Investing in Everyone's Future

Present status

At present we have 35% of client assets in cash as the markets have receded from a high risk level.  The late September/early October time period is notorious for steep market weakness.   Should we witness a further pullback in the indices we’d have a low risk entry point to use our sidelined cash. In the meantime a Green energy related company Advanced Energy Industries is behaving extremely well.   We have only a small holding in The Vegan Growth Portfolio but would like to add more on any market pullback.  AEIS is completely ignoring any market weakness as demand for the shares is very strong. Long AEIS  ...

Optimizing Risk and Exposure in a low return market

Over the past several weekends I’ve been looking into developing strategies that could maximize return in a relatively flat market.  While its true that the major indices broke to new highs only a month ago, meaningful confirmation of what could be a new leg up has not materialized yet.  Plus, I’m a bit concerned about the upcoming election and the potential for chaos, not unlike 2000. The point of this blog entry is to show a technique that would identify low risk/great entry points for the equity investor to be 100% invested.   Other than these time periods the investor should be less than 100% invested.  I fully realize this goes against many traditional investment tenets but in our testing those tenets of being 100% invested at all times don’t hold to be worthwhile.   After all, if you’re already 100% invested how can you add to your holdings on a market pullback?  At worst, the gains you may have realized in a rally are going to be at least partially dissipated during an eventual sell-off. Technique: % of Nasdaq 100 stocks above the 50-day moving average This first chart shows the Nasdaq Composite over a 5 year period moving in a range between roughly 80% above the 50-day moving average to below 20% below the 50-day moving average.   Ideally a client should begin to move from underweight stocks to fully invested when the % drops below 20%.  Likewise begin to lighten up your investments on a rise above 80%. One of the great advantages to this technique is realizing that market sell-offs are inevitable whereby your state of...

New lows for the yield curve

There are times when the investor should ignore the unaccountable pundits on CNBC and elsewhere who’ll have you confused as a goat on astroturf.  An investment thesis can be developed simply from a chart that shows the long term direction of an asset and that history typically repeats itself.   As investment managers we ignore the pundits and look for the classical signs of economic expansion or contraction. This morning we are happy beneficiaries of significant strength in Treasury bonds.   What should also be noted is this morning marks a milestone as the yield curve is breaking the 2008 lows both in the 10y minus 2y and the 30y minus the 1y. This is good news if you happen to have a bearish inclination to the U.S. economy and stocks as we have.  Yield curve inversions represent an early warning of impending recession.  While a classical inverted yield curve is impossible given that the short end yields are a fraction of 1%, inversions may be seen with the longer term short ends such as 30’s minus 1’s. The move today reinforces our thesis of recession by 2017 and the primary asset class to own are Treasuries. Long...

The Vegan Growth Portfolio update 2/12/2016

The Vegan Growth Portfolio is our primary managed account.  Since state and federal regulators have issues with advisory firms posting past performance, regulators from Colorado Division of Securities did approve of our tracking account on Collective2.com.  Trades made for individual client accounts are mirrored on Collective2.com.   Return and trade data are independently calculated by Collective2.com.  As always, past performance is not guarantee of future success.   Return data includes trading costs but does not include OP management...

Updating “What do investors really want?”

Two years ago I began to write conceptual articles based on “What do investors really want?”.   At the time the vanilla stock-centric approach to investing was working fine and there was no way to distinguish our philosophy from any other traditional investment adviser.  Bear markets in stocks are a fact of life and rather than being a cheerleader with the hopes of eternally rising prices we’re realists who accept the investment cycle. But how times have changed!  Our interpretation of “What do Investors really want?” is that investors really want steady returns without dramatic drawdowns if they can be helped.   Big annual returns are nice and they will happen from time to time but if those returns come with -40% or -50% pullbacks just as frequently then investors would have no part of it.   However, this type of volatility is exactly what you get if you’re a stock mutual fund/Index fund “long term investor” who’s strategy is to “buy and hold”.   The chart above shows that the real rate of return for the SP 500 is a mere 1% per annum since 2000 which simply isn’t worth the risk if you’re a long term buy and holder. Our primary issue with mutual funds or vanilla style advisors is that regardless of asset or style is that they’re all single direction oriented (they need a bull market to make money).   Mutual funds don’t adapt and consider changes into the macro economic environment to adjust their holdings which would remedy the dramatic declines and sharply increase the chance that the investor will be a true long term investor but...

Indexing comes with heavy risk

Investment in stock index funds dwarfs prior secular peaks.  When you own an Index Fund you’re also indexed to take major losses along the lines of 30% or more on average in a sustained bear market. Active managers can switch gears and realign portfolios to benefit from bear markets....