Getting Rid of the Guess Work


By Miles Clyne

In our monthly report, I noted that there is a degree of sector rotation going on in the markets, where the market leaders are changing. This is very evident in Information Technology and Consumer, which were dominant sectors in the first half of 2018. These are two key areas where profit taking has occurred. The good news is the money is being reallocated back into the markets, with strength showing up in Consumer Non-cyclicals, Industrials, and Financials.

We hit a few bumps in our portfolios during these changes, but the good news is that it appears, for now, the markets remain strong. A redistribution of capital in markets is a greater sign of a healthy market than if the capital left the stock market.  The SIA Charts technical indicator has proven wise. When the line is in the top or green part of the chart, regardless of the chaos in the markets, we stay invested.  When it is in the yellow, we don’t reinvest any sells we make, and when in the red, we sell all of our stock positions. See the data table below the graph to measure the accuracy of the chart.


SIA Charts did this evaluation in late 2017 to verify the process above.


Two key takeaways:

  1. Higher volatility in the Yellow and Red zones – as noted by the Std Dev column
  2. Increased likelihood of positive monthly returns when the line is in the Green Zone, relative to the Yellow and Red Zones – as noted by the % Positive column

What is really important, and I can’t stress this enough, to be successful at investing both the manager and investor have to have a proven discipline. Many investment managers will tell you they are not paid to hold cash, that their investors pay them to buy stocks. This is akin to driving a car without brakes. In my opinion, most managers should be trying to get you from point A to B as quickly and safely as possible.  If a manager doesn’t have a discipline around chaos in the market, their returns may be great in a rising market, then return these gains in a falling market. 

Equally as damaging is when an investor does not do their research on what kind of an investment strategy would best suit them. Knowing the risk along with understanding the logic behind the manager or manager’s investment processes and their historical results is critically important. If an investor gets these two factors dialed in and are comfortable with the long-term results, they will do the following; stick with the manager(s) through both good and bad times and recognize that when the manager is underperforming they are a buying opportunity.

Investing isn’t something you want to get lucky at, you should want to know why any strategy is preferable over another. This is job one if you are thinking of changing strategies or you are just starting out. If you have changed investment strategies multiple times and are always disappointed, or you are sitting in a strategy that continually disappoints you, I have to ask, have you done these basics?

To help our clients with this exercise, we post the results of our composite strategies at our website Clients and other investors can then compare our performance with anyone else’s results.