Peak Size, Peaked Returns

Matthew Allgood |



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Is the AI trend the new dot com? The recent rally has disproportionately benefitted the largest companies in the US (like Nvidia and Microsoft). It can be tempting to want to chase these stocks near their all-time highs. What we have learned from experience is that chasing (buying high) can lead to poor investor outcomes (selling low).


The chart below illustrates the returns of companies before and after they become one of the top ten in the U.S. After joining the top 10, these stocks have fared poorly (and lost money) over the subsequent 3-, 5-, and 10-year periods!


While we don’t know the future, we DO know that active risk management is critical to investor success. This why we are remaining disciplined in our investment approach in managing your portfolio to your personal drawdown risk tolerance.



Peak Size, Peaked Returns


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Source: Dimensional, CRSP, Fama/French, Redwood. Data as of 6/28/2024. Date range from 1927-2023.The Fama/French Total US Market Research Index includes the lower 30% in price-to-book of NYSE securities (plus NYSE Amex equivalents since July 1962 and Nasdaq equivalents since 1973) (source:Fama/French from CRSP securities data).



Allgood Financial

Disclosure: This piece is for informational purposes only and contains opinions of Redwood that should not be construed as facts. Information provided herein from third parties is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Charts and graphs are for illustrative purposes only. Discussion of any specific strategy is not intended as a guarantee of profit or loss. Past performance is not a guarantee of future results. The objectives mentioned are not guaranteed to be achieved. Investors cannot invest directly in any of the indices mentioned above.


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