Monday, February 28, 2022

War? Do THIS With Your Portfolio Now

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AN OXFORD CLUB PUBLICATION

Wealthy Retirement

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Editor's Note: As Chief Income Strategist Marc Lichtenfeld laments in today's Wealthy Retirement, war erupted in Ukraine last week.

The markets naturally plummeted on the grim news...

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- Kyle Wehrle, Assistant Managing Editor

Buy to the Sound of Cannons

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

War broke out in Ukraine on Thursday. That's upsetting for all of the obvious reasons.

I don't mean to minimize the suffering in Ukraine, but Wealthy Retirement is focused on helping you build and preserve your wealth and income, so that is what I'll focus on in regard to the conflict. That being said, my thoughts are with the Ukrainian people and I hope for a quick and peaceful resolution.

The markets tanked in reaction to the violence. When things get scary, people reduce risk. It's a natural reaction.

It's not the first time it's occurred, and it won't be the last.

There's an old saying about how you should handle your investments in times of war: "Buy to the sound of cannons, sell to the sound of trumpets." It means you should buy when war starts and sell when it ends.

It makes perfect sense when you think about it. Markets often sell off hard when war begins, as investors scramble to the sidelines. That means more disciplined investors who buy at lower prices make money as the market returns to its normal state, which is up over the long term.

In fact, stocks often snap back after the initial drop on the news.

According to a study of 28 crises over the past 83 years, beginning with Nazi Germany's annexation of Czechoslovakia and including events like Pearl Harbor, the Cuban missile crisis, the assassination of John F. Kennedy and 9/11, the market sells off for an average of 15 days for an average decline of 5.7%.

Once stocks bottomed, they returned an average of 13% over the next 12 months.

So where should you be looking to add to your portfolio?

Value stocks.

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After these world-shaking events occur, the market usually sells off and then goes back to what it was doing before the disruption. If it was a bear market before the crisis, like during 9/11, stocks continue lower. If it's a rip-roaring bull market before the crisis, the market rips and roars.

What's been happening lately, under everyone's radar, is value stocks have been outperforming after more than a decade of growth leading the way.

Other than a short period in the summer of 2021, value has outperformed growth for a year and a half now, up 33% versus growth's 23%.

Value Has Outperformed Growth the Last Year and a Half
 

Over the past three months, while value hasn't been immune to the difficult market, it is flat, whereas growth is down 13%.

Value Is Holding Flat as Growth Tanks
 

When the Going Gets Tough, the Tough Get Value Stocks

The S&P 500 is down more than 14% from its high at the beginning of 2022. The Nasdaq, chock-full of growth stocks, has fared far worse, off 20% since its high in November 2021.

Former high-flying growth stocks, like Peloton (Nasdaq: PTON), Teladoc Health (NYSE: TDOC) and Moderna (Nasdaq: MRNA), have gotten whupped like Sonny Liston facing Muhammad Ali. They're down 82%, 74% and 66%, respectively, from their highs.

Meanwhile, value plays, like Mattel (Nasdaq: MAT), AbbVie (NYSE: ABBV) and British American Tobacco (NYSE: BTI), are higher year to date, while the S&P 500 is down around 10%.

Value stocks were asserting themselves before war erupted in Ukraine. They will very likely continue to outperform going forward as well.

Things are shifting in the markets. Make sure you're in the right stocks. The high-flying growth stocks of the past decade haven't been working for a while now. Value stocks are what will build your portfolio in the coming months and years.

Good investing,

Marc

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