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Saturday, August 11, 2018

Risk Management - A Key 2018 Lesson

2018 has been an year of many lessons. This year we have seen severe volatility across assets classes ranging from stocks to bonds, and from crypto assets to fiat currencies. This type of volatility has resulted in many high-profile casualties, where some hedge funds had to close because of substantial losses while other prominent fund managers are severely under-performing. For example, David Einhorn's Greenligh Capital is down -18% in 2018 through July. Such volatility also brings valuable lessons because it stress tests the investment methodology, process and approach, in a real-world environment, rather than in paper trading. One such lesson is the importance of risk management.

One important part of investing is that it is never stagnant, whether you invest in the stock market, bond market, real estate, digital assets, or world currencies. Investing also comes with inherent risks, and as you know about risk: No risk, no gain; high risk, high reward; low risk, low reward." However, the problem with risk-taking is many people do not understand how do you manage risk. This concept of risk management is very important because it not only helps in investing but also in other aspects of life.

In investing, risk management means that you adjust your portfolio and positioning to align with the most likely scenario, and avoid chasing anything at or below 50/50 chance. One of the best example of this in personal life is going to school. One goes to school and then college, spending money on tuition and living, in expectation of reward through professional growth and earnings. Why would one go to school if the possibility of personal/professional growth is only 50%, which would mean there is no point in spending money and working hard if one has 50% chance of growing without hard work.

Similar is the case with investing. We should invest where we expect our value to grow over time while understanding there will be times when things will not go according to plan. For example, many college graduates are laid-off but they bounce back. Similarly, in investing there are periods of great performance, and then there are times when the position moves either against you or doesn't do any thing. This is one of the primary lessons from personal investing career in 2018:

There are times when you make money, and then there are times when you protect what you have made.

This is very important and is a big part of dynamic risk-management. Through risk management, our strategies ensure that investors and their portfolios are prepared for draw-downs, both mentally and through appropriate positioning. In this regard, dynamic risk-management ensures that portfolio keeps dynamically updating based on market realities, and it is not left on the market to decide its fate.

One of the best examples in this regard are digital currency assets. Many investors entered the crypto markets in late 2017 in hopes that the crypto-currencies will go to the moon above what they had already realized through mid-2017. Not surprisingly, they peaked in Jan 2018 and have since declined over 90% in most cases, while the poster-child of the crypto asset world - Bitcoin, is down almost  -70% from the top. Many investors have been adding to their holdings all the way down, and have very recently started hoping for a rally to exit. This is a prime example of lack of risk-management.

Investors who managed their risk had defined exit points. Whether they entered early or late, they exited based on risk-management parameters. As a result, they are now waiting to invest again with less stress on a daily level. Effective risk-management helps in the following ways:

  • Avoid persistent losses
  • Maintain composure
  • Prepare for new ventures and investments
While a traditional investment cycle could go from dis-information to disbelief to hype to hysteria to hope and then to demise, effective risk-management helps break that cycle while keeping the investor objective in their investing regimen. This would help protect investors from major losses. This brings us to the next lesson:

Gains are relative. There are periods of high and low return. Consistency is the key to long-term success.

This leads to a big question. If someone keeps investing in a sinking ship, how is that a wise decision? That is where risk management gains even more importance. One needs to consistently and preferable dynamically manage risk to ensure consistent investments are not made into sinking ships. This is what we try to do. We focus on entry, exit and current allocation levels to manage portfolio risk. This is accomplished through proprietary indicators and signals that span across fundamental and technical spectrum of markets. As a result, we don't promise and suggest that we will maximize the gains in an up-market but ensure that portfolios don't blow-up in case of extreme volatility events like of 2018. And we have seen in 2018 that while many famous investors faced difficulty, volatility of our portfolios always remained in check.

This has helped generate significant gains in 2016 and 2017. And ensured that our approach allowed investors to keep investing in a difficult 2018 market, so that when the volatility subsides or major themes become apparent, the investment base is larger and takes the most advantage of the gains. Some might use concept to defend the dollar-cost-average strategy, major problem with $-cost-average is the sinking-ship scenario. However, if you can invest in a sound risk-managed portfolio, in the long-run you will not be investing in a sinking ship, and therefore, the #-cost-averaging should yield significant long-term gains.

