VTS Community, 

   “Everyone has a plan until they get punched in the mouth”   –   Mike Tyson


Former heavyweight champion Mike Tyson isn’t exactly known for his verbal eloquence, but I find that quote from him to be one of the most succinct I’ve ever heard and it applies brilliantly to investing.  The reason the vast majority of the investing world doesn’t even get a mid single digit rate of return in the long run isn’t because they don’t do well during good times and bull markets. It’s because they have no protection or contingency plan in place to handle bad times and bear markets.

2 year chart of the S&P 500:


Looking at that chart it would be very easy to get lulled to sleep by a false sense of security.  It seems like stocks may never go down again right?  We’ve set all the records for longest periods without 3 5 and 7% corrections, longest stretches of low realized volatility, the most readings of excessively low implied volatility, pretty much every record for calm markets has been broken.  So it may sound crazy for me to say this but I’m going to say it anyway:


Friendly reminder:  Markets are going to crash

Maybe the beginning of a crash will start next Monday morning, or maybe it won’t be for another 3-4 years.  Regardless, at some point markets are going to crash.  As unrelenting as this run-up has been, eventually we are going to get  (figuratively)  punched in the mouth.

We’re going to wake up one morning, grab a coffee, turn on the laptop and our jaw is going to drop when we see the S&P 500 futures market in deep red territory.  I’ve had this exact experience before, many times in fact.  But you know what, I’m still here because I always follow my plan.

And it’s especially important to have all this worked out ahead of time so we can handle it more positively when it happens.  Keeping with the boxing analogy for the day, they say it’s the punch you don’t see that knocks you out.  Well that’s why I’m saying this now while we’re still in the midst of the calmest market in history.  If we see it coming and prepare for it the damage will be far less.


Here’s what I do to make sure that the occasional punch in the mouth doesn’t lead to a knockout:


1)  Make sure my portfolio allocations are conservative at all times no matter what.  I know it’s tempting sometimes to overweight on things that are working well, but no matter how good a strategy is or how much money it has made in the past, we don’t over-allocate.  Personally I never have more than 25% of my portfolio in volatility ETPs.  I don’t care how well they’ve done for me in the past or how confident I am in them going forward, 25% is my allocation and that’s it.  And to be honest that’s high.  Most people should probably consider something lower, but it’s not just volatility investing.  Everyone should make sure that their portfolio allocations across the board are conservative and fit their long term goals in both bull and bear markets, and do it now before a crash, not during or after.


2)  Try to remain calm.  Investing is just as much an emotional challenge as a mathematical one, and there’s no time when we are more emotional then starring big trading losses in the face.  But panicking isn’t going to bring the markets back into the green so I just don’t have any room for those negative thoughts.  I always feel better a few hours later, so remain calm.  It’ll be ok.


3)  I follow my daily trade signals without question.  Because I’ve experienced bad days so many times before I know exactly what that little voice in our head tells us.  If I hang on it might recovery tomorrow.  It’s not a loss until I sell it.  If I add to my position I can average down my cost basis.  Oh this is just a short term downtrend.  This crash is just a one off event because  (insert reason)

Sound familiar?  But the key to long-term success is not allowing positions to go from bad to worse.

All of my strategies are designed to move to safety positions fairly quickly.  It doesn’t take much to kick the VTS Tactical Balanced Strategy into bonds or gold.  All three of the Volatility Strategies can move to cash on a single day notice.  My stop-losses on Iron Condors are low and trigger often.  The reason I trade this way is because it’s always better to move to safety positions early and live to fight another day.


–  Allocate conservatively ahead of time
–  Remain calm when the inevitable punch comes
–  Trust the signals and the strategies that have served me well in the past.


One of these days we’re going to see that gut wrenching pre-market disaster.  It’ll be surprising and a little scary because it’s been so long since the last one.  But we’re going to handle it well because we’re prepared for it ahead of time.  It’ll just be a bump in the multi-decade long road that is retirement investing.


Current VTS Total Portfolio Solution Allocations

25% VTS Tactical Volatility Strategy

50% VTS Tactical Balanced Strategy

25% VTS Iron Condor Strategy

VTS Aggressive Vol Strategy  –  Optional replacement for higher risk tolerance investors

VTS Conservative Vol Strategy  –  Optional replacement for lower risk tolerance investors


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