Black Monday! 30 Year Anniversary of the 1987 Stock Market Crash

Dear Mr. Market:th-10

You’ve had some wild days but perhaps none were as volatile or memorable as October 19, 1987! 30 years ago today you plunged -508 points for a record -22% decline in just one day! By today’s standards the 508 point decline wouldn’t be something to celebrate but wouldn’t really move the needle too much; only about a -2.2% decline. Believe it or not we’ve now endured drops like this 17 times since then!

Speaking of today, however, what would it look like if we had another stock market crash? If the stock market lost -22% in one day we would see the Dow Jones drop about -5,094 points as of today’s close.

We have two questions for you with regard to this not so pleasant walk down stock market memory lane: Continue reading

Mr. Market Meets his Match! Introducing the Columbus Adaptive Asset Allocation Strategy

Dear Mr. Market:th-9

Guess what? You win. Yes…Mr. Market, you win! It won’t take another bear market or adding further gains to recent stock market highs for you to prove to us that no matter what the environment is you are going to make fools out of many brilliant people.

The beauty of your victory (at least for you) is that there will always be a market and a debate to engage in. The age old argument of “Active versus Passive” will rage on indefinitely.

Active Money Management (hands on approach with the goal of beating markets and taking advantage of short-term price fluctuations)

In one corner we have the ‘crystal ball crowd’ that thinks they can outsmart you and time the stock market. “Buy low and sell high”, right? If only it were that simple and if only someone could get it done successfully more than once. Mr. Market has us human beings in the palm of his hand because he knows we all have one thing in common; we’re emotional creatures! Some of you will read or hear news and act on it. Worse yet…you’ll rely on your gut instincts or a “hunch” because after all you were right once before. You are Mr. Market’s perfect candidate…Take another sip of false confidence and brace yourself for his eventual knockout punch which you won’t even see coming.

Passive Money Management (hands off approach with a goal of matching markets by using index funds/ETFs and not reacting to every market move)

On the other side of the room is the buy and hold crowd (or sometimes the ‘buy and forget’ group as we like to call them). Sure…on one hand a true investor should indeed be patient and allow an investment to pan out over time. Some clever sayings come to mind such as “It’s about ‘time in the market’ not ‘timing’ the market.” While we lean towards this overall investment philosophy there are times when it can go drastically wrong. If you have a lump sum or healthy chunk of cash right now and we’re at all-time stock market highs, do you just dump it all in right now?

So this leaves us to ask what the ultimate answer is to the question: Which is best…Active or Passive money management?

The foundation for any well performing portfolio is its asset allocation. We’ve written extensively about this before but over 90% of a portfolio’s performance is determined by how it’s allocated. Another way of looking at this is that you could pick poor individual investments (stocks or funds) but be in the right areas (asset classes) and do just fine. Like all things in life there needs to be a balance between discipline and the ability to adapt to changing environments in order to truly be successful. We believe we have found this with an Adaptive Asset Allocation Strategy.

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Over the past year My Portfolio Guide has been working with Dimensional Research and its development of the Columbus Adaptive Asset Allocation Strategy. We are proud to announce a formal engagement with them and in doing so will be exclusively offering the Columbus strategy to our clients as part of our investment platform.

The Columbus Adaptive Asset Allocation Strategy is a quantitative methodology that is designed to adapt to the markets as they constantly change. While it’s suited for clients seeking equity like returns, one of the primary goals of this strategy is to minimize drawdowns during rough markets. It’s ideally positioned for portfolios over $100,000.

What’s under the hood of the Columbus Strategy? 

First and foremost, as big fans of ETFs we wanted a strategy that would be able to use widely recognized ETFs that were liquid and also in most cases commission free under our Institutional arrangement with TD Ameritrade. The strategy consists of a universe of 15 ETFs representing major asset classes. It rebalances once per month and can invest in up to eight ETFs depending on what the algorithm is positioning the strategy for relative to the market environment. Click this link  Columbus Strategy Overview to learn about which specific ETFs it uses as well as some unique aspects to how we have set maximum exposure limits on each asset class.

It is possible for the entire portfolio to take an extremely defensive posture and only be in one asset class (cash). The strategy dynamically adjusts and rates each ETF on volatility, momentum, and the overall correlation of returns to the portfolio. We’ve long said that it’s easy to buy investments but very few people are adept at selling them. The proprietary algorithm in this strategy is primarily designed to reduce the risk of huge drawdowns while still trying to capture market upside when appropriate. The main goal is to achieve the most optimal risk-adjusted return.

Behind the Numbers: (Performance and most recent Monthly Rebalance)

Speaking of returns…just how well has the Columbus Strategy performed? Not only is performance where the “rubber meets the road” but the summary below gives you a concise snapshot of how we’re positioned in September. (click link below to view)

Columbus Adaptive Asset Allocation Strategy – September 2017

We plan to report performance each month but in order to be fair to our loyal clients in the strategy…regular readers will see the rebalance on a one month delay. (we can’t give away the “secret sauce”!) If you’re interested in receiving the reports when they’re first published or want us to manage one of your portfolios using the Columbus Strategy contact us via phone at (888) 474-8433 or email your inquiry to info@myportfolioguide.com.

