Investment Portfolio Tips

This man predicted the future. Here's how he beat the market for 13 years: David Dreman discovered why investors will pay 100x what a stock is worth when they're in love with it. His strategy flips conventional wisdom: Buy what others hate. Sell what others love. For decades, he got results by loading up on stocks that were overlooked, beaten up, or in the midst of crisis... Then unloading them when the market valued them at about the same level it valued most stocks. 7 counterintuitive principles from Dreman: 1. The Emotion Canyon The moment you get emotional about an investment, you've lost objectivity. Keep a canyon between emotion and action. Dreman picked a data-driven approach, and then he stuck with it. BUT... 2. No Strategy Works ALL the Time • Take no risk = inflation nibbles at your $ • Take little risk = you can get rich, slowly • Pick a strategy, run the process, iterate when necessary = higher reward, but higher risk 3. Diversify Widely Dreman doesn't play with 10-20 stocks. He holds 50-60 positions, all equally weighted. "If you're right 60% of the time, you're doing very well." 4. Avoid Complexity Don't invest in what you don’t understand. Never, EVER invest in what the pros don’t even understand “Even when you talked to senior people at major banks [during the '08 crisis], they may not have known themselves how much they owned in subprime.” 5. Be a Surgeon Cut out cancers. "Temporary" problems have a nasty habit of becoming permanent. A loss is a loss. Dreman says cut it fast. 6. Billions in the Boring 9 times out of 10, the reason why people overpay for deals? They value sexiness over financials. “People like exciting stories. They don’t like boring companies. That is the normal cause of investor overreaction.” – Dreman 7. The Dark Side of Being Contrarian When you’re right, you’re REALLY right. But when you’re wrong, the danger of going the opposite direction from everyone else catches up with you. Trends come and go. Strong fundamentals endure. Here's the thing about market psychology: It hasn't changed since Dreman started studying it in the 70s. People still fall in love with stories. They still overpay for hype. They still panic sell at the bottom. That's your edge. If this was useful, feel free to follow me → Codie A. Sanchez

I just read Goldman Sachs 118 page market outlook. It's a beast. If you're not an investment nerd and/or would rather claw your eyes than read this thing... here are my three main takeaways: 1. Expect lower returns compared to the past decade's record bull market, given high valuations and economic uncertainty. 2. Investors should be prepared for greater volatility and consider rebalancing their portfolios. 3. "Diversification into income assets and alternative investments is recommended to hedge against market volatility" A couple of our investors recently asked for my thoughts on the market given the uptick in volatility. Over the short term? I have no idea and wouldn't wager a bet. Ignore anyone that gives you a prediction with any confidence. Over the medium term? The (S&P 500) is expensive, top heavy and is likely to disappoint over the next 5 years. See the graphs below from JP Morgan, who basically agrees with Goldman on the above. These are regressions that analyze starting price vs. forward returns (1 vs. 5 years). Over a one year time period (the left graph), starting valuation is useless information. Results are random. Yet over 5+ plus years, starting price (while not perfect) is far more instructive. JP Morgan's research suggests we should expect mid-single digit forward returns (~5%). Ouch. That is just a tad bit lower than the record 13% we've seen the last 10 years. Call me crazy, but if you're an accredited investor it's probably time to add a healthy amount of non-correlated assets to your equity holdings. For them our portfolio recommendations are heavily skewed (25-50%) towards private assets in an effort to boost returns, income and mitigate downside risk.

Protecting the Downside, Enjoying the Upside： Private Credit exhibits the lowest volatility and smallest drawdowns among alternative asset classes as you can see in the Pitchbook table below. Compared with private equity, real estate, venture capital, and secondaries, private credit shines with a volatility measure of 7.7% since year 2000. 7.7% is a fraction of equity market, and considerably less than PE and CRE due to its structural advantages. Its fixed-income nature provides stable and predictable cash flows through interest payments, insulated from market swings. Senior secured Direct Lending and Asset-Based loans are the hallmark for Private Credit, prioritize repayment, reducing default/loss risk. Diversification across industries, asset type and borrowers mitigate sector-specific shocks. Unlike private equity or venture capital, Private Credit volatility is muted compared to equity market volatility. Real estate faces property value fluctuations especially in a rising rate environment, while secondaries take-on the same risk of the underlying PE fund (albeit at discounted valuations). Over multiple business cycles, Private Credit has earned its reputation of ‘steadfast & reliable’ that stems from its contractual cash flows and covenant structuring strengths, helping to mitigate drawdowns. During the COVID collapse the drawdown for Private Credit was 0.4%, its best showing ever! My rule of thumb to strive for when investing is to generate an absolute annual return that is 50% higher than the annual volatility of that same investment (potential drawdown) of that investment. Across multiple business cycles, this rule results in superior performance, more consistent returns. Private credit is a resilient, income-generating allocation for any resilient (alternative assets) portfolio.