Before ending, I would like to share another lesson from 2018 related to investor participation in a bubble in any asset class but was very clear in case of Bitcoin and crypto currencies:

When the world enters, it is time to exit no matter how attractive it might seem.

This is easier said than done without a sound risk-management system because you could end up seeing your investment go up 300% without you. This is something that I have painfully experienced in the past. Therefore, in order to mitigate these risks and to take advantage of the benefits associated with effective risk-management, we dynamically manage the risk in our strategies. While this risk management sometimes results in lower near-term performance, it reduces portfolio volatility, keeps us unbiased, positions us for major investments, ensure that external noise doesn't influence the portfolio construction, and help generate consistent performance.

Monday, July 23, 2018

H1 2019 Performance Review - Jan thru June

H1 2018 has been very interesting. We started the year after an amazing 2017 and had a very good January. But January generated few sell signals and then everything got very interesting. SP500 declined sharply for two moths with a ~10% draw-down from January top to March bottom. 

While 2018 has not been a typical banner year of out-performance for our proprietary investment strategies, it has highlighted two very valuable aspects of these strategies, aligned with our goal of generating value for investors (not just trying to beat the market because just beating the market carries risk and additional tax/transaction costs): 
  1. Consistent returns with dampened volatility in comparison with major stock indices
  2. Uncorrelated performance: Returns not dependent on market performance
H1 2018 Performance Summary (excluding fees)
    Q1 Market Recap
    2018 started with an outstanding January with SP500 (TR) rallying more than 5.7%. During the same time our conservative strategy under-performed the market, while aggressive strategy out-performed SP500. 

    At the end of January, we received a sell signal in the stock market because of which we ended our long positions and built a very small short portion. This sell signal played out very well as we moved in to February and witnessed a 10% decline in major US indices. From March through May, US markets tested key levels multiple times but did not break down. 

    This is a very interesting observation because we were positioned to avoid loses due to the breakdown and potentially take advantage of the decline. As a result, our portfolios did not perform as well when the market avoided decline. But our purpose was to avoid losses to ensure long-term growth, rather than just buying and holding, which is also equal to buying and hoping.

    The sell signal ended in May, and we went long stocks again in June. On the other hand, we have received several other buy signals in other assets, and have positioned our strategies to take advantage of such signals. 

    Portfolio Strategies
    We currently have two live strategies, and are working on 3 more strategies in Beta phase. Goal for both of these strategies is to generate absolute, uncorrelated returns: 
    • Conservative (EPSB): Suitable for retirement accounts and risk-averse investors
    • Aggressive (AEPSB): Suitable for risk taking investors, with longer-term invest goals
    Note: Following strategy performance numbers do not include fees. Past performance doesn't guarantee future returns

    Conservative Strategy: -0.6% vs +2.7% for SP500 (w/ dividends)
    In 2018 conservative strategy has shown it's low-correlation and low-volatility characteristics with negligible correlation with SP500 monthly returns. This low correlation is also evident from performance since inception data. The monthly total draw-down for SP500 was ~6.5% vs -3.6% draw-down of the conservative strategy. Monthly volatility of this strategy has been half of SP500, which means once it starts out-performing again, it' risk adjusted returns will be outstanding. 


    Aggressive Strategy: -6.1% vs +2.7% for SP500 (with dividends)
    While aggressive strategy has under-performed SP500, it has also shown significantly lower volatility. And is positioned to benefit from aligned moves.




    Management Fees Refund
    Keeping all the good aspects aside, investment strategies have under-performed in 2018. If the year end performance is negative and less than SP500, we will refund investment management fees for 2018.

    Conclusion
    The best aspect of these strategies is that they enable the investor to concentrate on the work that is more important in life than losing sleep over investments through daily news. 

    We don't think the volatility will subside right away, and could see another leg down but that will be a good buying opportunity, if no sell signals are generated. One of the best things one can do at this time, in regards with their portfolio, is to see if their portfolio is positioned to absorb increased volatility, and better yet, can they benefit from volatility.  Our strategies don't depend on market news, rather take into account underlying market tones to make investment decisions. This reduces transaction cost, dampens volatility, moves taxes to long-term bucket and generate consistent results for long-term benefits.

