Helix

It’s surprising to note that most analysts and financial media, don’t go back in time to tick back on what the company CEO said a few quarters back. They just take the earnings call at face value, and worse, a number of them don’t even analyse it against what they wrote four quarters back. And we beleive them, we buy and sell based on that. Don’t pat yourself on your back, for not following the folly. Even if you don’t, your fund manager does, and you depend on them to deliver your pension.Cloud contracts are a famous example; there are lesser and lesser of those five or ten year contracts coming through, nowadays. But the cost of executing their contract keeps accumulating today for a contract signed in 2020, at the height of the pandemic. What did they tell us back then? Cost of compute, or whatever it was called, was going down, but they were smart to get customers locked in, for five years. They quietly stopped talking about it afterwards, if you see.I am not saying every company does that, but it is not illegal to do so. Your fiduciaries don’t care to look back, at the earnings call from four quarters back. You can, but can you? You have a binary choice. Either continue to leave things as is, or start looking at how your investments are doing. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.sowmyvj.com/subscribe

So passive investors are mostly locked into a tax wrapper. So they keep buying, with the hope of withdrawing at some point in time. More on the sequence of returns risk, later.But, they are actually going against two major factors that generate stock returns - Size and Valuation.Since a vast majority of passive investors use market cap weighted index tracker funds (go look at your brokerage statement; you are no different!), when momentum increases stock prices, they often buy the largest, most expensive stock, at the peak. This is your usual ‘bull year’, my investments are growing case. And their banks, and brokerages are going to tell them, that markets are volatile, so stay invested.Even if they wanted to, they can’t exit so easily. They will face all the brakes and speed humps when they try. Good for us, stock pickers, and fund managers, you see.If we just snip out the most overvalued, mega cap stocks, the rest of the index stocks, gives us an opportunity to beat the market. In the case of the S&P 500, snip out the magnificient seven tech stocks. They take 35% of the index anyways. The remaining stocks are still fairly valued. Pick five, or ten, and build a portfolio. That beats the market by breakfast tomorrow.Easy peasy investing! But a smarty pants way. What do you think? This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.sowmyvj.com/subscribe