Tudor July 2021 Commentary Research-Based Investing and Guidance Since 1992 High Level Financial Care for Clients in Over 30 States  Our Website:

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What a Long Strange Trip It's Been Market Commentary Markets have had quite a run since their sizeable COVID bear market correction of March 2020. Investor joy should be high given the 90%+ sixteen month S&P 500 run(1) through June 2021, a period that included the largest 50 day market rally in history and one of the largest one-year rallies in history(3). No corrections in that period, so smooth sailing for much of those sixteen months. Speculation (and risk) reached frenzied levels earlier this year as meme stock and cryptocurrency trading dominated the investment universe. This is something one seldom sees in the beginning stages of a bull market, so our perspective is that we are migrating through the latter stages of this bull market cycle. As we've noted, the elevated valuations/euphoric phase can continue for quite some time as stocks trade at what we perceive as expensive levels. Riskier Behavior Last year, with the economy shut down, there were significantly fewer cars on the road. The National Highway Transportation Safety Administration announced in June this year that there were 13% fewer cars on the road in 2020, but traffic deaths spiked to the highest level since 2008: 38,680 killed. Doesn't make sense - how can this be, fewer cars and yet more accidents? According to the agency, drivers felt safer with fewer cars on the road but became significantly more reckless in 2020, resulting in this tragic spike. The same feeling of confidence and safety occurs in market cycles after long upward moving slopes and significant gains. This tailwind causes investors to engage in behavior indicative of their confidence...for example, borrowing to buy securities... Margin Debt: Borrowing to buy stocks (margin debt) is a risky proposition and these debt levels have continued to rise to all-time highs. As of May 2021, margin debt levels hit $862 billion.(Source: FINRA) Again, this sort of phenomenon does not occur with the accompanying despair of bear market bottoms. Borrowing is just another sign of the euphoric phase of the market cycle. However, No Need to Panic, Corrections are Normal Given our short memories (the fact that we forget how market declines feel in real time and haven't experienced any in sixteen months), investors will not get an indefinite free lunch. Corrections (10% or more declines) are coming at some point and this should be construed as normal - they happen, on average, once or twice a year. Market declines are especially damaging to investment borrowers (margin debt) since borrowing exaggerates market movements. The rush to sell by these borrowers will be a movie theater exit metaphor. However, it's time to mentally prepare for corrections now - an educated investor is less likely to assume Armageddon when they naturally occur.

Popularity and Investment Outcomes Which of these three has had more media coverage in the last year? Tesla, Ford or General Motors? How do they rank for one-year returns? 1. General Motors 2. Ford 3. Tesla How are they ranked for performance year-to-date? 1. Ford +62% ytd 2. General Motors +39% ytd 3. Tesla -8% ytd In the investment arena, popularity has huge long-term downside. Everyone else is reading what you're reading. Look at under-covered opportunities for better outcomes. (Source: financeyahoo.com)

Mutual Fund Myths

The Vanguard Wellington Fund, the oldest surviving mutual fund, was established in 1929. The very first mutual fund was created in 1924 and that means we are coming up on the 100 year anniversary of mutual funds.(4) We note that their extreme popularity did not take hold until the 1980's and 1990's when Money magazine was a must-read and when company employees had to fend for their own retirements as pensions began melting away. Consumers were bombarded with choices as mutual fund popularity grew and the number of funds skyrocketed. Here are some myths to keep in mind regarding mutual funds: My mutual will go to cash if markets decline. (Mutual funds must remain invested to the extent noted in their prospectus. This can preclude going to cash) My mutual fund will migrate to where the action is in security markets. (Mutual funds must remain invested in the category of securities allowed in their prospectus) Other shareholders in a mutual fund have no impact on me. (When liquidation requests occur, mutual funds must honor those requests and this requires them to sell their existing positions. As they sell, this often force prices down and this action affects other shareholders as their positions decline in value) Mutual funds were designed for big investors. (Mutual funds were originally designed to democratize investing for smaller/beginning investors who could not easily or efficiently buy individual securities. Mutual funds can provide instant diversification) These myths do not take away from mutual funds as excellent long-term wealth-building tools. Even as ETF's have chipped away at their popularity, mutual funds are still useful and effective vehicles for building wealth.

68.3% The Social Security Cost of Living Adjustments to Monthly Benefits Over the Last 25 Years (1996-2020) 69.7% The Consumer Price Index Increase Over the Same Period Social Security Benefits have largely tracked inflation over time. These increases confirm the loss of purchasing power (inflation) that occurs over long retirements. (Source: Department of Labor, Social Security)

$862 Billion The total level of investor margin debt (borrowing to buy stocks) on the New York Stock Exchange through May 2021 - the sixth consecutive month of increases and record levels. (Source: Financial Industry Regulatory Authority)

"Quality Stocks are One of the Greatest Anomalies in Finance. Often Lower Risk, Yet Perfectly Capable of Providing Outperformance " – G. Donaldson

Dow Industrial Index March 23, 2020 - 18,214 (2020 low) March 25, 2021 - 34,700 (1) 91% Gain

Enjoy the week... Grant S. Donaldson, MS, CPA

(1) yahoofinance.com, S&P500 historical data, Barrons, Morningstar.com, Vanguard benchmark returns (2) Information available upon request (3) This is the greatest 50-day rally in the history of the S&P 500, cnbc.com (4) Investopedia - Mutual funds

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