    These strategies are open for investment. Please feel free to contact via subscription.ust@gmail.com for details. These strategies are being implemented via managed account setup through a Registered Investment Adviser. 

    Please contact us for details. You can also sign-up for free email updates below: 

    Thursday, April 12, 2018

    Q1 2018 Performance Evaluation

    Q1 2018 has been very interesting. We started the year after an amazing 2017. In fact, we said the following words to define 2017 performance in Jan 2018

    "2017 was a very unique year with respect to market performance. SP500 was up for every month of the year, a very unusual occurrence. When one combines this amazing performance with extremely low volatility, it gave us a Sharpe Ratio of more than 3.5. To be honest, if one can get a Sharpe Ratio of 3.5 from an asset class like SP500, one should never invest anywhere else. 

    However, the problem is that the historical Sharpe Ratio of the US stock market from 1928 to 2016 is 0.4. This means that last year's performance was an anomaly and will likely not be repeated in the near future. Therefore, one needs to prepare for more volatile, low performance markets over the next few years."

    However, Q1 2018 has confirmed our hypothesis that 2017's performance was an anomaly to be replaced by extreme volatility. During Q1 2018, both of our proprietary strategies have performed very well while market has experienced amazing volatility. As you know, our goal is to generate value for investors not just try to beat the market every day because beating the market everyday carries risk and additional tax/transaction costs. We have been delivering value for clients in following 4 ways:
    1. Consistent / Absolute returns comparable to major stock indices
    2. Uncorrelated performance - Deliver Alpha under different market condition
    3. Differentiate by deploying techniques not used by mainstream investment gurus
    4. Provide a unique market perspective
    Performance Summary (excludes fees)

      Q1 Market Recap
      2018 started with an outstanding January with SP500 (TR) rallying more than 5.7%. During the same time our conservative strategy under-performed the market, while aggressive strategy out-performed. January confirmed what we hypothesized in the beginning i.e. our strategies are not designed to beat the market every month. This is very important to know because understanding the investment strategy increases confidence.

      At the end of January, we received a sell signal in the stock market. This sell signal allowed us to end our long positions after ~2 years and build a very small portion of short positions. This sell signal played out very well as we moved in to February because we saw a sharp decline of more than 10% in major US indices. This decline caught many investors off-guard. However, the ensuing rally again increased the confidence of the bulls. During the rally phase, we continued to highlight the dangers of the rally, internal dynamics and IPM turn window with a suggestion that markets could top in early March.

      Markets did indeed top in early March, and have now declined to 200 DMA. They are bouncing around the 200 DMA and are encouraging many buyers to enter the market at potential support level. March decline was attributed to different reasons on different occasions. It started with Facebook leaks, went into Tesla and ended on Amazon. 

      We don't think the volatility will subside right away. We could see another leg down because the sell signal still remains in effect. With this backdrop of events, everyone should ask themselves if their portfolio is positioned to absorb increased volatility, and better yet, can they benefit from volatility. . 

      In order to properly and profitably navigate through markets where extreme gyrations and news driven moves are the norm, one needs to maintain composure. Our strategies don't depend on market news, rather take into account underlying market tones to make investment decisions. This reduces transaction cost, dampens volatility, moves taxes to long-term bucket and generate consistent results for long-term benefits.

      Portfolio Strategies
      We currently have two live strategies, and are working on 3 more strategies in Beta phase. Goal for both of these strategies is to generate absolute, uncorrelated returns: 
      • Conservative (EPSB): Suitable for retirement accounts and risk-averse investors
      • Aggressive (AEPSB): Suitable for risk taking investors, with longer-term invest goals
      Although past performance doesn't guarantee future results, Q1 2018 performance was very good for both strategies.  

      Note: Following strategy performance numbers do not include fees.

      Conservative Strategy: 1.81% vs -0.76% for SP500 (w/ dividends)
      In 2018 conservative strategy has out-performance SP500 and had a negligible correlation with SP500 monthly returns. This low correlation is also evident from performance since inception data.  


