Year End Review - Dead Reckoning Results

 

I’m wishing all my clients and friends a Happy and Prosperous New Year 2025.

With just one day left in 2024, The stock market looks like it will end this year with another double-digit gain; up about 25% on the S&P 500 Index and up 13% or so on the Dow Jones Industrial average. Looking at the major Sectors of the stock market that I normally report on for a good representation of performance, here is the tally through Dec. 27^th.

The Sectors out-performing the S&P 500 Index: Telecom Services, +35%, Technology, +32%, Financial stocks, +31%, Consumer Discretionary, +27%. Sectors showing gains but under-performing the S&P 500: Utilities, +23%, Industrial Stocks, +18%, Consumer Staples, +14%, Energy and Real Estate, +5% each. The bottom dwellers are Health Care, +4%, and Materials, +1.3%. Tossing in our two commodity-based investments of Gold and Silver, they logged in at +26% and +21% respectively.

The other two classes of assets that are most often used in portfolio construction, Bonds and Cash – certainly under-performed stocks. Bonds are barely were break-even in the 2021-2022 period; a slight gain in '23 and about even this year. We advocated to shun Corporate and Government bonds the past two years in favor of short term Treasury bills – maturing in one year or less -  as they are very stable in price and yields were between 4.5% to 5.6% the past two years. That was essentially risk-free interest paid by the U.S. Treasury! Three-month T-bills today are paying 4.25%, Six months at 4.17%.;  (rate chart below) 

I use a portfolio management system that was formulated by my father Larry back in 2018. He labeled it the Dead-Reckoning (DR) portfolio system. His business partner used Dead Reckoning in his Navy duties way back when to calculate future positions and movement of ships at sea. I try to anticipate movements in stocks based on the past price and technical data.

Each month I use this to select investments, type and quantity – and then allocate money to stocks, bonds, precious metals, and Cash. The general premise of DR is that strong sectors tend to continue to move up in price over time; they don’t wiggle around month to month. Once a trend develops, it often moves in that direction for awhile.

Also, when investments move to new highs; think Apple or the price of Gold, there’s a ‘pile on’ effect for those who don’t own it. Then there are no owners at a loss, so there is little reason to sell. Example: Once Gold prices moved above their prior high near $2,050 after the October 2023 Hamas Invasion of Israel, it rallied $700/ounce to new highs last month of $2,775.

Does this always work? Of course not. You can get tricked when investments or sectors move rapidly. Energy and Technology did this to me in the recent past. We’re spread out across 7-8 areas, so no one area will hurt the performance too much. Generally, the portfolio owns 2-3 Market Sectors (of 10) using low expense exchange-traded funds, always a 10% or more holding in Gold, the balance in short term cash or T-bills or money funds earning 4% plus.

I select new buys and sells that get replaced every month; but often hold the same ones for multiple months until they fall off the ranking system.

Here's the record: 1/1/2018 – 11/30/2024

Dead Reckoning Portfolio Management
(Compound Annual Growth Rate):            +7.71%
$100,000 grows to $167,185

S&P 500 Index
$100,000 grows to $221,693                    +12.20%

My DR system under-performed the overall market. Is that relatively good?

You could have just sat in the S&P 500 index almost 7 years and made more money; all stocks, no bonds, no cash or Gold. BUT…you lived through the 2020 COVID bear market, when the S&P 500 fell 20% in 3 months. Then came the 2022 Bear Market, when the S&P lost 19.2% in value that year. Could you have navigated those down-turns, or had the gumption to hold on? That’s two tough calls to make; when to sell and then when to buy. I’ve seen some very poor decision-making in Bear Markets that take years to recover from.

For the DR portfolio, it FELL 7% during the worst COVID period (1^st quarter, 2020), and it also FELL 7.5% during the 2022 (full year) bear market. We call those stats draw-down, or the maximum loss of value from point A to point B. The 2024 performance thus far is noted in the footnote below.

Sure, a lot more goes into portfolio construction and management than just percentages up and down. Your age, your risk tollerance, tax strategy - if it's not retirement account money. I would be fairly accurate to say that all investors would be better served by a diversified portfolio as their main holding, filling in the rest of the space with other investments in real estate, Crypto, annuities, cash value life insurance to name a few.

I hope you found this helpful, and share with your friends please.

Reach out if you have any questions or comments.
And again, be safe out there, wishing you a prosperous 2025!

~Barry

 

2024 Performance thru 11/30/24. (DR)                  +17 %
2024 Performance thru 11/30/24. SP500                +28 %

* all performance stats noted do not include dividends or interest payments; the
dividends/interest of the DR portfolio system and the S&P 500 would be fairly comparable across all portfolio construction time periods.