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.

Columbus Adaptive Asset Allocation Strategyth-8

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

March Madness: Final Four Investing Bracket 2017

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Dear Mr. Market:

Is your bracket already busted? This year’s March Madness tournament opened up with very few upsets until this past weekend. Much like the stock market, we see a similar trend happening right now. What follows is how we see things panning out but first, here’s a little background on how one of the most famous sporting events in the United States correlates to the investing landscape.

Seven years ago we became the first Registered Investment Advisor to use the NCAA basketball tournament as a way to show our readers a forward-looking view on the stock market! We break down and assign each of the four “regions” with an asset class and then pick teams (companies) that we think have the best chance at doing well relative to others.

CLICK THE LINK TO VIEW OUR Final Four Investing Bracket Picks 2017

Large Cap

Last year started off much differently than 2017 and as we wrap up the first quarter …some trends are emerging while others continue. If you eyeball the overall theme of this years bracket it will become clear that we’re picking some stocks that should continue to do well under the Trump administration. Whether you love him or hate him, ever since Donald Trump assumed office, the stock market has risen. The proverbial “Trump bump” is real and while we personally believe he needs to stay away from Twitter, there is no question that the stock market and certain economic sectors are primed to perform. Continue reading

Brexit too shall pass…

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Dear Mr. Market:

You hate uncertainty; that fact has been established from the day you began trading. If the rest of the investing public hasn’t heard about “Brexit” vs “Bremain”…it’s not necessarily a bad thing. There is always something to worry about and now with a vote by the United Kingdom to leave the European Union the potential implications and chants of uncertainty will continue to create worry and panic.

Ironically enough, even amidst all the doom and gloom, the world is not that much different than before the vote. Although the U.K. surprised many with its vote to leave the EU, this decision and the potential fallout will take a couple of years to fully play itself out. Even though there will clearly be political uncertainty and initial volatility (which is natural)…the UK will have two years to negotiate the terms of its exit and establish a new relationship with the EU. Although there won’t be a shortage of opinions, this doesn’t imply an automatic death to the stock market!

It’s times like these that are EXACTLY why people overreact and make critical mistakes. Once people get over their initial reaction (shock, surprise, fear etc) the markets will see relief in knowing there is a result and a definitive decision. In other words…there will be some basic element of certainty and that allows markets to naturally correct and go back to moving based on actual fundamentals as opposed to speculative forces or fear.

What should one do in the near-term and will this lead to something worse? Continue reading

March Madness: Final Four Investing Bracket 2016

March MadnessDear Mr. Market:

The entertainment and shock value you provide us with the stock market might meet its match over the next few weeks. Are you ready for some surprises and wild finishes? That’s what March Madness brings each and every year! It’s also an opportunity to take a high level view of the current investment environment with what lies ahead.

Six years ago we became the first Registered Investment Advisor to use the NCAA basketball tournament as a way to show our readers a forward-looking view on the stock market. We break down and assign each of the four “regions” with an asset class and then pick teams (companies) that we think have the best chance at doing well relative to others.

This year we will dive right into our investing bracket looks and how we think the remainder of 2016 will play out.

Click here to see the entire bracket.

To set the table let’s take a quick moment to recall last year and the undefeated Kentucky team. They came into the Final Four 38-0 and were a virtual lock to win it all but as you may remember the Wisconsin Badgers shocked everyone and provided the surprise millions of fans tune in for every year! This type of “upset” is exactly how we think 2016 will pan out in the Large Cap asset class.

Large Cap

Five years from now people will look back at 2015 as a year that the stock market extended its bull market run for one more year. Investors will exhibit a short-term memory lapse and forget that it actually was a very rough year with heightened volatility, the first correction, and a market that actually turned in negative numbers if you looked “under the hood”. The problem is…most people will not remember this and only look to see the S&P 500 finished positive +1.38%.

Without the “FANG” stock phenomena, however, 2015 would have been very negative. In other words, Continue reading

John Hussman says we are headed for a stock market crash!

UnknownDear Mr. Market:

If you’re smart…does it imply that you’re always right? In many instances that may often be the case, but when it comes to investing, some of the most brilliant people on the planet are reduced to buffoons by irrational and unpredictable markets. When you add in a 24/7 media cycle and the fact that human beings are emotionally driven creatures…your IQ (or stubbornness) can actually work against you.

As huge fans of behavioral finance we also want to once again remind you that your own brain (whether it be “smart” or pedestrian) is wired to connect certain dots even if the conclusion is wrong or completely random. One famous adage will serve as the theme for this entire article:

“Even a broken clock is right twice a day.”

Take a brief moment to read the following article that surfaced last week: Continue reading