      Aggressive Strategy: 2.97% vs -0.76% for SP500 (with dividends)
      Aggressive strategy has significantly outperformed SP500 so far in 2018. And the R-sq correlation coefficient is 0.03. In other words, our performance was independent of SP500's performance. 


      Conclusion
      The best aspect of these strategies is that they enable the investor to concentrate on the work that is more important in life than losing sleep over investments through daily news because we do the research and invest using proprietary algorithms. If an adviser or fund manager cannot generate uncorrelated returns, investors are better-off investing in a standard passive fund. But if the manager can generate uncorrelated performance, they generate Alpha. And successful managers are compensated for generating Apha.

      These strategies are open for investment. Please feel free to contact via subscription.ust@gmail.com for details. These strategies are being implemented via managed account setup through a Registered Investment Adviser. As a result, you keep control over your assets. 

      Please contact us for details. You can also sign-up for free email updates below: 

      Tuesday, March 20, 2018

      Interesting Market Circumstances

      This post is an expansion of a 10 tweet thread posted on 3/12 by @survive_thrive on Twitter.

      2018 has been a very interesting year for the stock market. We have seen market perform amazingly in January, one of the best January on record but soon gave back all the gains in a period of 10 days. 
      This decline was accompanied by explosion of volatility, which caused many funds to experience their worst draw-down in decades. At the same time, many novice and experienced investors who were betting against VIX for years and had generated impressive gains over past few years were wiped out in 1 trading session.
      This volatility and wipe-out highlights the importance of a well-balanced portfolio that can generate returns under different market conditions. Such portfolio construction cannot be accomplished by just following the market pundits on TV because they are paid to react to market rather than being level-headed, which could also be boring. We prefer being boring and consistent because long-term gains are dependent on lower draw-down than temporary rally.

      In order to be level-headed, one needs to consider the market at its merits and dissect different aspects of the markets.

      Currently, the stocks are at a very interesting point. Nasdaq recently reached all time highs while SP500 recouped most of early February decline. This development was significant enough to attract many prominent financial analysts on financial media and twitter to proclaim continuation of the uptrend. However, we remained cautious of this rally because of multiple reasons.

      First of all, DJIA alongside other US and global indices have been rallying since 2016 (2 years) with a rather sharp rally since Nov 2016 US elections. This behavior is inherently unsustainable. Nothing goes straight-up. Similarly, nothing goes down in a straight line as well.  If a new rally phase starts at this point, it would mean that this rally would continue for few more months without a major correction. This kind of behavior, while possible, is highly unlikely.
      Secondly, we received a proprietary sell signal at the end of Jan. This signal was used previously but this is the first time we are using it in actual portfolio allocation. This sell signal is a predictive signal and therefore, helps us in pre-empting the risk. However, it doesn’t mean that we have entered a new bear market. On the contrary, as per our bull/bear model, we remain in a bull market with strong momentum.

      Thirdly, recent rally resulted in divergences. A divergence occurs when one index reaches a new high but is not accompanied by other indices. This shows reduced leadership, and signals weakness.

      Fourthly, bond market has been declining since June 2016. And now we are hearing from many pundits that the long-term Bond Bull market has ended, and this is also evident from heavily short positions. As the sentiment sours towards Bonds, we approach a critical decision point in Bonds:
      1.  Resumption of the rally: This possibility is supported by following observations –
        1. Proprietary buy signal
        2. Heavily negative sentiment towards Bonds
      2. Confirmation of the Bear market   
        1. Very close to confirming a bear market
      While we could enter a full blow Bond bull market, its possibility remains lower. And even if we do enter a bear market, we will have many more opportunities on the short-side.

      Keeping the above reasons in mind, we have established a very small (less than 10%) short position in the US stocks. This position will be active for few months till we receive another signal or this signal expires. Because we did not enter the short position right at the top because of reason mentioned earlier, we were underwater for some time but now are again in the green. And look forward to further gains.

      However, one should keep in mind that investing against the primary trend is a dangerous game. Since the trend remains higher, our position size remains small and is supported by key sell signals.

