Dear investors,
UPDATE FEBRUARY & MARCH 2024: RVM RETIREMENT AT A NEW ALL-TIME HIGH
February was a great month for the AEX, with a value increase of +3.99%. March was also a very positive investment month for the Dutch index, with +3.93%.
RVM Strategy performed –1.67% in February and +1.03% in March. RVM Retirement performed slightly better, with +1.98% in February and +1.77% in March, and continues to set new all-time highs. The AEX also did so in February and March.
Why is the index currently outperforming most trading systems and/or investment funds, and why is RVM Retirement currently outperforming RVM Strategy?
THE SUPERIORITY OF THE INDEX IN FEBRUARY AND MARCH
Neither RVM Strategy nor RVM Retirement were ever designed to beat the index, even though they have done so since their launch on January 1, 2019.
This is very important to realize. The fact that the index has been beaten is great news, as it proves the quality of the system, because a period of more than five years is fairly representative. But it cannot be a goal in itself.
Why not?
Because the performance of an index is unpredictable. Economic cycles are also unpredictable. Before you know it, it turns out to have been 1929, and we only see that peak in the index again 25 years later. Before you know it, it turns out to have been September 2000, and we only see that peak again 21 years later.
I write here "before you know it," and this mainly means: it is impossible to predict. So anyone who had plenty of time and was young in 1929, and kept their job (which was quite a feat in those times of crisis), was ultimately able to reap the rewards in the 1950s. The same was true for those who entered the market at its peak in the Netherlands in September 2000. Those who had the time could buy a little more each year, received dividends (very important in the long term), and in the very long term, everything turned out fine.
Every investor must understand this: don't be swayed by the issues of the day! The issues of the day are all well and good if you happen to be invested in companies that are doing well, or in sectors of the economy that are growing strongly. Of course, this also requires 'vision', and those who have done this well can be proud of themselves. But the essence is, above all, to remain level-headed, to focus not only on price movements but also on fundamental developments, and above all, to try to look ahead.
Take A.I..
A.I.
This year, 2024, has so far been characterized by a surge in value in all companies involved in artificial intelligence. People on Earth are asking themselves all sorts of questions. For example, will computers soon be able to compose better than Johann Sebastian Bach? Answer: computers will probably come very close, but we cannot say for sure. Nevertheless, it could have a significant impact on copyrights for living composers, and many people could lose their jobs, especially in computer music (the so-called "dance" music that Dutch DJs are so good at). Will AI-related software and AI-controlled voice computers soon replace entire groups of people working in the service industry? Will they be able to design buildings independently, with humans only needed to 'monitor the process'? This would make all kinds of products and services cheaper for employers and consumers, so it is logical that investors are enthusiastic about this.
So is this a hype that we can say is not exaggerated, and that the euphoria will continue for a long time to come? Or is this the aforementioned fad that investors should be extremely wary of?
The frustrating thing about the stock market is that there is no answer to this question.
ANALYSTS AND THEIR FORWARD-LOOKING PERSPECTIVE
You can hold a microphone under the nose of a specialist, someone who has been working in the field for half their life. In stock market matters, such a person is called an analyst, usually employed by large investment institutions.
If that analyst is honest, he or she can only say: this is what I think and this is my view, but whether that view will come true and be reflected in the stock market? We cannot know that.
Anyone with experience remembers how enthusiastic certain analysts were in the spring of 2007 about the future of all kinds of companies. Buy recommendations were pouring in. And it was the same in 1999. Not long after, the fun was over. That's how it goes: the recommendations follow the existing increase in value, and the downward revision of profit expectations happens after the price of the underlying asset has already fallen significantly.
When the calf is lost, one fills in the well.
The main lesson from the past is therefore that no one knows anything for sure. In 2009, certain hedge fund managers were hailed as heroes for having predicted the crash and profited from it. But what happened in the years that followed? Many of these brilliant funds underperformed significantly because the pessimism among these investment strategists had not yet subsided, while the stock market—in hindsight—had already bottomed out.
STICK TO YOUR INVESTMENT SYSTEM IF IT HAS PROVEN ITSELF
The best conclusion about AI developments is therefore: no one knows, because it concerns the future.
So if you haven't designed an investment system with fixed trading rules that you never deviate from, tested rules that have an excellent long-term track record, the best advice is: join forces with people who have built such a system (1) and (2) if you still want to do it yourself, try to take a fundamental approach.
