Ecoinometrics - Reverting to the mean

Why the timeframe matters

Chances are you have spent the weekend glued to your information feed to follow what was happening with Silicon Valley Bank. I certainly did.

It is easy to get caught up in the 24/7 news cycle when you are an investor. You always focus on the big news, the controversial topic or the latest narrative. 

But if you aren’t day trading it is unlikely you'll make a fortune on these kinds of events. Actually those who are likely to profit in those situations were already positioned appropriately before the news hit the wire.

If you weren’t now is still time to change your timeframe.

---

The Ecoinometrics newsletter gives you insights from crypto and macro data to help you make better investment decisions. 

Each issue of the newsletter tells you what you need to know in 5 minutes or less, direct to the point, with lots of charts to allow you to quickly visualize what’s important.

Join more than 19,000 subscribers here:

Done? Thanks! That’s great! Now let’s dive in.

---

Reverting to the mean

As I’m writing those lines during the asian session on Monday it isn’t exactly clear what is going to come out of the collapse of Silicon Valley Bank. There have been countless of threads written over the weekend explaining what happened and speculating about what will happen. 

Given the limited amount of data we have at this point I won’t add to the speculations. Instead I’ll offer you some words of strategic advice if you are looking for the bigger picture.

How often do things get bad?

Look, I don’t want to sound cliché right now but there is definitely some strategic wisdom in the saying: “when in doubt zoom out”.

Unless you are someone who doesn’t manage their risk, like at all, you’ll be just fine. 

Does the collapse of Silvergate makes it harder for dollars to flow into the crypto ecosystem? Certainly. But there have been plenty of events that could have killed Bitcoin when it was a much smaller market. Yet Bitcoin is still around. 

Bitcoin and crypto in general are a long bet on adoption. Changes that add friction to the adoption process are just a delay. Which means you might need to be in the market for longer before you realize your gains. But as long as the fundamental trend you are riding isn’t broken you’ll get there eventually.

Whether or not the extra time it takes to get there makes it worth the return on investment is another question though.

Take the example of the tried and tested strategy of dollar cost averaging the SP500 weekly.

Looking back 100 years the time it takes to save $1 million with this strategy ranges from 20 to 40 years.

Relative to your lifetime that’s a pretty big range of durations. But the my point is that the outcome is relatively consistent as long as you put up with it long enough. There are no points on the chart below that are longer than someone’s average productive years over their lifetime. 

Over the past 100 years the average time it took someone to get to $1 million with this strategy is 32 years. And you know what, there is always something bad happening if you take a 32 years period. But still someone who weathered the ups and downs of the market made it through.