      Under such circumstances, our portfolio remains risk-neutral. Following chart shows the performance of our portfolio with respect to SP500. Our goal has never been to always beat the market. Instead, it is to reduce volatility and maximize long-term gains. We hope that soon this sideways action will resolve to the upside and generate the expected gains that we have seen in past years, while minimizing the downside risk.

      Thursday, January 11, 2018

      2017 Performance Review

      2017 was a very unique year with respect to market performance. SP500 was up for every month of the year, a very unusual occurrence. When one combines this amazing performance with extremely low volatility, it gave us a Sharpe Ratio of more than 3.5. To be honest, if one can get a Sharpe Ratio of 3.5 from an asset class like SP500, one should never invest anywhere else. 

      However, the problem is that the historical Sharpe Ratio of the US stock market from 1928 to 2016 is 0.4. This means that last year's performance was an anomaly and will likely not be repeated in the near future. Therefore, one needs to prepare for more volatile, low performance markets over the next few years. 

      In 2017 SP500 returned 21.8% with dividends, even with many uncertainties like geo-politics, environmental upheavals, and rising interest rates. SP500 defied gravity as if there was no resistance, bemusing many market watchers who continuously expected a pause. In sort, 2017 was a difficult period for many logical investors as they continued to absorb a lot of headline risk. 

      During this interesting year, both of our proprietary strategies performed very well. Since the very beginning, our goal is not just to beat SP500 but to generate value for investors in following 4 ways:
      1. Consistent / Absolute returns comparable to major stock market indices
      2. Uncorrelated performance - Deliver Alpha under different market condition
      3. Differentiate by deploying techniques not used by mainstream investment gurus
      4. Provide a unique market perspective
      Performance Summary (excludes fees)

        Market Recap
        2017 started with an overbought market, which continued to rally into March followed by a 1.5 month sideways movement. At the time, many reasons were given for this decline including overbought market, high valuations, sentiment, potential for unfulfilled presidential promises and geo-political turmoil. However, market resumed its rally with Q2 earnings in April. 

        Market rally continued in May through early June. At the same time, we saw excessive optimism from famous investors calling tech stocks extremely cheap. As Fed raised rates in June market took a brief breather. This pause was accompanied by calls of '3 hops and a tumble' on Fed rates' influence on the markets. But with earning in July, market resumed it's ascent. 

        Q3 was unique as it introduced a lot of geo-political uncertainty ranging from North Korean missile tests to failed attempts to pass Health Care bill. While markets rallied during the early part of the earnings season, they went sideways for most of August and September. The real fireworks came in October, when things started looking optimistic for the tax reform bill and North Korean tensions waned. However, the show was stolen by Bitcoin's stratospheric rally, and media coverage of the crypto-currencies.
           

        With this backdrop of events, everyone should ask themselves if their portfolio is positioned to absorb increased volatility because it will eventually come. And not only absorb volatility but to take advantage from it. 

        In order to properly and profitably navigate through markets where extreme gyrations and news driven moves are the norm, one needs to maintain composure. Our strategies don't depend on market news, rather take into account underlying market tones to make investment decisions. This reduces transaction cost, dampens volatility, moves taxes to long-term bucket and generate consistent results for long-term benefits.

        Portfolio Strategies
        We currently have two live strategies, and are working on 3 more strategies in Beta phase. Goal for both of these strategies is to generate absolute, uncorrelated returns: 
        • Conservative (EPSB): Suitable for retirement accounts and risk-averse investors
        • Aggressive (AEPSB): Suitable for risk taking investors, with longer-term invest goals
        Although past performance doesn't guarantee future results, 2017 performance was very good for both strategies. June was the first negative month after 6 positive months and September was the second negative month, providing a much needed correction to avoid over-heating. These two months were the only negative months of the year, and have set us up for a sharp rally into the new year. 

        Note: Following strategy performance numbers do not include fees.

        Conservative Strategy: 17.3% vs 21.8% for SP500 (w/ dividends)
        In 2017 conservative strategy performance similar to SP500 in % terms but had a negligible correlation with SP500 monthly returns. This low correlation is also evident from performance since inception data. R-sq correlation coefficient is 0.07 with respect to SP500. 


