In this video, Matt Blocki addresses common concerns about recessions and the importance of maintaining an “all-weather” investment portfolio designed to withstand various economic conditions. He emphasizes staying invested in the market to avoid the pitfalls of trying to time market movements. Matt introduces the concept of quality-based factor investing, highlighting its advantages, such as lower risk and potentially higher returns compared to the broader market. He explains that quality investments focus on companies with high return on equity, low debt-to-equity ratios, consistent growth, and high profit margins, making them resilient during economic downturns and interest rate hikes.
Oftentimes we get the question, you know, Matt, are we in a recession? Are we headed into a recession? How likely is a recession? With all the news outlets, social media out there? Obviously studies have shown the views on. A negative news story are going to. Be, you know, probably ten x those. Of a positive story. so one of the things that. We find is very helpful when it comes to investing and staying focused and. Disciplined long term is having an all weather portfolio. An all weather portfolio is something, regardless. Of what economy we’re in for an. Early, mid, late recession doesn’t matter. The portfolio is going to support your life by design, no matter what. One of the huge things that we’re. Advocates of is always staying in the. Market, because the probability that you can get in or out, timing the right. Twice is going to be long term. Even if you get it right once. Or twice, it’s going to be devastating to the growth of your portfolio long term. So then the question becomes, if we’re. Going to stay in the market, what companies do the best based upon what stage of the economy we’re in. And right now, one thing that we’ve. Been focused on is quality based factor investing. So, quality investing on the screen, and this shows data from 2003 to 2023, all in the US type investments, what the risk was over those 20 years and then what the returns were. So if we look at quality compared to the market, here’s the market. We had a lower standard deviation, so lower risk and a little bit of a higher return. So a lot of people are the. Advocates of let’s just index right in the market. Well, this is a way to do. That, but focus on certain factors of. Companies inside of the market. So quality really focuses on a couple of things. One, high return on equity, low debt to equity ratios, consistent growth and high profit margins. Why is this important? Because let’s look at what’s happened in. The last 18 months. Interest rates have skyrocketed. And if you have a company with low debt and a great balance sheet with cash, those interest rates going up are not going to affect you. If you look at small cap companies got crunched with cash. A lot of their initiatives were funded by debt. And when the debt, the interest rates on that debt skyrocketed, maybe went from 3% to 7%. The cash flow crunch that a company feels if their balance sheet is riddled with debt, can be devastating to their operations of the business. So investing in quality during a late. Stage recession, it can really protect some. Of the volatility that you would otherwise. Experience if you were investing in value. Oriented or more growth oriented companies that. Have a lot of debt on their balance sheet, et cetera. So we never are advocates of timing the stock market, but the factors that. We look at to always stay in. The market can be a crucial way. To make sure that your balance sheet. Is always supporting your life by design. No matter what type or what cycle. Of the market that we are in.