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Always Look on the Bright Side (read that without whistling!)…

“You’ve Got to Go Through Hell Before You Get to Heaven”

J. Patrick Collins Jr., CFP®, EA

But my heart keeps calling me backwards
As I get on the 707
Ridin’ high I got tears in my eyes
You know you got to go through hell
Before you get to heaven

– Jet Airliner, Steve Miller Band

One of the first real rock concerts I ever attended was the Steve Miller Band. I didn’t know much about them at the time, but after going to the concert, I found that one of my favorite songs was Jet Airliner. Listening to it reminds me of what’s been happening in the stock market lately. The song is about a man who leaves home to presumably find a better life.

It’s the last verse that strikes me as so relevant today- “you know you got to go through hell before you get to heaven”. Anyone who is a stock market investor can empathize with those words, especially the last couple months. And that is really the best way to explain the feelings we all go through when we invest- going through hell to get to heaven. Here is what “hell” looks like:



These are the worst markets we have experienced in the US and if you lived through them, you no doubt remember the fear and anxiety they created. It truly is a gut wrenching experience to see 40, 60 or 80% of your wealth evaporate over the course of a few months or years. But the other side of that lyric is when you “get to heaven”. For those who can put up with the “hell” of short-term losses, the “heaven” of incredible wealth creation awaits them:




This chart shows how much $1 in the S&P 500, invested in 1926, is worth at the end of the February of 2020. You are reading that right- it is $8,567! Those who can put up with the hell of volatility certainly achieve the heaven of long-term wealth.

There is another part of the song that also has a corollary with today’s market. The idea of leaving home for a better life. As investors we can either invest in the broad market through an index fund or we can deviate (“leave home”) from the market portfolio by overweighting an area of the market that we think will have higher long-term returns. Most of the time deviating from the market is a waste of time and money. Traditional managers do it through timing the market or overweighting a stock or sector. We believe academia has showed us a better way. By overweighting factors such as the size of a company and how expensive its stock is trading, we find empirical evidence of out-performance. Let’s see how that has fared when we look at the US market versus a US market portfolio tilted towards small and value stocks and a portfolio of only US small cap value stocks:



The US market portfolio that is tilted towards small and value stocks has generated nearly 3x as much wealth as the market over the last 93 years. And the small cap value only portfolio has generated nearly 15x as much wealth as the market. Unfortunately, that additional wealth isn’t given to you for free. You have to pay for it with additional volatility and long periods of underperforming the market portfolio. We are going through one of those periods of “hell” right now:



Over the last year, ending on April 14, 2020, US small cap value (the asset class that has generated 15x more wealth than the overall market over the last 93 years) has under-performed every other asset class by a large margin. This isn’t the first time we have experienced this type of deviation from the overall market’s performance. While extremely painful, we know this is one of those periods of hell we have to go through to get to heaven. So, before you get on that jet airliner to leave your home, make sure you understand not only the great times ahead of you, but the intermittent pain that can come from leaving.

If you are wondering how your portfolio is positioned across all of these different factors we’ve discussed, please don’t hesitate to contact Greenspring. We are happy to help you understand where you are and if any changes are warranted.