We continue to advocate that investors think differently about their asset allocation strategies, especially given the higher nominal GDP environment in the United States. Specifically, our Regime Change thesis focuses on four key inputs (bigger deficits, heightened geopolitics, a messy energy transition, and stickier services inflation) that we think necessitate a new approach to traditional asset allocation strategies for investors. What do investors need to know? 1: 𝐖𝐞 𝐚𝐭 𝐊𝐊𝐑 𝐞𝐱𝐩𝐞𝐜𝐭 𝐟𝐥𝐚𝐭𝐭𝐞𝐫 𝐫𝐞𝐭𝐮𝐫𝐧𝐬 𝐚𝐧𝐝 𝐢𝐧𝐜𝐫𝐞𝐚𝐬𝐞𝐝 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧𝐬 𝐭𝐨 𝐧𝐨𝐧-𝐜𝐨𝐫𝐫𝐞𝐥𝐚𝐭𝐞𝐝 𝐚𝐬𝐬𝐞𝐭𝐬 𝐢𝐧 𝐩𝐨𝐫𝐭𝐟𝐨𝐥𝐢𝐨𝐬. The five-year forward median return across asset classes we forecast is fully 180 basis points lower than what we saw over the last five years (meaning there will be less differentiation between the best- and worst-performing assets in a portfolio, on average). At the same time, ‘old’ #portfolio correlations are breaking down, so asset allocation – not single asset volatility – has a much bigger impact on overall portfolio volatility. Our message is to seek out – all else being equal – more uncorrelated assets in one’s portfolio. 2. 𝐎𝐰𝐧 𝐦𝐨𝐫𝐞 𝐜𝐚𝐬𝐡-𝐟𝐥𝐨𝐰𝐢𝐧𝐠 𝐚𝐬𝐬𝐞𝐭𝐬 𝐥𝐢𝐧𝐤𝐞𝐝 𝐭𝐨 𝐧𝐨𝐦𝐢𝐧𝐚𝐥 𝐆𝐃𝐏 𝐠𝐢𝐯𝐞𝐧 𝐭𝐡𝐞 𝐡𝐢𝐠𝐡𝐞𝐫 𝐫𝐞𝐬𝐭𝐢𝐧𝐠 𝐡𝐞𝐚𝐫𝐭 𝐫𝐚𝐭𝐞 𝐟𝐨𝐫 𝐢𝐧𝐟𝐥𝐚𝐭𝐢𝐨𝐧 𝐭𝐡𝐢𝐬 𝐜𝐲𝐜𝐥𝐞. This includes building flexibility across mandates and carefully considering duration. As such, we strongly believe that an overweight to modestly leveraged Infrastructure and certain Real Estate investments with yield is prudent for adding ballast to one’s portfolio. We are also quite constructive on Asset-Based Finance, which provides numerous shorter duration opportunities with good cash flowing characteristics and sound collateral. 3. 𝐎𝐰𝐧 𝐦𝐨𝐫𝐞 𝐚𝐬𝐬𝐞𝐭𝐬 𝐰𝐡𝐞𝐫𝐞 𝐲𝐨𝐮 𝐜𝐨𝐧𝐭𝐫𝐨𝐥 𝐲𝐨𝐮𝐫 𝐝𝐞𝐬𝐭𝐢𝐧𝐲, 𝐩𝐚𝐫𝐭𝐢𝐜𝐮𝐥𝐚𝐫𝐥𝐲 𝐢𝐧 𝐚 𝐰𝐨𝐫𝐥𝐝 𝐰𝐡𝐞𝐫𝐞 𝐭𝐫𝐚𝐝𝐞 𝐛𝐚𝐫𝐫𝐢𝐞𝐫𝐬 𝐚𝐫𝐞 𝐢𝐧𝐜𝐫𝐞𝐚𝐬𝐢𝐧𝐠. We suggest tilting portfolios towards domestic consumption stories. We also favor more control situations, especially in the private markets, where operational improvements or strategic consolidation can, at times, drive robust profit growth, especially in #PrivateEquity. We continue to favor political changes that drive corporate reforms, hence our optimism around investing in #Japan. Still, as the convergence and blurring of the lines between national and economic security gains momentum, we expect to see more policies that encourage domestic savings, higher profits, and a lower cost of capital. Read more on asset allocation and portfolio construction in our Outlook for 2025: https://go.kkr.com/3v0WI7Q

