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May was a slightly positive month for the AEX with + 0.27 % for the month.
RVM Strategy was - 2.06 % in May. The reason for the loss was a position entered into in April. It was an insurance downside which did not belong to the 'classic' RVM Strategy positions, but which we found necessary to include in the uncertain stock market climate. In the end, we came very close to another good month, but the very last trading day for the May options, the expiration day, was ultimately unfavourable.
In our system, "uncertain" does not mean that the prices of most companies fall, or that indices fall. Our momentum system can cope with that, statistics show. The system is market neutral, as explained earlier.
So "unsure" is about something else.
Our algorithm makes projections for the future on all kinds of timeframes. Where ultimately our first loss for a month in 2019 came from at RVM Strategy was a statistical peculiarity. In the May options expiration week, we saw a record number of days that all by themselves showed a large trend change; all days fell outside the trend-following calculation made for that day.
Nevertheless, we were able to deal with it systematically until the day before expiration. However, the latter day fell outside the calculation due to another extreme trend reversal compared to the previous day. There was no time left to react.
If you look at the graphs, when we say "this is beyond calculation", or "uncertainty", you see a huge bounce in prices. In the end, it often turns out that on a larger timeframe there was no trend.
But trendlessness or trendiness can only be determined after the fact.
And then the sober conclusion is that when it comes to position choices, one can only to a certain extent take into account both trendlessness and trendiness.
An equally sober observation is that RVM Strategy's core business, with its classic positions, remained profitable in May.
RVM Retirement gained - 3.37 % in May.
The slightly larger loss here stems from the decline in value of the fixed interests.
We are not worried about this. We hear stock market analysts state here and there that we are now officially in a bear market, and the criterion is that a market or an underlying asset must have fallen by 20% or more in value.
But such definitions tell us nothing. We have several criteria for being allowed to hold long-term interests, and only one of them has anything to do with price formation. And the -20% mentioned is not relevant.
THE COURSE TO JUNE 2022
At the time of writing this update, on 14 June, June is a particularly weak month on the AEX, with more than - 8 % compared to the May closing for our index.
Our momentum strategy has been profitable so far in June. We will see whether this remains the case. In any case, so far it has been a relatively trend-following month, so in that sense much "easier" for us than May.
We hope, of course, that the system will continue to function as usual for the rest of the month.
OUR OPINION ON THE MARKET
We continue to believe that, although the market is currently very negative, we have seen falls in certain technology stocks in particular, which indicate that all the fantasy has gone out of them.
Those who are now suddenly amazed by this are a little late in doing so.
Although valuations can always be lower, especially in an environment of war in Europe and interest rate hikes by central banks, we are still not negative on the equity market for the longer term. We know the examples from the past of high inflation and of fighting inflation by raising interest rates. As long as, for example, inflation in raw materials can be passed on by companies without buyers pulling out, this need not mean much for the strength of a company and therefore for the price of a share.
If buyers drop out, it is of course a different story.
But share ownership can usually protect against monetary depreciation better than owning savings or holding government bonds.
In the mother of all monetary crises, the Weimar Republic crisis of 1923, share ownership partly protected against hyperinflation. American investors who held shares in German listed companies saw an average capital gain of 400 % on those holdings at the time, expressed in dollars.
In short, we do not consider enormous inflation to be an argument against share ownership - quite the contrary, in fact, no matter how negative the stock market trends are at present. It is currently a better time for individuals to make purchases than at the beginning of the year. We do not know the future either, so everything could very well be much lower still. So we can only look at fixed parameters. And then the sober observation is that many well-run companies have now become much cheaper on the stock exchange, while not much has changed in the business.
INVESTOR EMAILS
Finally, a word on what investors sometimes tell us in their emails and requests for advice and participation in the systems.
A very experienced investor wrote to us: "My capital has already lost 20% of its value with investment institution X. I would like to bring it to you, because I see that this would not have happened with you. But the fall in value really must not continue. I know you can't guarantee me anything, but this - 20% is the maximum, it must not go any further."
You can probably guess our answer to such a question/determination.
In such a case, we write that we can understand the sentiment all too well, that a 20% drop in the portfolio is not fun for anyone. But unfortunately this can be part of it, especially when an investment institution holds long-term stakes, as many asset managers do.
If someone really does not want that, we can only recommend not to invest in RVM Retirement, but only in RVM Strategy. Also there, profits are not guaranteed and it is possible that we have to face a bigger loss, but it is one of the most prudent investment approaches that can be found in the Netherlands, and perhaps also outside the Netherlands.
And that is an objective observation.
With this system, very high profits are virtually out of the question. If an investor is well aware of this, we welcome someone like the letter writer quoted above.
And, of course, we welcome all those who seek a sound statistical approach.
You are welcome to join RVM Strategy and/or RVM Retirement.
Many people have gone before you!
Sincerely,
Ruud van Megen