What is the price-earnings ratio of Nvidia, or other big earners from the AI revolution? What are the forecasts for the coming years and how realistic are they?
An attempt to take a fundamental view and then say, "I think this company is too expensive," or "I still think this is cheap," is a defensible position for an investor. As long as the consequences of what may turn out to be a mistaken view are accepted.
The bottom line for me is this: we have spent a long time developing the RVM systems, and we believe that it is a good idea for every investor to follow RVM Strategy and/or RVM Retirement. The systems are only partially dependent on the issues of the day.
In terms of AI, my personal portfolio contains everything that could be considered AI-related, and RVM Retirement is also partly invested in AI-related companies.
This has been partly a deliberate strategy, but we remain very cautious. Trading rules and quantitative calculations continue to guide our decisions. We are not concerned with 'headlines' when it comes to the stock market; we remain 'factual' and continue to calculate in the usual way.
EVEN A GOOD TRADING SYSTEM DOES NOT BEAT THE INDEX EVERY YEAR
Quality in an investment system does not mean that the index will be beaten every year. With RVM systems, that is not the goal at all, as you have read above.
In addition, working towards a specific end result is dangerous for investors.
You have to accept that you chose Unilever as your major investment in 2018 and not Nvidia.
Let me give you a real-life example. One of the people in my advisory practice had done this: invested heavily in the "solid" Unilever, and then saw no return on their investment for years.
In 2024, the consequences will be significant; Unilever investors will have received only a good dividend, while Nvidia investors will be basking in the luxury of insanely high returns.
Nevertheless, I was able to reassure my client.
No, you made very little mistake in taking this decision. You have nothing to reproach yourself for. Unilever was a defensible investment in 2018, and still is today.
In other words, if your asset manager had decided to do this in 2018, it would have been unfortunate, but it would not have been a bad decision. We have to accept that as investors we face this paradox: we have to look ahead, even though we don't know what the future holds.
Furthermore, a price is not the same as a value, and neither price nor value can be forced.
For an investment systematist, however, the Unilever case is different. We calculate price targets on a weekly, monthly, and multi-year basis. If we had been managing only Unilever for a client, we would have applied all of our algorithm's calculations to Unilever. This would almost certainly have yielded the client a much higher return than simply holding Unilever shares for six years.
This is the added value of the algorithm we use in the RVM systems. This algorithm works on all underlying values and can thus increase the return on an underlying value, while it remains in the portfolio.
IS IT WISE TO FOLLOW AN INDEX?
We have thirty years of experience in the stock market, including 18 years as systematics/system builders.
Following an index is often a good idea.
However, because there are no certainties, if you do this, you must accept the negative consequences in advance: your returns will go down if the stock markets perform poorly.
If you want to be less affected by stock market declines, you should follow RVM Strategy or another market-neutral system that has proven itself sufficiently.
Because we generally consider index tracking to be defensible, index tracking is part of the RVM systems; however, never 100% and not under all market conditions. There must be a mathematical green light to do so.
Anyone who experienced the periods 2000–2003 and 2007–2009 as an active investment strategist knows how sharply an index can fall.
In times like these, it is wise for investors not to follow the index. There must therefore be a strategy that is determined in advance and that ensures that profits can be made in such periods, despite the fact that the index is falling, or at least that the managed account performs better than the market during such a period.
In general, we at RVM Systems consider the arrival of ETFs for tracking indices to be a positive development. This makes it possible for small investors to participate in economic developments across entire sectors.
WHICH OF OUR SYSTEMS DO WE PREFER?
That varies. As we experience a longer period of favorable stock market prices, we will be more likely to recommend new clients to opt for the market-neutral system, i.e., RVM Strategy.
Indeed, we advise slightly contrary, if one wants advice.
Although prices can rise for a long time (and fall for a long time), there are generally cycles. And cycles also have downward periods. This must be taken into account, even if it is not yet the case.
OUTLOOK FOR THE MONTH OF APRIL 2024
For the month of April, we had anticipated a new all-time high for the AEX, which materialized shortly after Easter.
We have also been able to calculate higher price targets for the longer term, but we have no idea when these will be achieved. There is no timeline.
So we focus on implementing the investment system, as always.
SUBSCRIBE TO OUR SYSTEMS; MANY HAVE GONE BEFORE YOU
If you are not yet a follower of RVM Strategy or RVM Retirement, you are welcome!
Most investors who ever decided to follow have never left.
Sincerely,
On behalf of Van Megen Systematic Trading, Ruud van Megen