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Marc Cuniberti: Why hasn’t my portfolio mirrored the Dow?

As the Dow Jones Industrial Average flirt with all-time highs, investors and advisors alike might be a bit miffed as their portfolio balances just bounce around like proverbial ping-pong balls, never quite attaining the sky-high valuations that the Dow Jones Industrial Average has reached.

Just why some portfolios have not mirrored the stratospheric heights that the Dow has attained can have an elusive answer.

COVID-19 has definitely caused some of the broader market averages to pick and choose its winners and losers, and unlike some previous market rebounds, the COVID tide has definitely not lifted all boats.



Unlike the 2008/2009 market obliteration that was followed by a market wide ballistic rebound, and the 2016 Trump election that also put a match under just about every asset class in the stock market, the COVID-19 rebound in the markets has launched some stocks into seemingly uninterrupted rallies while other stocks languished.

In my opinion, the COVID rebound has not been an index buyer’s friend. Simply put, the COVID rebound may have been a stock picker’s paradise if the investor picked the right stocks. But bipolar stock rotations have perplexed more than a few stock market participants as they watch CNBC reporting blistering rallies in the Dow all the while wondering why their portfolios have not kept up in lock step.




While most investors might just buy a handful of all-inclusive funds like mutuals, many of the companies in these broad baskets have not seen the increases the overall Dow index may have witnessed and some may have even gone down.

The explanation lies in the consumer buying patterns that have been altered due to COVID and its subsequent shutdowns.

The consumer has seen his life turned upside down with COVID, and procuring their needs while being shut in has required new solutions.

Examples of these altered buying patterns are everywhere.

Stay at home procurement conduits such as web shopping and home delivery saw skyrocketing demand, while our usual gathering places such as restaurants, bars, vacation destinations, sporting events and similar venues were for the most part off limits. Companies that offered such wares or supplied goods or services to such establishments also suffered.

Small businesses were also decimated, as were the vendors that serviced them. Although people still needed to procure their day-to-day essentials and discretionary needs, how they procured them was drastically altered. It was as if a huge tide had shifted in an historic way in both its methodology and the dollar amounts that preceded it.

As such, while some businesses collapsed, others could not keep up with demand.

Since broad index funds may have encompassed both the lucky and unlucky, however, buying a basket of stocks in certain funds may have made headway difficult. Half the businesses in these broad funds saw their stock prices implode while the other half saw astonishing increases.

Since the Dow Jones Industrial Average is the most talked about index on the evening news, and the makeup of the Dow and how it is constructed may have skewed its movements upwards, it may not have been a true reflection of overall economic conditions.

Indeed while the Dow has almost doubled from the COVID-19 March 2020 low, the unemployment rate is still very high (4.5%) and some estimate 25% of small businesses have been wiped off the map. Keeping in mind small business is about 50% of GDP (total money exchanged for all goods and services in the U.S.), that the Dow has seen such increases may have been indeed perplexing to many investors.

Simply put, the Dow may not accurately represent the economy so comparing portfolio performance to the Dow may not be a fair comparison.

More importantly, COVID-19 has challenged the traditional broad-based buying that has been the mainstay of investors and advisors alike. The usual migration to mutual funds and Exchange Traded Funds may not have paid off nor kept up with the certain broad based indexes.

In conclusion, the best term I can use to describe last year’s markets is a stock picker’s paradise, while being a broad based fund buyer’s frustration. At such a time, blindly buying these broad based funds may not have been the best strategy. Knowing where consumers were flocking too while avoiding the places consumers were avoiding may have been a more profitable path to riches.

Marc Cuniberti holds a B.A in Economics with honor from San Diego State University and is the hose of Money Matters carried on 66 stations nationwide. California Insurance LIc# 0L34249. Call him at 530-559-1214 or visit http://www.moneymanagementradio.com


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