08-25-2020: Playing with Fire?

Year-to-Date Strategy Stats as of COB today:

+ 37.62% : Turner Quant Advantage (TQA)

+ 12.00% : Tactical Growth (TG)

+ 2.72% : Diversified Income (DIS)

+ 12.72% : Aggressive Growth (AG)

- 0.69% : Total Market (TM)

+ 6.59% : S&P 500


I received an email from a close friend/client of mine today. While he likes what we are doing in his portfolio, he commented that he believes we are "playing with fire" by remaining almost fully invested. Now, don't get me wrong... I have a huge amount of respect for my friend. He has done well and is a savvy trader/investor. So, what I am about to write is not meant to denigrate him in the least.


His observation is almost 100% correct... We would be "playing with fire" if it were not for one thing... stop loss settings.


You see, he is of the opinion (and he admits this is just a guess) that when the Fed Chair gives his little speech on Thursday, it will roil the markets and we could see a big sell-off. He believes it is better to go to cash now and then buy back after Powell's speech if the market continues to stay up.


While his guess could be right, at the end of day, we simply do not guess. Guessing can sometimes make you look like a genius and other times, well... not so much.


Here is what I am doing with his, your (and my) money... as you know, we are almost fully invested. And, you know that my investment bias is to 'go-to-cash'. But, when I have a go-to-cash mindset, it doesn't mean that I sell everything. If I had done that yesterday, we would have missed out on the 13% pop in our CRM holding in our Tactical Growth strategy, in afterhours trading this evening.


No... my go-to-cash strategy can be executed in a number of different ways. The way I am 'going-to-cash' right now, is to keep stops tight and raise them every day, if the holding closes higher for the day. My goal is to get most, if not all, of our holdings at stops above their respective basis prices. This doesn't guarantee a profit, but it gets pretty darn close; assuming anything but a market crash.


This go-to-cash strategy let's us continue to capitalize on a strongly up-trending market and at the same time... every day... take some risk off the table by raising stops. This strategy is an important element of how we actively manage client accounts.


Keep in mind that we have to be a bit more flexible with our stops in our Diversified Income Strategy since we are holding until we get the next dividend; at which time we will raise stops in this portfolio significantly.


Yes, I know the odds are high that we will see some rip-your-face-off volatility as we get closer to the election, and I want you to miss out on those moves if possible. I also suspect (that's a code word for, "guess") that if the left side of the aisle wins in November, it will likely (another code word for, "guess") trigger a big down-side move in the market... but... I do not think the sell-off will be anything like the one coming at us from just over the horizon... next year or the year after... when the Mother of all bear markets could be upon us for a whole host of reasons. Keep in mind that these are just guesses. In the meantime, we will stick to the mathematical, quant-based strategies that have served us so well.


All in and raising stops every single day. Next week, I plan to tighten stops even more.

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