Trends Watch: February 15, 2018
EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.
This week, Elana talks to Justin Borus, Founder, Ibex Investors.
What is your outlook for alternatives?
I believe the traditional hedge fund and mutual fund industry is toast. Most “alternative” funds own the same stocks as the index funds and charge 20 times the fees. Of course, their performance is going to be terrible. It is no secret that the world is moving towards index funds and ETFs. The only alternative investments that will survive long-term are the ones that are very niche and differentiated. An alternative investment fund should offer investors something they cannot get from an index fund or an ETF.
What is your outlook for the stock market?
Our behavioral economic indicators are quite “normal” at the moment which would suggest the stock market will be up around 10% this year, the 100+ average of the S&P 500. But here is the thing. The market goes up approximately 60% of days, 60% of months and 75% of years. Since myopic loss aversion (losses loom larger in our minds than gains) is real, many investors try to avoid losses and therefore try to time the market. However, most broad stock market movements are random. Trying to predict what the market will do on a week-to-week or month-to-month basis is a fool’s errand.
What keep you up at night?
My 10-month-old. Seriously, there is nothing about the stock market that should worry long-term investors. The market’s average drawdown in a given year is 14.2%. These inevitable pullbacks are scary to many equity investors, but volatility is not risk. Everyone loves to talk about 2008, the second-to-worst year for the stock market in the last 90 years when the S&P 500 lost 37%. Yet, very few people talk about the staggering 34 years in the last 90 years when the stock market rose over 20%. A stock market investor is up during rolling 10-year periods 97% of the time. You should really be fully invested all the time. Investing in the stock market is like being the Massachusetts Institute of Technology (MIT) kids playing blackjack with a loaded deck. Yes, even with a loaded deck you will lose a hand or two from time to time, but play enough hands and you will make a lot of money.