VTS Community,

Thank you Jesse for the great question:

“Why did the Balanced Strategy move to bonds and gold this week?  The markets barely dropped 2% so far.  Isn’t that a little early to move out of stocks?”

Longer term members of the community will already have first hand experience with the answer, but I suspect this is something that some newcomers to my work are wondering as well which is why I think it’s timely that I answer it today.  Essentially the answer comes down to a few things.

1)  All of my investing is based on the premise that nobody knows what’s going to happen tomorrow.  My strategies are entirely quant based and decisions are arrived at by analyzing a list of market metrics.   Nothing to do with my own personal market predictions.

2)  Buy and Hold investing doesn’t yield long term success so we do need at least some degree of tactical rotation.

3)  Stocks do occasionally suffer very large and painful drawdowns, and while not a guarantee I’d rather take my chances with bonds and gold during those periods.


So why did we move to bonds and gold this week?  Well the preponderance of signals that I track are flashing warning signs.  Risk management is the most important aspect of successful long term investing, and moving to safety positions as soon as possible has served me very well in the past.

I realize the last 18 months has been a record setting stretch of unbelievable calm in the markets, but let’s not forget that even during bull markets corrections are normal.  7-10%, sometimes 15% drops are completely normal within the context of bull markets.  Also, recessions do occasionally happen and stocks can easily crash 40% or more during them so we have to be disciplined and follow the signals.

I don’t personally think markets will see much of a correction this time, but what I think doesn’t matter.  The volatility market is saying be careful right now and we will listen.

In 2017 safety was completely unnecessary, but we can take a look at some other examples of when the strategy moved to safety positions and it turned out to be very beneficial that we did:


* White circles and dates are when we moved out of stocks and into our bonds / gold safety positions:









So here we are in 2018 and we find ourselves in safety positions.  Will it pay off?  We won’t know that until after the fact, but at some point it will.  Suffering 5-10% losses along the way is fine, it’s part of the process.  The real game changer is when you experience first hand avoiding the more substantial drawdowns in the stock market.  When we do, that’s when it will really be obvious why I invest the way that I do.

This week:

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