Login

The Blockade Investment Strategy

Is sticking your head in the sand a viable investment strategy?

Did you see the article in the New York Times about the guy in Ohio so traumatized by the 2016 presidential election that he altered his life such that he avoids all news? Everything. He calls it the Blockade. He's a Cleveland Cavaliers fan but watches the games on mute. This requires a lot of cooperation from the few people in his life but it appears to be working (in that he has has no idea what it going on). He has purpose in his life, working on art and an ecological reclamation project but included in there is boredom.

I saw this on my Twitter feed a couple of times and the Tweets were generally critical, the story's lede refers to him as the most ignorant man in America but candidly I don't know what to make of it and won't judge him for his decisions. I do like stories where people put in the time professionally to get a point where they can do what they want. He is 53 and essentially retired and while I would not desire this path for myself, if it is what he wants and he has some purpose, I believe he does, then good on him even if I don't understand the rest of it.

Can this sort of head in the sand concept work for investing, can there be a Blockade portfolio or strategy? If you're 45 today and your only capital market exposure is a 401k that you started funding 20 years ago with your first real job you have seen the S&P 500 go up 160% plus maybe another 40% (simple math) for dividends or a total return of 200%. Saving $500 a month for those 20 years and putting it all into an S&P 500 tracker would have you at close to $375,000 at only 45 years old. One flaw is my math is the linear return assumption but the point is clear. Despite two calamities and a couple of other serious scares if you just continued to put it all into equities as a young person and paid no attention to the news your portfolio would be in very good shape.

In this context I often talk about the belief that just buying an index fund and having an adequate savings rate can get the job done provided the asset allocation is suitable. At some point 100% equities is unsuitable. Also at some point sequence of return matters. Sequence of returns is just that, the sequence of returns you get, up 2% this year up 11% next year and so on. Having a year like 2008 happen to you a year or two or even three before you intend to retire could create planning problems. If you think you need $750,000 at age 60 in order to retire, you're at $735,000 with 12 months to go and then the S&P 500 cuts in half, you'll have a problem depending on how much you had in equities.

A 2008 event happening when you're 45 is arguably a positive in that you will be buying more at much cheaper prices for a while and when that new high eventually comes, you will be far better off.

This really is about the extent to which almost all of the ups and downs in the markets, the talking heads who play into peoples fear and greed is all just noise. The last 20 years shows it. Avoiding the news and staying disciplined (sticking with the monthly 401k contributions no matter what) would have you in great shape. All the better for increasing the savings rate as a function of hopefully earning more money.

The takeaway is not to just buy an S&P 500 tracker but once you accept the extent to which just about everything is noise until it can alter your life plans, it should then become easier to navigate market cycles. As the market was going through it's bottoming process I said many times that a new high was a matter of when not if. And while that seems obvious now thanks to hindsight bias, you should remember that people thought the world was ending. A new high was inevitable for the simple reasons that this is simply how markets work. Every so often they scare the hell out of a lot of people and then a little while later they recover and make a new high. Here's one link from late 2008 where I call for a massive rally in 2009. This was an incredibly safe prediction for the simple reason, and history backs me up on this, the market is a lot less likely to go down a lot after it has just gone down a lot.

Take the logical approach and stay disciplined. Easier to say than to do but once you get there you will do much better with your investing.

The Mint 400 is today and the picture is from an app where you could plug in your own picture and type something. We didn't actually take our 32 year old engine and race it in the Nevada desert.