Obviously the Columbus Strategy boasts some impressive returns. Back testing the strategy to May of 1998 you’ll note it returned +10.51% annualized returns versus the S&P 500 at +9.37%. Comparing it to a more diversified benchmark we have chosen to track it relative to the GMO Global Asset Allocation Fund (GMWAX) which over this same time period returned +3.92%. The main reason this strategy has grabbed our attention is not just for beating the markets long-term…but rather on how well it played defense during turbulent times. The Columbus Strategy had drawdowns under -10% relative to the Global benchmark at -31.87% and the S&P 500 at -51.49%!

What about during REALLY bad markets?! (Dot-Com Crash and the Financial Crisis)

Side stepping one or two rough stock market patches usually is at the core of hot marketing strategies. A real strategy is one that can exhibit repeatable characteristics in all sorts of different crises and especially so during ones that were brutal. Perhaps there are no two better examples than the Dot-Com Crash and the Great Recession/Financial Crisis of 2008. Columbus_Historical_Events_Analysis on how the Columbus Strategy did during those historical events. It’s remarkable how the portfolio shifted to less volatile asset classes such as cash/money markets and Fixed Income (bonds/treasuries etc). For a more detailed look and an overlay versus the S&P 500, specifically look at pages 3 and 4 in the above link. Lastly, we’ve also had this strategy back-tested* for other unique events such as the stock market crash of 1987. Contact us for details if you’re curious about a specific time period or market event.

*Keep in mind that for some older back tests the strategy had to use proxies for the ETFs since many did not exist at that time. For your reference click this link to see a list of those proxy funds Columbus Proxy Mutual Funds Universe .

In summation, we’re extremely proud and excited to offer this dynamic investment strategy! Our next report on the Columbus Adaptive Asset Allocation Strategy will be an update at the end of the month. You’ll see a report tracking how a $1 million portfolio is performing using this exact strategy. Again, seeing actual trades and real-time rebalancing will be reserved for our clients but feel free to inquire for more details or get set up to have your account managed professionally. Obviously not every investor is a match for this type of portfolio management but we would bet that it likely beats what you or your current financial advisor are offering you now!

Have a great remainder of the month and see you next time!

Managed Futures: 5 Questions to Understand

Dear Mr. Market:

What’s your plan for when the stock market goes down? Is this plan the same for when bonds go down? Over the last several years of this bull market we have gradually prepared for this inevitable event by establishing a strategy in advance as opposed to one that is reactionary or emotional.

After reading this article we ask that you do something different the next time the sky is falling. Tell yourself that before the next market crash you won’t have fear, panic, or emotions guide your strategy but rather follow an intelligent plan.

One way to hedge your portfolio against serious drawdowns is by using alternative investments such as Managed Futures. The following five questions are from an interview by US News with Cliff Stanton, CFA and Co-Chief Investment Officer at 361 Capital:

What are the potential benefits of investing in futures?Cliff_final

The primary benefits that managed futures strategies offer are: Continue reading

6 Steps to overcome Investing Paralysis by Analysis

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Dear Mr. Market:

It sure seems as though you’re stuck in a rut. Just a few weeks ago Wall Street traders were donning embroidered hats with “Dow 20,000” on them in anticipation of reaching this stock market milestone. As investors approach proverbial milestones, their thinking and decision making process often begins to falter. How was your mindset when the Dow Jones cracked 14,000 in October of 2007 versus not too long afterward when it was at 6,600 in March of 2009?

The number of investors that are still sitting in cash from way back then is mind boggling! Do you take a long time making decisions? Are you worried about making the wrong choice with your investments and therefore don’t take any action? Do you analyze all the options but later on kick yourself seeing that so many opportunities have passed you by?

If any of these questions resonate with you, it’s likely that you suffer from paralysis by analysis! Here are a few steps to consider and break free of this condition: Continue reading

March Madness: Final Four Investing Bracket 2015

basketball on cashWelcome to the fifth year of our March Madness Investing Bracket! This series of articles is always one of the most popular investing articles on the internet! We’re proud to admit that we were one of the first investing nerds to combine our love for the markets with the passion that college basketball brings!

It’s common knowledge that people love excitement and surprises. It’s also human nature to root for the underdog and many times those two themes can certainly play out on the basketball court as well as on the stock market floor. Much like two college basketball teams that never play each other our imaginations are swept up in wondering who will “win” between a relatively unknown investment or a popular stock that has the media in a frenzy.

You may be asking what does a basketball tournament have to do with managing your portfolio or the investment world in general? At first glance there might not be much but we thought we would have a little fun and couple it with some asset allocation parallels. After all, there are many folks who have simply thrown their hands in the air at one time or simply succumbed to the notion that investing is like educated gambling. There could be some truth to that depending on your approach…

For those of you that are not familiar with the NCAA and its annual basketball tournament there are 68 teams selected and each is seeded according to their results throughout the regular season and their relative rankings. Every March the NCAA holds a single elimination tournament to crown an undisputed champion. Part of the appeal of such a tournament is that theoretically any team that makes the “big dance” has a shot at winning it all. Each and every year there is a proverbial “Cinderella” team that surprises everyone including all the ‘so-called’ experts. Prior to the tournament there is always plenty of banter and opinion on who wasn’t invited or further arguments around the seeding of the teams that did make it. That’s where we see a parallel of sorts to investing and having to make decisions among the multitudes of investment choices. With so many investment choices available, there are also as many differing opinions.

