In August the US Stock Market had its worst month since May 2012 and there are a bunch of interesting issues going into September, including:
1. Syria
2. Problems in Emerging Markets
3. Fed tapering
We also have an extremely important jobs report coming out that could go a long way towards shaping Fed policy going forward.
We continue to believe that Syria is no big deal and that Fed tapering is pretty much factored into the market. Markets will be volatile as news and rumors come out on both of those fronts but as long as interest rates stay low stocks are still the only game in town.
Another Nail in the Bond Coffin?
PIMCO and Bill Gross built a massive business on the back of the bond bull market. Now they are pushing into alternative investments. When the "Bond King" decides it is time to shift away from his core competency it has to tell you something about the future of the bond market.
Recent Moves
Going into September we are making a few allocation shifts:
1. Moving out of Dividend Stocks, Mid Cap Stocks, and Floating Rate Bonds.
2. Increasing positions in Small Cap Stocks
3. Moving into China in our Opportunity Strategies
Your Goals Don't Matter, Agility Does
If you have ever talked to a financial planner before the process usually goes something like this:
Step 1: Determine your goals
Step 2: Determine your risk tolerance
Step 3: Create a portfolio, within your risk tolerance, that is designed to achieve your goals.
Step 4: Help you stick with your portfolio through periodic re-balancing and telling you to hang on during market declines.
This sounds fine in theory, you have a goal or goals that you want to achieve and if you can design a portfolio that will give you the best chance of achieving them then what is wrong with that?
What is wrong of course is that the market doesn't care about your risk tolerance or your goals, it will do what it is going to do. For example, lets say it is the year 2000 and you are 55 and want to retire in 10 years. Some simple math tells you that you need to average 10%/yr in your portfolio to reach your retirement goal. Anyone can design a portfolio for you that would have returned 10% over the past 10 years but that is meaningless for what it is going to do over the next 10 years. In fact, you probably would have reached 2010 with about the same amount of money you started with, if you were lucky. So in effect you are getting an asset allocation that a financial planner is guessing might have a chance to earn 10%, you are re-balancing to that allocation, and being advised to stick with it during market downturns.
Agility Is What Matters
Would you ever write a business plan and stick with it no matter what? No. New opportunities and new threats always pop up, your business plan needs to be constantly updated to keep up with reality. Why would you ever design an investment plan and stick with it? In the above example, since I have no way of predicting what mix of assets will return 10%/year the best solution is to earn as much as possible while taking a risk level that you are comfortable with. This requires agility and the willingness to respond to new opportunities like Bull Markets, and new threats, like Bear Markets.
© Tuttle Tactical Management
