Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

We just had a rebalance today. For regular SAA and TAA portfolios, the next re-balance will be on Monday, February 18, 2014. You can also find the re-balance calendar for 2013 on ‘Dashboard‘ page once you log in.

As a reminder to expert users: advanced portfolios are still re-balanced based on their original re-balance schedules and they are not the same as those used in Strategic and Tactical Asset Allocation (SAA and TAA) portfolios of a plan.

Please note that we now list the next re-balance date on every portfolio page.

Become an Enlightened Investor

No one wants to be disgruntled when carrying out a task or any endeavor, being in investing or in any other fields. The ultimate sense of happiness comes with doing something with enjoyment or great satisfaction. 

Many have felt confused, scared, angry or ecstatic when it comes to investing. Markets often go against our own wishes. But they do sometimes give us a great joy that eventually proves to be elusive. Our own impulsive or gambling habit that is associated with human nature only makes things even harder. 

If we look at what gives us the satisfaction from our jobs, our daily life or games we play, we can see it often comes from the fact that our expectation or goal are met. Or simply put, when what we anticipate comes true or  when we are in control, we feel happy. 

Investing, however, is dealing with a market that no one can predict. What is worse, this market can be a beast who sometimes roars away as what they call a bull or other times wreaks havoc as what they call a bear. There is certainly no fun at all for many, let alone dealing with it for a long long time (or for a life time). 

So the very first to do to achieve enlightenment in such activities called investing is to beat our own own enemy: our expectation or anticipation. Instead of setting ourselves up for the first order anticipation — beating the market or achieving consistent no loss returns or having an unrealistic get rich quick desire, we should abandon this goal but lift ourselves up to the second order anticipation — recognizing our weakness or recognizing the unpredictable violent nature of markets and being humble enough to have a long term investment goal instead. 

What does this mean or imply?

  • It means that we admit that regardless of how hard we try, we will not be able to predict the markets at least in a short term. Or put simply, we admit our weakness here to be able to outsmart markets on a short term basis. 
  • This leads to the next concession: regardless of what strategy or method one uses, it cannot be true that a single strategy can always consistently out perform others in any time frame, otherwise, that would mean we already find a winning strategy that can always predict the future of the markets (interested readers can look at two strategies that one always predicts up and the other always predicts down and if the ‘winning’ strategy can out perform both up and down strategies on a daily basis, it will mean that it can predict the future market outcome on a daily basis, which contradicts our first point. This can be extended to weekly, monthly or annual basis). 
  • It also means that we admit our own weakness to achieve some outlandish returns often claimed by many noisy newsletters or financial marketing materials. In general, a up to 20% annual return is pretty much the upper bound for most, if not all, investors for a long term. In fact, a goal of 6-15% is more meaningful. However, that does not imply one can not accumulate substantial wealth in a long period of time. For example, see our previous newsletter January 6, 2014: Lessons Learned in 2013
  • This also implies that we should admit our human nature problem: humans have animal spirit at heart and they are actually harmful to investing if it is not controlled properly. That also means our biggest enemy in investing is perhaps ourselves. In fact, one of the best kept ‘open’ secret in investing is that ‘consistency is our biggest edge’. 

So to become enlightened in investing process, we should do two things: 

  • We should understand the strengths and weakness of any investing strategy we use. Only by fully understanding the nature of the methods we are using, we will not be befuddled by short term under performance or loss. See March 11, 2013: How To Evaluate Investing Strategies on this topic. 
  • We should recognize our own shortcomings and stick to strategies consistently, once they are vetted and chosen. Because of the long term nature of these strategies (by now, you should have fully agreed with us on this ‘long term’ statement if you agree with us the above points we make). the worst mistake one can make is to implement a strategy inconsistently due to slacking off or second guess. In fact, minimizing implementation errors is the most important factor once a strategy is chosen.  

If you cannot accomplish both of the above, we suggest you either to admit your own weakness and look for other ways such as delegating the task to other professionals (now your task becomes how to find a good professional) or just forget about investing in capital markets: you can achieve similar goals in other form of investments such as real estate or just simply investing in yourself in your career etc. 

Ultimately, to have a ‘smooth’ sailing in investing, it requires you to understand the first order roughness of the markets and short term under performance or loss. It is not different from playing any sports: you are going to lose some and win some. The key here is to win in the long term. 

Portfolio Performance Review

We compare several momentum and tactical funds with several tactical portfolios: 

Portfolio Performance Comparison (as of 1/17/2014):

Ticker/Portfolio Name 2013 1Yr AR 3Yr AR 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
P Momentum Scoring Style ETFs and Treasuries 38.9% 34.2% 13.4% 13.9% 0.8 11.2% 0.66
Six Core Asset ETFs Tactical Asset Allocation Moderate 12.7% 11.4% 6.3% 9.4% 0.92 9.8% 0.82
Six Core Asset ETFs Tactical Asset Allocation Most Aggressive 23.3% 20.6% 9.0% 13.7% 0.81 14.0% 0.75
GTAA (Cambria Global Tactical ETF) 1.4% -0.3% -0.1%        
GDAFX (Goldman Sachs Dynamic Allocation A) 1.8% 3.0% 3.1%        
LCORX (Leuthold Core Investment Retail) 17.2% 16.7% 6.4% 10.5% 0.78 7.3% 0.43
DWTFX (Arrow DWA Tactical A) 25.8% 22.8% 7.8% 12.4% 0.75    
AMOMX (AQR Momentum L) 28.6% 31.5% 14.7%        

See year by year comparison >>

We should point out that both DWTFX (Arrow DWA Tactical A),  AMOMX (AQR Momentum L) and LCORX (Leuthold Core Investment Retail) can invest up to 100% in stocks and thus should be compared with P Momentum Scoring Style ETFs and Treasuries or Six Core Asset ETFs Tactical Asset Allocation Most Aggressive. Though 2013 can be claimed to be a momentum year, one can see that the performance has been very uneven. To be fair, one should also beware that the performance of  ETFs and mutual funds is after the fee charged while MyPlanIQ’s portfolios do not take the subscription fee into account. 


Market Overview

Although markets have been in general positive up to now, we take a note on the weakness of both emerging market stocks (VWO) and commodities (DBC). In fact, both of them had 4 week loss (VWO -1.28% and DBC -2.9%).  Furthermore, bonds have crawled back a bit and become more appealing to investors who are facing over valued and persistently elevated US and developed country stock markets. 

For more detailed asset trend scores, please refer to 360° Market Overview.

We would like to remind our readers that markets are more precarious now than other times in the last 5 years. It is a good time and imperative to adjust to a risk level you are comfortable with right now.  However, recognizing our deficiency to predict the markets, we will stay on course. 

We again copy our position statements (from previous newsletters): 

Our position has not changed: We still maintain our cautious attitude to the recent stock market strength. Again, we have not seen any meaningful or substantial structural change in the U.S., European and emerging market economies. However, we will let markets sort this out and will try to take advantage over its irrational behavior if it is possible. 

We again would like to stress for any new investor and new money, the best way to step into this kind of markets is through dollar cost average (DCA), i.e. invest and/or follow a model portfolio in several phases (such as 2 or 3 months) instead of the whole sum at one shot. 

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