In the “real” March Madness tournament this year there appears to be a hands down favorite with the undefeated Kentucky Wildcats. Hardly any office pool or basketball analyst is betting against such a heavily favored team. If they win it all it will be the first time in over 30 years that a team stays unbeaten the whole season. Our own version of this (using investment themes and choices) shares the premise that we have four very decent #1 seeds but there is no slam-dunk pick that everyone agrees on. For this reason, our 2015 bracket is perhaps as important as ever to understand that a dark horse could win it all…

Before we begin digging into each “region” of our bracket, let’s revisit something everyone claims they know but so very few actually follow with consistent discipline. (Asset Allocation)

If you have ever looked at a chart of all the different asset classes and how they perform year to year…there is rarely a pattern or consistent way to determine next years “winner”.

For the purposes our annual investing bracket we have “seeded” or ranked four major asset classes (like the regions) and chosen several individual picks within each. There is some basic science applied to this process. We consider how the “pick” did over the past 12 months and also how it has trended over the past three months. In some cases we gave a lower performing investment a higher seed if it was trending well with recent strength or was more consistent over a longer period of time.

Each asset class (Large Cap, Small Cap & Mid Cap, Bonds/Alternatives, and International) was ranked and seeded, then corresponding seeds were assigned to “picks” that we are either adding to the portfolio or establishing new positions in. Note that we’re not highlighting 68 new investments and will only discuss some investments that we are either actively involved in or looking to add to most portfolios.

OK…Let’s dig into some of the key match-ups and explain why our Final Four going into Q2 2015 looks the way it does (CLICK HERE to view our 2015 Bracket):

Large Cap

This is typically viewed as the ‘efficient’ asset class. Continue reading

Avoid Holiday Stock Envy!

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Dear Mr. Market:

The holiday season is upon us!  We will soon be spending time with friends and family at gatherings as we celebrate this time of year. Let’s take a moment to look at a conversation that commonly takes place this time of year:

John – “How are you doing? I heard you moved on to a new job a couple of months ago, how is that going?”

Jane – “I am great! Yes I did start a new job and am really excited about it, the company is doing great and I am excited about the future.”

John I’ve heard it’s a great place to work – their stock has been doing really well! How about the stock market this year, crazy huh?” 

Jane – “Their stock is amazing! It’s helped my portfolio a ton, I’ve also got a couple of stocks that got me back on track and might make retirement come much faster than I thought!”

John – “Really? I haven’t invested much in individual stocks. Do you do this yourself or have somebody that helps you out?”

Jane – “I read a lot and buy some newsletters but basically I do it myself.  It really isn’t that hard.”

John – “I just don’t have the time for that. What has worked out so well for you?”

Jane – “Well here are a couple of names you should look at that have been doing really well for me this year…

And so the story goes… John writes a few stocks down on a cocktail napkin and puts it in his pocket with a smile as he thinks about the incredible growth his portfolio will soon experience. On Monday he signs into his online brokerage account and without doing any research or due diligence he buys large positions in 3 different stocks with the blind assumption that they will go nowhere but up…but do they?! Continue reading

MPG Core Tactical 60/40: October 2014 Performance Update


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Dear Mr. Market:

When it comes to flipping over a new page of your calendar we know you could care less what month it is! You, (the market) have no idea (or interest) whether it’s November or March. Unfortunately, we are all inclined to pay attention to the calendar because those that run our 24 hour media/news cycle get paid to make such an imprint on our brains.

October is a bad month for the stock market, right?

Wrong!

Again, we’re trained to think so. Sure, October has had some dates to remember… The month is famous for some market crashes like the “The Panic of 1907”, “Black Tuesday” (which kicked off the 1929 crash), and “Black Monday”, October 19, 1987, when the Dow Jones dropped 22% in just one day.

Ironically enough, most bad Octobers have been due to issues that came from September. Two of the three above listed crashes were delayed reactions from catalysts that kicked off in September; which historically actually brings more down markets than does October.

All that being said, we had a wild October with some long lost volatility! After the S&P 500 peaked on September 18th, it was all downhill from there until October 15th. The last two weeks of the month were the strongest since July of 2009. For those with short-term memories, that was right after the sky had fallen and nobody trusted any “bear market rallies”.

This time “it’s different” in that we haven’t seen a meaningful correction in years. The S&P 500 bounced back 7% in two weeks and in case you’re wondering…we’re once again bumping up against “overbought” conditions. This is the type of market that can absolutely make you insane. (more on this thought later…

Here’s the current summary of the MPG Core Tactical 60/40 portfolio mix, which is updated as of this writing (November 3, 2014).

Click here to compare our portfolio against the benchmark.

What adjustments did we make? Continue reading