Real assets, real hedges against inflation Uncertainty abounds as investors contemplate how #tariffs and rapidly shifting fiscal and regulatory policies may affect economic #growth and #inflation. As for monetary policy, the Federal Reserve remains in a data-dependent, wait-and-see mode, reflected in its January meeting minutes released last week. The Fed indicated it will “take time to assess the evolving outlook for economic activity, the labor market, inflation, with the vast majority pointing to a still-restrictive policy stance.” In other words, #markets shouldn’t be holding their breath for the next interest rate cut. Stubborn inflation has altered our base case to just one 25 basis points (bps) rate reduction from the Fed in 2025, likely in the second half of the year. Meanwhile, investors seeking inflation protection have been buying gold, traditionally a popular investment choice during periods of high inflation anxiety. But there are other options. Real assets such as real estate, #infrastructure, farmland and timber have historically offered favorable total returns and — unlike gold — generated income to buffer the impact of inflation. An allocation to real assets in a diversified portfolio may help preserve future purchasing power, and, relative to a conventional 60/40 equity/fixed income mix, potentially improve risk-adjusted returns without sacrificing growth potential. What’s more, real assets are currently trading at attractive levels compared to U.S. equities, where valuations look stretched. For more detailed analysis and insights on allocating to income-producing real assets as a hedge against inflation, check out our latest CIO Weekly Commentary, “Inflation hedges: gold is not all that glitters”: https://lnkd.in/gJKURdAk In the current environment of policy uncertainty and still-elevated inflation, would you consider adding real assets to your portfolio?

Some top investing principles from studying Bill Ackman over the years. Read this carefully. Each word below is a key to his strategy. Focus on Quality Businesses: Invest in simple, predictable, cash-flow-generative companies with strong competitive advantages, high returns on capital, and minimal exposure to uncontrollable risks. Concentrated Portfolio: Maintain a focused portfolio of 10–20 high-conviction investments rather than over-diversifying. This allows deeper research and better management of each position, maximizing returns. Deep Research is Key: Conduct thorough fundamental analysis of a company’s financials, management, and industry before investing. Activist Investing for Change: Take large stakes in undervalued companies and if needed actively push for strategic or management changes to unlock value, (he did this in his Canadian Pacific Railway turnaround). Long-Term Perspective: Focus on long-term growth and fundamentals rather than short-term market fluctuations. Contrarian Thinking: Be willing to take unpopular or unconventional bets when research supports the thesis, such as his investment in General Growth Properties during its bankruptcy scare (his fund made $1.6 billion on a $60 million investment) Risk Management: Use hedging strategies and avoid over-leveraging to protect against market downturns. Ackman’s $2.6 billion gain from a $27 million hedge during COVID-19 exemplifies this. Cut Losses When Wrong: Acknowledge mistakes and exit losing positions rather than doubling down. Ackman’s prolonged Herbalife short was a lesson in accepting defeat sooner. Balance Confidence and Humility: Have strong conviction in your investment thesis but remain humble enough to learn from errors. Invest at Reasonable Prices: Buy undervalued stocks with a margin of safety to reduce risk. Ackman targets solid companies overlooked by the market for better entry points.

Fed Chairman Jerome Powell indicated that the Federal Reserve is preparing for interest rate cuts, emphasizing that the time has come for policy to adjust as inflation has significantly declined and the labor market is no longer overheated. In his speech at the Fed's annual retreat in Jackson Hole, Wyoming, Powell noted that while inflation is still above the Fed’s 2% target, the progress made allows the central bank to focus equally on maintaining full employment. He acknowledged the need to adapt policy based on incoming data and evolving risks, without specifying the timing or extent of the rate cuts. On Friday, he said, “The time has come for policy to adjust,” and added, “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.” With the Federal Reserve signaling potential interest rate cuts, investors should consider adjusting their financial planning and portfolios to align with the changing economic environment. Here are some steps to consider: 1. Review Fixed-Income Investments: Interest rate cuts typically lead to lower yields on bonds, money markets, and CDs. However, existing bonds may increase in value as their higher rates become more attractive compared to new issues. If you prefer or need fixed income, now is the time to review your positions and consult with an experienced Sun Group Wealth Partners advisor. 2. Reevaluate Equities: Lower interest rates can boost equities, particularly growth stocks, as borrowing costs decrease and economic conditions potentially improve. However, it’s important to assess sector exposure, as some industries, like utilities may perform better in a lower-rate environment. This could be favorable for those who have been waiting for mortgage rates to come down. 3. Consider Dividend Stocks: With rates potentially decreasing, the appeal of dividend-paying stocks or notes might increase, especially those with strong fundamentals. These can provide a steady income stream as bond yields decline. 4. Stay Diversified: Maintain a well-diversified portfolio that can withstand various market conditions. Diversification across asset classes, sectors, and geographies can help manage risk during periods of economic adjustment. 5. Prioritize Financial Planning: Keep your budget in line, focus on needs vs. wants, and set up auto-savings/auto-investing for your important long-term goals such as retirement or education planning for your family. This is also a good year to explore your estate-planning needs. Sun Group Wealth Partners has significant resources to assist with your future planning. 6. Stay Informed: Continue to follow our weekly newsletter and watch our videos. Together, we can monitor the Federal Reserve’s communications and economic indicators. The timing and pace of rate cuts will depend on evolving data. Thank you, and please reach out if you have any questions.

