OTW #41: Outperforming the S&P, Investment risk across countries, and more
Important financial stories to check out over the weekend
Hi Antagonist readers,
Welcome to another issue of “Over the Weekend.” This is where I summarize interesting financial stories and data from the previous week. I also link to the sources so you can read more “over the weekend.”
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1. Muscular Portfolios continue to outperform the S&P 500.
Brian Livingston, founder of Muscular Portfolios, published another analysis showing how the Papa Bear and Mama Bear portfolios “have beaten the S&P 500 (including dividends) on every metric Wall Street uses to measure investment success.” The study went all the way back to 2007.
Antagonist’s take
Regular readers know that I’m a huge fan—and user—of Muscular Portfolios. If you want to be more hands-on with your investments but don’t have the time or desire to research individual stocks, the Papa Bear or Mama Bear portfolios are your best options.
These portfolios don’t just beat the market. They also remove emotion from the equation, which is unusually the reason most investors fail.
To read more about the success of the Papa Bear portfolio and the research behind it, check out this article:
2. What’s the risk of investing in another country?
Given the rapid growth of emerging economies, and the opportunities this may present to investors, it raises the question: does investment exposure abroad come with risk, and how can that risk be analyzed?
To help answer this question, this graphic shows country risk around the world, based on analysis from Aswath Damodaran at New York University’s Stern School of Business.
Source: Visual Capitalist
Antagonist’s take
Investing in economies outside of your own country can provide you with diversification across sectors, assets, and geographies. Emerging markets in particular offer the chance to profit from rising GDP and changing demographics.
Of course, this also comes with macroeconomic and country-specific risks. The visual above is a quick and simple way to begin assessing those risks.
In our Blend Portfolio, we hold positions across economies and asset classes. This strategy has paid off handsomely with the portfolio’s performance nearly doubling the S&P 500 over the same time period.
Much of this performance can be attributed to investing outside of U.S. stocks. For example, our top 6 holdings have returned an average of 26.2%. That’s more than 5x the S&P 500’s 4.8% over the same time period! Three of our top 6 holdings are commodities or businesses that perform the majority of their operations outside the U.S.
To gain access to all the positions in our Blend Portfolio, and to support my research and writing, upgrade to a premium membership today.
3. Oil surges in response to Israel-Hamas war.
WTI crude futures rose past $87 per barrel on Friday, marking a remarkable 5.5% increase for the week, boosted by the ongoing conflict in southern Israel and Gaza, which has significantly heightened geopolitical tensions in the Middle East.
Iran’s foreign minister warned that Tehran-backed militants could open a new front in Israel’s war against Hamas if the blockade of Gaza continued. On top of that, the U.S. imposed the initial set of sanctions on the owners of tankers transporting Russian oil at prices exceeding the G7’s price cap of $60 per barrel to penalize Russia for its invasion of Ukraine.
Source: Trading Economics
Antagonist’s take
Since February, I’ve been shouting that the global oil supply is at crisis levels. And as I explained in my special report on energy, wars and geopolitics will only magnify this problem.
As you can see from the chart above, oil prices surged in response to the Israel-Hamas war. They will likely continue to rise if the war escalates.
To be clear, loss of life is infinitely more tragic, and human beings are infinitely more important than rising oil prices. I am not dismissing those facts by any means.
Since the Antagonist is a financial publication, however, and not a political one, and since I’m not an expert on international affairs, I’m keeping my commentary focused on the financial and economic implications of the war.
4. U.S. home affordability at lowest point in 3 decades.
The U.S. 30-year fixed-rate mortgage has reached its highest level since 2002.
Coupled with rising home prices and a constrained housing inventory, U.S. housing affordability is now at its lowest point in history, according to the National Association of Realtors.
Source: Visual Capitalist
Antagonist’s take
From a demand perspective, it seems reasonable that home prices will fall. If people want to sell their homes, they’ll need to lower prices to a point where buyers can afford a monthly payment on a 6%-7% mortgage. This is in addition to household budgets already getting squeezed by inflation.
But we also need to consider the supply side.
There simply isn’t enough housing available to create a buyers’ market.
As I wrote in our July monthly deep dive, Airbnb owners may be the X-factor the market needs (from a buyer perspective).
If struggling Airbnb owners decide to cut their losses and sell, they could flood the housing market with inventory and consequently drive prices down.
5. Prices aren’t bad…unless you buy things.
Nobel-prize winning economist Paul Krugman is taking heat for saying, “The war on inflation is over. We won, at very little cost.”
The problem is that Krugman’s analysis stripped out food, energy, shelter, and used cars. You know…all the stuff that people need to survive!
Many people have commented about how ridiculous Krugman’s statement is, but this sarcastic post from economist Chris Martenson was my favorite. He said that inflation is actually 0% if we just exclude food, energy, clothes, water, carrots, healthcare, education, coffee, travel, beer, cars or trucks, and cell phone service.
Last thing...
To limit the length of Over the Weekend to 5 minutes, I can only highlight a few stories.
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Thank you for reading, and have a great weekend!
Jason Milton
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Still enjoying spending time with daughter each last trading day of the month making any adjustments per the Papa Bear Portfolio. We speculate together on why the changes occur. Great excuse to spend together while she’s away in school.