        Aggressive Strategy: 44.0% vs 21.8% for SP500 (with dividends)
        Aggressive strategy significantly outperformed SP500 in 2017. And the R-sq correlation coefficient is 0.03. In other words, our performance was independent of SP500's performance. 


        Conclusion
        The best aspect of these strategies is that they enable the investor to concentrate on the work that is more important in life than losing sleep over investments through daily news because we do the research and invest using proprietary algorithms.

        These strategies are open for investment. Please feel free to contact via subscription.ust@gmail.com for details. These strategies are being implemented via managed account setup through a Registered Investment Adviser. As a result, you keep control over your assets. 

        Please contact us for details. You can also sign-up for free email updates below: 

        Monday, October 16, 2017

        Q3' 2017 Performance Review

        2017 has been a very eventful year. Through September, SP500 has rallied more than 14% with dividends, even with many uncertainties like geo-politics, environmental upheavals, and rising interest rates. In fact, SP500 has defied gravity, as if there is nothing like gravity of resistance, bemusing many market watchers who have been expecting a pause for quite some time now. Hence, it has been a difficult period for investors as they have to absorb a lot of headline risk and be brave in their investments. 

        During these testing times, both of our proprietary strategies have performed very well. Since the very beginning, our goal is not just to beat SP500 but to generate value for investors in following 4 ways:
        1. Consistent returns comparable to major stock market indices
        2. Uncorrelated performance - Deliver Alpha under any market condition
        3. Differentiate by deploying techniques not used by mainstream investment gurus
        4. Provide a unique perspective to markets.
        Performance Summary (excludes fees)

        Although we plan to review 2017 performance in greater detail over next few weeks, let's quickly review the circumstances that have made 2017 unique. 

        Market Recap
        2017 started with an overbought market, which continued to rally into March followed by a 1.5 month decline. At the time, many reasons were given for this decline including overbought market, high valuations, sentiment, potential for unfulfilled presidential promises and geo-political turmoil. However, market resumed its rally with Q2 earnings in April. 

        Market rally continued in May through early June. At the same time, we saw excessive optimism from famous investors calling tech stocks extremely cheap. As Fed raised rates in June market took a brief breather. This pause was accompanied by calls of '3 hops and a tumble' on Fed rates' influence on the markets. But with earning in July, market resumed it's ascent. 

        Everyone should ask themselves if their portfolio is positioned to absorb increased volatility because it will come eventually. And not only absorb volatility but take advantage from it. 

        In order to properly and profitably navigate through markets where extreme gyrations and news driven moves are the norm, one needs to maintain composure. Our strategies don't depend on market news, rather take into account underlying market tones to make investment decisions. This reduces transaction cost, dampens volatility, moves taxes to long-term bucket and generate consistent results for long-term benefits.

        Portfolio Strategies
        We currently have two live strategies, and are working on 3 more strategies in Beta phase. Goal for both of these strategies is to generate absolute, uncorrelated returns: 
        • Conservative (EPSB): Suitable for retirement accounts and risk-averse investors
        • Aggressive (AEPSB): Suitable for risk taking investors, with longer-term invest goals
        Although past performance doesn't guarantee future results, 2017 performance through Q3 was very good for both strategies. June was the first negative month after 6 positive months, providing a much needed correction to avoid over-heating. And with September's decline, we are now within the buy range, which means that we are prepared for a significant rally phase in the next quarter or so.

        Note: Following strategy performance numbers do not include fees.

        Conservative Strategy: 13.5% vs 14.2% for SP500 (w/ dividends)
        Through Q3 2017, Conservative strategy performed similar to SP500. Keep in mind that SP500 has had a very good year so far, with it being up ~14%. But the better part is that since inception in Jan 2016, R-sq correlation coefficient is 0.07 with respect to SP500. 

        Aggressive Strategy: 33.7% vs 14.2% for SP500 (with dividends)
        Aggressive strategy has performed very well in 2017. And the R-sq correlation coefficient is 0.01. In other words, our performance is not dependent on how the stock market performs.



