Take 17 - Random Investing Notes
A collection of insightful investment pieces to broaden and elevate the investing mindset. Includes: 1) Revisiting CRE, 2) Investment Returns since 1985, and 3) Recessionary Impacts.
Revisiting Commercial Real Estate (CRE)
Let’s revisit past articles (below) on the commercial real estate conundrum. One explores the expanding trend of remote work, while the other delves into the mounting risks tied to commercial real estate loans.
The graph below reveals the true trajectory of U.S. office real estate vacancies—and the picture is stark. It’s not just that vacancy is approaching 20%; it's that we've structurally broken from any historical mean-reversion behavior. In the 2008–2010 GFC, vacancies topped out at 17.5% before gradually declining as credit thawed and employment recovered. This time, post-COVID, there was no such retracement. The vacancy rate plateaued, then resumed climbing—even as unemployment hit record lows and the nominal economy stayed strong.
That divergence suggests something deeper: not a cyclical dislocation, but a secular shift in space utilization. Hybrid work models and AI-enabled productivity have permanently reduced the square footage companies require per employee. And unlike prior downturns, there’s no obvious policy lever—no Fed easing or stimulus playbook—that can restore relevance to office suites.
The slow-motion unwind of an overbuilt, over-leveraged asset class calibrated for a pre-2020 reality is unravelling. The last parallel this stark? The post-industrial decay of U.S. manufacturing hubs in the ’80s and ’90s—same symptoms: stranded fixed assets, collapsing cap rates, and a financial system reluctant to mark things to market.
Investment Returns by Asset Class (1985 to 2024)
This remarkable analytical breakdown of investment returns by asset class (1985 to 2024) is a must-read for everyday investors seeking clarity, context, and smarter strategies. Please dive into the full piece for a comprehensive view that could reshape how you think about diversification and long-term performance.
🏆 Best & Worst Performers (1985–2024)
Top Performers (Annualized Real Return):
US Large Cap Stocks: +8.6%
US Small Cap Stocks: +7.6%
Emerging Market Stocks: +7.3%
Bottom Performers:
International Bonds: +2.6%
Gold: +2.3%
Cash (T-Bills): +0.4%
🔄 Key Insights
No asset class consistently dominates—winners shift year to year
Diversification helps mitigate risk, especially in down years
Long-term investing shows more predictable returns compared to short-term volatility
📉 Correlation Analysis
Stocks across regions are positively correlated
Bonds have low correlation with stocks (diversification benefit)
Gold tends to have slight negative correlation with other asset classes
⚡ Bitcoin Side Note
Not included in the main chart due to short trading history (since 2010)
Extremely volatile: returns have ranged from +303% to -64% in recent years
Recessionary Impacts
From the previous topic on investment returns by asset class, here are the most valuable takeaways specific to recessionary periods:
🔹 2000–2002: Dot-Com Crash + Bear Market
Equities (esp. US Large/Small Cap): Significantly negative returns across all three years.
Bonds (esp. US and Canadian): Provided positive real returns—a safe haven during the tech meltdown.
REITs and Gold: Mild volatility; REITs actually held strong in 2000 and 2001.
Cash: Stable but low real returns.
🔑 Lesson: Bonds and real estate helped cushion the blow when growth stocks collapsed. But remember, REITs (Real Estate Investment Trusts) are still especially vulnerable in recessions tied to interest rates or property downturns. This was the anomaly during this recession.
🔹 2008: Global Financial Crisis
Equities: Crashed hard. US Large Cap: -37%, Emerging Markets: -52.8%
Bonds: One of the only safe havens—All US Bonds +2.1%, Canadian Bonds +4.6%
Cash: Real return near zero (0.2%)
Gold: Positive return (~+1.4%), showing defensive qualities
REITs: Disaster zone, down -37%
🔑 Lesson: High-quality bonds and gold acted as lifeboats. Diversification across asset types matters.
🔹 2020: COVID Crash & Bounce
Equities: Wild swings—massive losses early in the year, but ended strong:
US Large Cap: +12.9%
Emerging Markets: +17.6%
REITs: -7.7% (affected by commercial property weakness)
Gold: +23.3% — safe-haven magnet during crisis
Cash & Bonds: Stable performers; helped during initial panic.
🔑 Lesson: Quick recovery highlights why panicking in a crash can cost you upside. Gold shined brightly during uncertainty.
🔹 2022: Inflation Shock + Rate Hikes
ALL asset classes posted losses — a rare year:
Worst: REITs -31.1%, Emerging Markets -23.2%, US Stocks -23.6%
“Best”: Cash (T-Bills), still -5.2% in real terms
Bonds failed to hedge: All US Bonds -13.3%
Gold: Held up slightly better: -1.6%
🔑 Lesson: Even diversified portfolios can fail when both stocks and bonds are hammered by inflation + rate spikes. Cash preserved best, but lost buying power.
Past Editions
Includes: 1) Limiting Losses, 2) Stop-Loss Orders, and 3) Debt vs. Equity.
Includes: 1) Credit Ratings, 2) Pricing Power, & 3) The Renewables Dilemma.
Includes: 1) Stock Checklist, 2) Dividend Strength Data, & 3) Lessons from Warren Buffet and Mark Leonard.
Includes: 1) Power of Dividends, 2) Stocks with China Exposure, 3) Tips to Managing Portfolios, & 4) Accepting Volatility
Includes: 1) Advantage of Dividend Stocks, 2) Recessionary Dividend Performance, 3) Railroad Stocks, & 4) Reducing Risk
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