The Retirement Crisis White Paper


Dear Investor,


When you are in the midst of a bull market, it can be very easy to lose your sense of risk.  Even though this bull market endured rather quick bear markets in 2011, 2015-2016, and in 2018, the general trend has been upwards.  Investors that have bought the dips and have not panicked, have made out quite nicely.


For those that have been following us over the last decade, I’d hope you’d agree that we are not doom and gloom prognosticators.  We are optimistic on the United States and we believe that over the long-term, stocks will continue to be good investments.  We’ve been bullish on all the major selloffs that we’ve endured over this bull market.  With that said, I think there is a clear and present danger that is likely to bite many market participants in the future.  I refer to this phenomenon as (PAPI) or Price Agnostic Passive Investing.


Price Agnostic Passive Investing (PAPI) is the idea that you just buy an index or ETF, and hold it, regardless of price.  When most market participants buy a fund, they tend to look at 1, 5 and 10-year, track records.  Well in year-10 of a bull market, those figures look really good.  The real question should be, what returns should be expected into the future, based on the valuations and growth prospects of the underlying securities?


Of course if you play with different time frames or geographies, the numbers can be made to look a lot worse.  If you owned index funds and ETFs in Europe or emerging markets, your performance would likely be dramatically worse than in the United States over the last decade.  What does this say about the future?  Not much, but many people will base their decisions on past performance, while also taking into consideration that there is a lot of negative news around those markets, but these are bad ways to make investment decisions.  My test to determine if someone is a PAPI charlatan or not, is how long they have been doing it?


For a company like Vanguard, they have been dedicated to index investing for decades, in addition to their other strategies.  Other firms, have been established over the last five years or so, often by advisors that have failed at numerous investment ventures already.  I could name names but that would not be polite, but many of these firms are quite prominent nowadays.


These advisors have resigned to the fact that the way for them to stay in the game, is to collect a fee for allocating investors into a collection of ETFs and funds, and then continuing on with the marketing circuit.  There is no real money management or expertise involved in this sort of activity for many of them, but due to a 10-year bull market, they skate by.  These types of offerings really aren’t that different from robo-advisors, but at least they might offer a shoulder to cry on when things go bad.


Mathematically, if you are a closet index fund, you are almost guaranteed to under-perform over the long-term.  The asset allocation models they use to project performance, are grossly slanted by a 30-year period of declining interest rates.  This means that that allocation to bonds, has a nearly 100% chance of generating way lower returns over the next decade, due to the extremely low rates we are starting at.  What happens when rates go up?  Stocks and bonds as a whole would likely drop.  If rates stay this low, how will retirees generate the income they need?  What happens to pension plans?  This will be a real dilemma for the baby boomer generation and many other investors as well.


We just wrote a white paper called Retirement Crisis Investing.  It outlines some of these issues and provides an introduction to our strategies to combat these headwinds, some of which may be redundant to long-term clients of TTCM.  If you have any friends or family that are 100% long stocks and bonds, with no real means to protect themselves via focusing on undervalued securities, as opposed to funds, or utilizing income-enhancement strategies, I’d encourage you to forward this email to them so that they can sign up for the white paper.  The time when people will want to change their investment allocations, almost always comes in the midst of major declines, but by looking at the facts and taking proactive action, I believe we can provide material protection over these next 3-5 years and into the future.


I’m going to close with this thought.  Embracing risk has been greatly rewarded, as evidenced by the out-performance of growth versus value over the last 10-years.  At any point the tides can change, and those that have been paying way too much in price to buy the glamour securities, will likely be left holding the bag.  Look at some of these unprofitable IPOs coming out.  It is clear that markets are being dominated by greed, which is when we want to shift towards prudence.  Now, it is as important as ever to be making calculated decisions on each and every investment that we make, to ensure an adequate margin of safety for when times get tough.


If you are enjoying these newsletters, please forward them to friends and family!




Tim Travis

CEO/CIO T&T Capital Management