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Strategic Insights

Volume 13, Edition 3 | February 4 - February 8, 2023

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Evidence-Based Playcalling

Doug_Walters Doug Walters | Articles

Read Time: 2:30 min


Evidence-based investing has strong parallels to modern professional sports, where big data is increasingly driving a coach’s decision-making.

Contributed by Doug Walters , David Lemire , Max Berkovich , Eh Ka Paw

Well, it is that time of year again. The big game is this weekend, and households are provisioning with chicken wings and pizza. We’re only in February, and the S&P 500 is already on a tear, up over 5% for the year. More impressive is that since the October 2022 low, the index is up over 40%. As we think about our approach to investing, we can’t help but see the parallels in today’s football games.

We call ourselves evidence-based investors. Historical data and academic research drive our investment decisions. We do not pretend to be able to predict the future. But we do claim that there are ways to outperform the broader market without speculation.

For football fans, you can’t watch a game these days without the commentators talking about evidence. It’s fourth and short. Should they go for it? The data says, “Yes.” What does that mean? Does that mean a first down is a sure thing? Of course not. But it does mean the evidence shows that if the team were to go for it in this situation, over the course of the game and (perhaps more importantly) the season, they will, more often than not, be glad they did.

As a result of this higher use of evidence in football, teams are opting to “go for it” more often than they would have historically. The data gives the coach the cover to take this calculated risk, where historically, the perceived downside risk (embarrassment from coming up short) was greater.

So, what does all this talk of “going for it” have to do with investments? There’s a good parallel between this and investors who make decisions without evidence. Let’s take 2022, for example. It was a rough year for investors. We saw many lose their nerve and flee to cash, where yields were becoming more attractive. In October of 2022, investors were losing. It was fourth down, and a field goal was not an option. All the evidence pointed to staying invested in equities as they got cheaper. Those that stayed invested (i.e., went for it) were rewarded with a 40%+ rally. Those who opted to park that money in cash lost.

Are we saying we could see the future back in 2022? No. The market could have kept going down. But, an evidence-based approach saw the situation for the long-term opportunity it was and was comfortable with the temporary risk of additional downside.

Investing is a long-term game. Along the way, there are innumerable opportunities to choose to either go with the evidence or speculate. Those who can follow the evidence and hold their nerve when they are tested by the ups and downs of the market will find they put together an admirable record at the end of their investing season.

Enjoy the game!


Inflation of the Big Game Commercials

The average 30-second commercial for Sunday’s game will cost about $7 million. That is up around 7.7% per year over the past three years. Inflation! That sounds like a lot, and it is, but these commercial prices had been trending up around 6% pre-pandemic, so it is a relatively modest increase.

Headline of the Week

Refocusing on the CF in DCF

Wall Street, like the Tech industry, loves its acronyms. Discounted Cash Flow (DCF) is one near and dear for many analysts. The past few years have seen concentrated attention to the “D” or interest rate used within these models. When the Fed is raising rates to multi-decade highs and then laying the groundwork to reduce them, it tends to suck all of the oxygen out of the room. Much of this attention is warranted, but recently, there has been more respect for the “CF,” in this case, company earnings. This earnings season, the market is more discerning regarding the realized and forecasted earnings (and cash flows) that companies report. Even within the Magnificent 7, the markets have differentiated between those with clearer paths to continued growth and profitability.

The pendulum most likely could swing back to the “D” as the next Fed meeting approaches, but more balanced contributions from both “D” and “CF” could provide a firmer backdrop for markets.

The weekend may be more prominent of a headline maker than the week itself. However, some Gross Domestic Product prints abroad, an inflation report and earnings reports can create a stir.

Sticky Situation

Generally, inflation has been trending the right way. Down!

  • When the Consumer Price Index (CPI) is announced on Tuesday, expectations are for an increase of 0.2% on the headline number and 0.3% for the core, which excludes food and energy, in January.
  • Year-over-year inflation for January is expected to come in right at 3%; a “two” number would be nice!
  • While the trend is downward, inflation remains stubbornly sticky, and with strong jobs numbers and other economic indicators, it seems poised to remain that way.
  • Investors hoping for rate cuts sooner rather than later will not like a monthly increase in inflation, no matter how slight.

Island Hopping

Japan and the United Kingdom are releasing GDP for the 4th quarter of last year during the week.

  • While we are spoiled in the States with strong economic expansion, the rest of the developed world is trying to hold on to any bit of growth.
  • After shrinking in the 3rd Quarter, the United Kingdom faces an uphill battle to print an increase and avoid a technical recession.
  • Japan also reported a contraction in the 3rd quarter but is expected to return to growth in the 4th.


With the big earnings from Tech in the rearview mirror, it feels like what is left is an afterthought, but the week brings Coke-Cola (KO), John Deere (DE), AirBNB (ABNB), Marriot (MAR) and Cisco Systems (CSCO) which could move markets.

  • ABNB is new to the S&P 500 index, joining in September.
  • Cisco had a dreadful previous quarter; investors hope that some AI infrastructure spending will flow their way this time.

Sin City

Super Bowl in Las Vegas will provide plenty of Taylor Swift coverage and a matchup between the San Francisco 49ers and the Kansas City Chiefs.

  • I’m not sure why Monday is not a national holiday, but we’ll have to shake it off!

Dancing Dragon

Saturday is the Lunar New Year.

  • The new year kicks off the year of the Dragon.
  • The holiday is commonly referred to as Spring Festival in China and Chinese New Year in most of the West.
  • The holiday is a major festival in several other Asian countries, including Korea and Vietnam.
  • China observes one of its Golden Weeks, and 9 billion individual trips are anticipated in China during the period where people visit family.
  • Hopefully, the spending involved in this travel will help boost Chinese stocks.
  • For those celebrating, we hope the Year of the Dragon brings you and your family a year of prosperity, happiness, and triumphant success!

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets of over $1.8 billion.