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How the Market Works, Retired

The Trump Top: Stocks vs Bonds & How the Market Works

Posted by kdadmin on June 14th, 2017.

The Trump Top: Stocks vs Bonds & How the Market Works

In the four months since Trump was sworn in, long term bonds have kept pace with the S&P500.

Think about that for a moment.

In spite of all the sound and fury coming out of Washington DC, the stock and bond markets have performed right in line with not only each other, but also with a market top. In spite of all the talk about “new math,” or “earnings don’t matter,” or even “robo-investing,” long term bonds continue to surge, and the stock market remains at a slow plateauing peak.

What does this tell you about the sanity of “alternative” investments?


Right now, it seems like every amateur investor fancies themselves a genius. (Sound familiar, 1999?) As in every amateur’s kid, brother, in-law, accountant, banker, dog, or monkey has a sure way to make money in the market. For these armchair investors, the fear of missing out is driving them to throw caution to the wind, ignore basic earnings math, and try to chase those last return bits that “everyone else” is getting. And right now, it seems the amateur investor’s concept of risk is only a memory.

This is not a new phenomenon. It happened in 1999. It happened in 2007. It happened in 1929 …

And by ignoring basic math, I mean doing stupid things like buying stocks that lose money every year (Tesla) but whose stock prices go up because they’re “cool.” Nevermind that a giant car company (GM) beat them to market with an affordable electric car. Or, maybe jumping into 2x, and 3x funds that multiply the return, and loss, of the S&P 500, be that up or down. Or, even getting all lathered up about alternative investments, derivatives, commodities, spreads, currencies, etc.

I call this “wing and a prayer” investing because you’ve got nothing to go on other than the wing of the amateur, or the alternative investment huckster, and your own prayers.

Performance Reality Check

As you can see in the chart above, since Trump was sworn in to early June, Vanguard Long Term Bond was up 6.46%. whereas the S&P 500 was up 6.4%. Will this trend continue? Maybe. But it’s not that easy.

But hey, long term bond strategies that have consistently done well at market tops are boring, right?

So, sure you could chase some random alternative investment like the other amateurs, risking it all, late in the game, even though you have enough points on the board to advance to the next level. I mean, why not risk it all for no good reason? Nothing ever goes wrong when investment decisions are fueled by emotion and ego, right?


I don’t know about you, but I’m not one to ignore the flat lining unemployment rate, demand curves, earnings or sluggish GDP. Not to mention the projections of a flat to falling stock market in the quarters ahead. For my quick primer on how different types of bonds perform in different markets, follow this link.

Why You Care

Risk is real. You may not remember it, but it remembers you. Think back to what you were doing in late 2007, early 2008. Were your emotions driving your investments then? Or was someone with a cooler head in charge? How did it work out in 2009? The top to bottom loss back then was about 67%. We averaged a loss in the mid teens. I aim to avoid that loss this time around.

Keeping money is as important as making money. If you had good returns for several years, and all signs point to a market top, it is NOT time double down. But rather squirrel away those winnings for a rainy day. It’s better to be content with boring returns until a real opportunity presents itself. This is how the market works.

Getting rich slow is still getting rich. The short term, flash in the pan, thrill of alternative or derivative investing is fun but not the way to grow real wealth. It’s too erratic and volatile. Instead, making money in good times, staying ahead of inflation in transitional times (tops / bottoms), and avoiding loss in bad times, is the real secret of not only getting rich, but staying wealthy enough to Live the Life You Love.


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