Ethereum’s price collapses, the demand for mining equipment will limit demand. Crypto mining is what lead to the shortage of GPUs in the past. The demand is expected to decrease further as Ethereum switches to a proof of stake consensus mechanism.
SMH: VanEck Vectors Semiconductors invests in stocks of semiconductor companies. The ETF has been underperforming due to geopolitical tensions between China and Taiwan. Taiwan is known for its semiconductor production. The biggest semiconductor company in the world is located in Taiwan.
Semiconductors are a crucial strategic resource. Without semiconductors, the manufacturing of cars, telephones, and household electronics is impossible.
The Taiwanese semiconductor giant (Taiwan Semiconductor Manufacturing) fell off a cliff recently. The stock dropped by -25% year to date. The Taiwanese company is a component of various IT ETFs, including SMH. Taiwan Semiconductor Manufacturing makes up over 10% of SMH’s holdings. Furthermore, the semiconductor shortage affects several other sectors.
As the market continues to decline and discount models get reanalyzed — what’s your move? How are you preventing the stock market from burning a hole in your pocket?
Are you holding onto cash, hoping to snatch some cheap shares?
Are you shorting tech stocks?
Let me know in the comments section!
If you are optimistic about the stock market and you're looking for an alternative. Consider O&G ETF's and read one of my other articles!
How are you protecting yourself against inflation?
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2022 Cas