Teresa Rivas
The Santa Rally has gone missing. Worst-case scenario: St. Nick was abducted by ETs.
Just when you thought 2024 couldn't get any weirder, mystery drones burst their way onto the scene in New Jersey, and then proliferated -- if recent sightings are to be believed -- across the country and around the globe. Given that the "holidays are a great time to decompress and think about big picture topics," Humble Student of the Markets' Cam Hui argues it's "a worthwhile exercise to consider asset-return expectations under the scenario of an extraterrestrial alien invasion."
Hui thinks it's far more likely that the drones aren't UFOs. Nonetheless, it's worth noting that, for all of America's exceptionalism, catastrophic events have happened to seemingly untouchable regimes in the past.
He notes that the Russian stock market beat the U.S.'s for more than half a century, from 1865 through the Russian Revolution of 1917, when the Romanov dynasty was violently replaced by the Union of Soviet Socialist Republics.
"Anyone who bet on Russia after 52 years of outperformance would have been disappointed," (to say the least), Hui writes. "Asset holders would have been far more concerned about their own survival than the value of their portfolios."
Of course some revolutions are defined by semiconductors instead of swords. Earnings estimates for the Magnificent Seven big tech stocks -- Google parent Alphabet, Amazon.com, Apple, Facebook parent Meta Platforms, Microsoft, Nvidia, and Tesla, have collectively soared in recent years, while the rest of the S&P 500 has been mostly stagnant at best.
The problem is that Martians in our skies are so advanced, their kids' toys incorporate technology that eclipses our latest quantum-computing breakthroughs. In other words, if American exceptionalism is founded on our tech prowess, even a peaceful first contact would neutralize this advantage. The same could be said of any nation that makes big investments in tech.
"In conclusion, my story about an alien invasion is a way of opening the door to a discussion about rate of return studies," Hui writes. "Standard assumptions about returns to bonds and equity risk premiums are useful only up to a point...That's why diversification matters, as insurance against events such as wars and revolutions (though extraterrestrial alien invasions may not apply)."
That said, there is a bright side. Considering 9/11, the dot-com crash, the 2008 Financial Crisis, basically all of 2016, and the Covid-19 pandemic, the 21st century might seem like it's had more than its fair share of black swan events in less than 25 years. Yet well-diversified investors never spent too much time in the red. That might be some comfort if little green men do start to make an appearance.
Write to Teresa Rivas at teresa.rivas@barrons.com
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(END) Dow Jones Newswires
December 23, 2024 12:39 ET (17:39 GMT)
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