I’ve said this hundreds of times, but it bears repeating again:

• During a secular bear market, an investor’s job is to manage risk and preserve capital.
• During a secular bull market, it is to maximize return.

How do you accomplish this?

You must be tactical. You cannot just Buy & Hold during a bear market. You need a methodology (we use a model) that identifies when the market is rolling over. You need to be cognizant of all the elements that go into economic expansions and contractions, into the psychology of crowds, into the metrics that historically support higher or lower asset prices. And you must have the discipline required to do this consistently.

Asset allocation allows you to deal with the ups and downs by having non stock holdings as well — Cash, Bonds, RE, and Commodities (GLD, OIL, etc,) that will offset stock weakness.

I firmly believe that individual investors have the ability to do this; That is the idea behind my “Apprenticed Investor”series at TheStreet.com, and my Washington Post “On the Money” columns. Keep learning and reading; no one cares as much about your money as you do.

I understand that some of you do  not have the time nor the inclination to do this yourself. If you are interested in learning how we provide these services for clients, then click here.

Category: Investing

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

24 Responses to “Tactical Asset Allocation During Secular Bears”

  1. machinehead says:

    A simple three-asset portfolio consisting of 50% TLT, 30% SPY and 20% GLD, will beat most professional managers in risk-adjusted return. It can be margined or deleveraged (using T-bills) to taste.

    As of midday today (after gold’s intraday selloff), this passive portfolio has gained 2 percent from the July 20th close of two weeks ago.

    Bear market? What bear market?

  2. ashpelham2 says:

    I’d like to add that this applies to “investors”, not average ordinary American 401k participant, who get killed during these downdrafts, then sell out at the bottom at the height of fear. 401k investing needs more troops on the ground educating, not more call centers or more time horizon style funds that 225 bps. And it certainly doesn’t need more sales guys.

  3. Chief Tomahawk says:

    Rick Santelli foresees an enema for the markets on CNBC today. The day it happens (if it does), Cramer’s show will be don’t miss TV.

  4. farfetched says:

    Who’s Rick Santelli? Who’s Cramer? What’s CNBC? I know what Enema is. He’s the President, right?
    No, wait, that’s Enemy. Sorry.

  5. AHodge says:

    so grand master
    in a secular bear market you never get back in?
    when do i get back in— could be soon
    first im tryin to catch falling knife w orders to buy VIX and TIP puts at lower levels
    feel for bottom that way….
    good luck with that “asset allocation” hows that work in “secular bear market”?

  6. AHodge says:

    i wasnt short– dam
    but love the smell of pants wetting in the morning..
    this too shall pass.. chance of global recession now say 4%???

  7. mathman says:

    How’s this look:


    There’s a chart displaying coincident/lagging ratio from 2001 to now and asking a simple question:

    “Richard Yamarone notes in his book, The Trader’s Guide to Key Economic Indicators, that this ratio has fallen before every recession since 1959.”

    “An updated view of this ratio shows continued deterioration – all this despite the fact that leading indicators continue to rise. Add this to the list of concerns about a slowing economy.”

    [chart here]

    “Hmmm. I wonder which one I should take seriously?”

  8. dead hobo says:

    1) I’ve been listening to CNBC off and on today and I LOVE the plaintive and desperate wails about the need for Ben Bernanke to come to the rescue after this HORRIBLE dip in the equity markets. To me it sounds like “Daddy, Daddy, Daddy, I lost my bail money in a poker game. I’m going to have to spend a full weekend in jail if you don’t SAVE ME NOW!!!”. Next week will the CNBC crowd start bellowing “I HATE YOU BEN BERNANKE!!!?” Ho ho ho ho ho!!

    2) Love being cash. I’m up for the year, beating the S&P by a wide margin. This must make me equal to the best hedge fund managers simply because I sold when the market looked stagnant around S&P1340 last May, plus goosed things a bit by buying into a bond fund afterward. I still think the 30Y bond will recover and bounce downward over the next few months, being the gift that keeps on giving. Hope to cash in there.

    3) Stocks will suck until November, more or less. Oil has to fall to $40-$50-$60 before the Fed even considers QE3 and, hopefully, not until after the CFTC and other world regulators remove commodities from asset class levels.

  9. tagyoureit says:

    I have a simple three asset portfolio as well: house, Model T 401(k)*, 9 months of cash. Dogshit returns though…

    *I like to refer to my 401(k) as the Model T plan. I can invest in any asset, as long as it’s from this menu of 20 mutual funds: 5 large caps, 5 medium, 5 small caps, 1 foreign, 2 bond funds, 1 money market, 1 Target Date fund. The largest holdings of most of the funds are identical!