One of the most concerning developments is the growing divergence between professional and retail investors. Institutional investors have quietly reduced risk, shifting toward defensive sectors and fixed income, while retail traders continue chasing speculative trades. Sentiment surveys confirm this imbalance, showing extreme bullishness among small traders, especially in options markets. With these risks building under the surface, prudent investors should proactively protect their portfolios. No one can predict precisely when the market will correct, but the ingredients for a sharp downturn are clearly in place. Savvy investors should use this period of complacency to reduce risk exposure before the cycle turns. Here are six practical steps investors should consider: ▪️ Rebalancing portfolios to reduce overweight exposure to technology and speculative growth names. ▪️ Increasing cash allocations to provide flexibility during periods of volatility. ▪️ Rotating into more defensive sectors like healthcare, consumer staples, and utilities that tend to outperform during corrections. ▪️ Reducing exposure to leverage by avoiding margin debt and leveraged ETFs. ▪️ Using options prudently—not for gambling, but for protecting portfolios through longer-dated puts on broad market indexes. ▪️ Focusing on companies with strong balance sheets, stable earnings, and reasonable valuations. ▪️ The explosion of zero-day options trading is not a sign of a healthy market. It is a symptom of an unhealthy market increasingly driven by speculation rather than investment discipline. Retail traders have moved from investing to gambling, chasing fast profits while ignoring the mounting risks. Greed is rampant, leverage is extreme, and complacency is near record levels. Markets can remain irrational longer than expected, but history tells us these speculative periods always end in a painful correction. Bull markets do not die quietly; they end with euphoric retail excess followed by painful corrections. Investors who recognize the signs early will avoid the worst of the fallout and be positioned to capitalize when value opportunities return.

Sell or Hold During a Market Swoon? Cash Flow Always Provides the Right Answer   In Fall 1990, I was down to my last few dollars in the bank and facing huge monthly cash outflow. Due to the recent real estate market crash and an economic recession, all my projects were bleeding cash. I eventually lost everything, giving millions of dollars of properties back to the banks or selling them at huge losses. How did others survive?   I would learn: always plan plenty of sources of cash flow.   We are in the midst of a severe downturn in the world stock markets. Most investment professionals are properly advising clients to hold on and not sell their portfolios. History supports this—markets often recover within months. However, this is little comfort to those anxious with seeing plummeting values of their 401(k)s and portfolio balances, especially if retirement is near or they depend upon these accounts to cover monthly living expenses.    The key to surviving any market downturn is to have planned monthly cash flow to survive…BEFORE the dive, not during it.   If you are in a situation where you have adequate cash flow from a job, pension, interest and dividend sources or cash in a savings account, the prudent answer for you is to hold on. You have the cash flow to do so.   If you find yourself not in a good cash flow situation, don’t sell everything in your portfolio—take steps to weather the storm: ·    Cut all unnecessary spending for the coming months. ·    Consider a home equity or personal loan to cover expenses. ·    If necessary, reduce your portfolio, prudently, to cover the gap. ·    If your advisor didn’t guide you properly before or during the dive, find another one. ·    Avoid checking your accounts balances daily.   Once this latest downturn is over and your portfolio has recovered you might ask yourself if you belong in the stock market or if your allocation to stocks is too high. Warren Buffett once stated that if you don’t have the stomach to see your portfolio value drop 50%, you don’t belong in the stock market.   However, having stocks as part of your portfolio is an extremely valuable investment strategy. Have stocks, but your focus should be to make sure you have enough cash-flow the next time the market falls.    During my career as a wealth advisor, I made sure people maximized and had many sources of cash flow. Now, as a co-founder of CakeClub™ (www.CakeClubapp.com), we make sure you are given the education and tools for this.   No one likes to see their portfolio values to fall. But the recipe to survive future swoons is prudently planning cash flow. Follow this recipe… and you will be able to eat all the cake you want during the next drop!   Follow me at Al@AlZdenek.com and CakeClub™ at CakeClubapp.com for my experiences and stories over my career. Help me help others achieve their dreams and live the life they want, now! Please repost. Thank you!

“Is Your Financial Plan a House of Cards? Your ‘secure’ plan may fall apart the second a recession hits. Want to know if it’s solid or shaky? Here’s how you can stress-test: 1. Cash Reserves → Can you survive a year without tapping into investments? → Double-check your liquidity buffers. 2. Investment Portfolio → Are you too concentrated in risky assets? → Diversify into recession-resistant sectors. 3. Risky Debt? Cut It. → Don’t wait for rates to spike—restructure or pay down NOW. → Avoid bleeding out cash on high-interest loans.