The stock market is confusing. Analysts predict something and give investment recommendations, but at the same time they add “well, but markets always behave in unpredictable manner.” It’s absolutely true, nobody knows for sure and that’s fine. Who to trust when your hard earned money is on the line?
We decided to do an experiment — to take portfolios of our favorite investment bloggers and backtest them against their predictions. Because you know, it’s easy to talk about the future, but reality hits hard.
The first one is Steve from Call to Leap.
Call to Leap’s Bold Stock Market Prediction
The video is from December 2021 where he predicted the fall of the stock market in 2022 and gave recommendations on portfolio. Honestly, it was so nice to meet someone who talks about what to do if you are loaded with tech stocks! Because, you know, everyone is!
He gave reasons for the market to fall and was right. Since then the market is down 20%, which signals about the upcoming recession.
The quality of the portfolio is all about allocation. So to prepare for the bear downtrend, your portfolio should reflect the market conditions. He gave two examples: for beginners and his own.
Portfolio Allocation for Dummies
By dividend stocks he means fundamentally and technically strong companies that have had a growing revenue stream for at least 5 years and an uptrend on the chart. And preferably they pay dividends. He didn’t specify companies or what is the threshold for dividends so for the sake of experiment we took both S&P 500 High Dividend ETF (companies with dividends above average) and regular S&P 500 Dividend ETF.
Overall, you would’ve had a little negative balance, but these strong companies do make a difference and pull up the portfolio.
How Steve’s Personal Portfolio Kicks Ass
Here’s Steve’s own portfolio allocation:
Steve has a more risky approach because one thing is that he’s an expert and uses tools such as options and inverse ETFs, another thing is Growth stocks. Yes, despite the name Growth stocks do not always grow. On the contrary, Steve warns that they fall first when the market gets shaky.
Unfortunately, we can’t backtest covered calls because of their short-term nature. So we’ll only consider the performance of the rest of the portfolio - Dividend stocks and Growth stocks.
Dividends ETF would be either +1,47% or +3,86%.
Growth stocks are represented by Big tech TTF which includes companies like FAANG, Adobe, Alibaba, Cisco, etc.
This is a bit of a disaster…
Just like Steve predicted they fell the worst and the fastest: -17,79% vs -4,06% for the S&P.
While for novice investors this might seem like the loss of their life, for Steve and more advanced investors such losses are not dramatic because they can leverage it with covered calls.
- Nobody can predict the future but getting close enough is enough
- There is no right or wrong approach, find a guide you like
- Understand your risk profile and which stocks and ETFs fit it
- Choose assets with a solid underlying business
What should a beginner's portfolio look like?
It should have 45% of S&P 500 index fund (like SPDR), 45% of Dividend stocks (check Gainy to see what fits you best) and 10% in cash.
What is Steve Call to Leap portfolio?
Steve has a more risky approach because one thing is that he’s an expert and uses tools such as options and inverse ETFs, another thing is Growth stocks. So he has 30% of Dividend stocks and/or ETFs, 30% Growth stocks such as FAANG, Adobe, Alibaba, Cisco, etc., and 30% of covered calls and 10% in cash or LEAPS.
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