  10. AHodge says:

    i agree eventhe uninformed shouldnt buy and hold. if “allocated” you might survive now, but not for the next big one likely a few years away

  11. franklin411 says:

    Stocks will suck until Nov 2012. If we get rid of the Teabaggers, and if they leave peacefully (the latter is a big IF!), then we might be able to take action to create some kind of engine of job growth in the US.

    But if the Teabaggers manage to hold onto power, then it’s time to start investing in Guns, Gold, and God. Civil war is the only solution then.

  12. dead hobo says:

    franklin411 Says:
    August 4th, 2011 at 3:30 pm

    Stocks will suck until Nov 2012. If we get rid of the Teabaggers, and if they leave peacefully (the latter is a big IF!), then we might be able to take action to create some kind of engine of job growth in the US.

    What happened to you?? I remember a young buck with big eyes and optimism an a certainty that something good is going to happen to you today. Really, it’s not that bad. Equities aren’t the economy. Once oil falls and looks like it will stay down AND reflect a real price that doesn’t include being in an asset class, everything will start to get better.

  13. Cdale_dog says:

    Teabaggers are the issue? Really? Wow, everything was Bush’s fault when he was in office. Now BHO seems to get a big ole “free pass” from you libs evertime. Your story is getting old franklin411.

  14. franklin411 says:


    I never foresaw that a tiny minority of anarchists, calling themselves the Tea Party, would manage to cow the government of the world’s most powerful nation. It’s like our country has become one of the victims in The Saw–a sick and depraved minority has managed to convince people to chop off their own arms and legs as part of a twisted game.

    We saw multi-% drops in late 2008 and early 2009 and I was buying as fast I could. Then, we had a government that aimed to improve this nation.

    Now, we have a government that sees its job as preserving the advantages of the rich and powerful.

    It’s the ballot or the bullet now.

  15. wally says:

    “Once oil falls and looks like it will stay down”

    These days, there is no quicker or more effective stimulus for the middle class than cheaper oil. Not bad for profit margins, either.

  16. whskyjack says:

    It’s an election year coming up. The bottom isn’t going to fall out of the world. Even tea party folks wanna get reelected. Remember their masters want to make lots of money too.


  17. machinehead says:

    franklin411 — lighten up, man. Today was the Obama’s Birthday Crash. Cheers!

  18. realgm says:

    Barry, you should have post your traveling schedule so that we can avoid the big drop AHEAD of time. :P

    Today, it was a slaughtered all over the market, have you sold all your stocks before your trip? Or you still believe there would be a relief rally based on QE3 rumors?

  19. gordo365 says:

    So how exactly will QE3 help? Give TBTF banks more access to the borrow and lend back to gov trade?

    If we are cutting funding to hospitals, fee lunch programs, teachers, old folks homes, fire depts, roads, bridges – even defense dept to the tune of millions of jobs (during a weak recovery/double dip recession) – QE3 does what to stimulate demand/jobs?

    I don’t see it.

    If they continue with programs that allow wives of bank presidents to borrow at the QEn handout window, but cutting programs to poor Americans – I’ll personally take to the streets.

    Does anyone know where Grover Norquist lives?

  20. gordo365 says:

    OK – banker’s wives borrowed $250m in TALF program – not QEn. My mistake. But it’s all the same machine…


  21. mitchn says:

    It’s a global economy now, folks. The decline in global equity prices won’t end until the Eurozone situation is resolved — and that might not be for a while. If the resolution is a partial breakup of the Eurozone (as it surely must be), we’ll see the Dow back into the 8000s. But that will take another two to three years, as desperate bankers and their bought politicians milk the extend-and-pretend game for all it’s worth. Agree with @deadhobo (a first) that lower oil prices will help here at home. But it doesn’t change the fact that the middle class in this country is tapped out. With the aging of a huge demographic cohort into retirement (lower tax receipts) and senescence (way higher medical costs), I figure the deleveraging of household balance sheets to last at least a decade. (And, BTW, oil prices will rise again as BRIC country folks say “Gotta have one of those Escalades.”) Willing to bet anyone the Dow will be at 12,000 in 2020.

  22. hammerandtong2001 says:

    Long US Bonds and loving it.

    PIMCO can short all they want.

    THere’s no place else to go.

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