        Conclusion
        The best aspect of these strategies is that they enables the investor to concentrate on the work that is more important in life than losing sleep over investments through daily news because we do the research and invest using proprietary algorithms and valuation models.

        These strategies are open for investment. Please feel free to contact via subscription.ust@gmail.com for details. These strategies are being implemented via managed account setup through a Registered Investment Adviser. As a result, you keep control over your assets. 

        Please contact us for details. You can also sign-up for free email updates below: 

        Friday, August 25, 2017

        Market at Crossroad & Potential Catalysts

        Over the past few weeks, we are seeing several consolidation patterns popping-up in different markets. Consolidation usually signals in-decision or brief pause before resumption of the underlying trend. However, markets also consolidate in a sequence of 1s and 2s before a significant move in a new direction.

        It appears like we are experiencing both the cases in different areas, where market is tracing out a sequence of 1s and 2s, and is waiting for a catalyst to break out of this consolidation. Following charts show this pattern:

        Bonds: Since July Bond prices have been increasing but in an overlapping manner. This suggests that either this is a corrective move and we will see a move down soon, or we will soon see above June highs.


        Gold: Over the past 4 days, Gold has placed in 4 inside days above the downtrend line and near the resistance. Inside days show indecision - a point where buyers and sellers are not comfortable making the move. Although most of sideways consolidations result in a move in the direction of the trends, next few days will be telling in terms of the move.


        Stocks: SP500 is stair stepping down. Like other instruments, this stair-step pattern would either give way to a substantial decline in the near future or would turn out to be a correction in the broader up trend.

        Even though stock market sentiment has come down recently, it remains elevated. On the other hand sentiment for Bonds and Gold is rising but not very optimistic yet. Proprietary timing indicators suggest that next turn date is few weeks away in the stock market. Therefore, if the market declines, other assets could rally but they need a catalyst to move away from current sideways indecision.

        Need for Catalyst
        Today's Jackson Hole speeches by Janet Yellen (Fed Chair) and Mario Draghi (Chair ECB) could be the catalyst that the market is waiting for.

        If it is the trigger and if the markets start moving in 3rd wave out of this consolidation, logical move would be a rally in Gold and Bonds, while decline in Stock Market. Stock market is over-valued and has been rising for over a year, so this move is very possible. A decline in the stocks will be attributed to debt-ceiling debate and numerous other distractions from Washington by fundamental analysis but essentially it will be a natural part of the market rhythm.

        We have underscored this observation multiple times that financial news media distracts investors. It can lead to early exit and pre-mature entry into investment positions. As a result, one of the lessons that we learned through 2016 is (Investing Lessons)

        Lesson 1: There are no guarantees but being persistent is the key to long-term success

        Long-term investing is regarded as the secret ingredient for many successful investors. Time is a very powerful commodity. If you give time to a successful business model or investing strategy, and combine it with dedicated and passionate management team, it will give you amazing long-term results.

        Another reason why long-term returns are much more important than short-term returns is because when a portfolio achieve critical mass, one’s personal savings will not have that big an impact on the growth of portfolio. For example: $100K invested today will grow to 1M @ 20% return in ~13 years. At that point 100K will not have as much value because @20% / year an investor will experience a $200K increase without adding any more funds.

        Thirdly, investing is a game of nerves and patience, whether in the stock market or any other endeavor like small business, start-ups through Angel/Venture investing, or Private Equity. The only difference with stock market based investing is that you have the opportunity to exit early because the market provides excessive liquidity, which provides peace of mind for many investors.

        Long-term investment positioning and persistence provides investor with the focus needed to successfully withstand periods of draw-down because major moves take place after big draw-down periods. We will discuss additional lessons in the next post.

        How to Position? 
        Most of the readers would agree that the markets are at a critical juncture. However, knowing this is one thing and acting on this information is totally different. So far in 2017, we have mentioned several big moves on this blog and on twitter but doubt if effective trading was performed around this analysis by the readers.

        Effective, long-term and consistent trading requires discipline and an edge in the market to adjust findings as market situations change. At this critical time, we are using proprietary models to expose clients to positions that have the highest success probability.  Performance - H1 2017 

        Contact
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