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

For regular SAA and TAA portfolios, the next re-balance will be on  Monday, December 29, 2014. You can also find the re-balance calendar for 2014 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.

Beaten Down Assets

It is always our intention to be a value investor. Even though we opt to use broad base asset allocation investment strategies, the following are some reasons why one should keep an eye on valuation: 

  • Valuation helps to understand the general market conditions and thus re-enforce one’s risk profile or risk tolerance. For example, in an extremely overvalued environment, risk increases and one should pay more attention to the risk exposure. 
  • Similarly, valuation helps to set one’s return expectation. For a strategic portfolio, in a highly valued environment such as today, one should expect to have a low return in the coming years. For example, currently, the long term 10 year average annual return for US equity is around 3 plus or minus percent by various metrics (see, for example, November 24, 2014: Holiday Readings). For a tactical portfolio, understanding the general environment will help to understand the possible difficulties ahead. In general, even for a tactical portfolio, if the more assets are fair or overvalued, the harder it gets to find a good opportunity. 
  • Valuation helps us to find good possible investment candidates. For example, a globally diversified portfolio that takes emerging market and international stocks as well as commodities can present more opportunities over time. So if some of these assets are substantially undervalued, investing in one of those portfolios that have these assets as possible candidates opens up a possibility to invest in these beaten down assets. 

Although 2008-2009 financial crisis presents an opportunity that some people termed as once in a life time, we believe there will be many such opportunities ahead of us. Even though we are in no way predicting a similar event of such magnitude will happen soon, it is nevertheless interesting to see some of assets have been beaten down a lot, even approaching to their 2008-2009 levels.

Gold, Silver and Gold Mining Stocks

This group has been substantially beaten down, especially for GDX (Market Vectors Gold Miners ETF) and GDXJ (Market Vectors Junior Gold Miners ETF). In fact, GDX is about as low as what it reached in 2008 while GDXJ is now only about 12% of its peak!


While both gold and silver are still higher than their 2008 low, mining stocks are now in a very depressed state, presenting some exciting opportunities. 


It seems that the weakness is not just limited to gold and silver, all major commodities (broadbase commodities index DBC, agriculture commodities DBA and energy commodities DBE) are down to their 2008-2009 lows: 

Similarly, crude oil has down substantially: 

Although valuing commodities is notoriously hard, their relative valuations are very low for sure. 

Emerging market and Europe stocks

The BRIC stocks are down substantially, with Russian stocks (RSX) close to its 2008 level: 

 Notice that broad base emerging market stocks (EEM) never recovered back from its 2007 high, same for MSCI EAFE (EFA) and Europe stocks (VGK):

What we can learn from the above is that many assets are down substantially. Other than US stocks and REITs, most risk assets have encountered difficulties to recover back to their 2007 high and some of them are down substantially. 

Buying Opportunity?

It is tempting to act on some of the above beaten down assets. However, as what we have stated numerously times, unless you have a well defined strategy that has a strong intuition backing (such as a very good measure of valuation) and a reasonable average expected returns and you are committed to such a strategy in a long time, we should stick to our chosen strategies. 

Subjectively, other than commodities, all other assets are far from a distressed valuation level. With US stocks are still at a valuation level, markets are again far from a panic on sale state. Furthermore, a momentum based tactical strategy will only buy an asset when it again exhibits an upward trend, a more risk averse way to invest in undervalued assets. 

Portfolio Review

Permanent portfolios are standing firm this year, even with gold’s volatility: 

Portfolio Performance Comparison (as of 12/15/2014):

Ticker/Portfolio Name YTD
1Yr AR 3Yr AR 5Yr AR 10Yr AR 10Yr Sharpe
Bridgewater All Weather Portfolio Risk Parity 3.5% 3.5% 3.0% 5.1% 5.5% 1.16
Bridgewater All Weather Portfolio 3.3% 3.6% 4.0% 6.2% 6.7% 1.01
Harry Browne Permanent Portfolio 7.4% 7.6% 3.2% 6.1% 6.9% 0.83
Permanent Income Portfolio 10.9% 11.4% 6.6% 8.2% 6.4% 0.91

See year by year detailed comparison >>

Market Overview

The crude oil weakness continues to affect all of risk assets. US stocks are down -3.4% for the week. It is now ranked below US bonds in our trend tranking. What is again worrisome is the continuing high yield bond debacle: another -3% for the week loss for JNK. In fact, JNK has been down for over -9.5% from its recent peak. For now, we are seeing a broad base sell off. 

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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