With the world economy slowing for some time and critical harbingers of the US economy recently decelerating (e.g., manufacturing, home, and car sales), there has lately been a font of articles predicting an impending recession. Some of these investment advisors write that several critical economic indicators, such as the Yield Curve, rolled over this past August, suggesting that we are nearing a recession. Alternatively, there are other indicators, such as S&P 500 Earnings and the Unemployment Rate, that are telling us there's no need to worry about a recession.
Some bullish advisors write that stocks have plenty of life left, while bearish analysts believe that we're already in a recession that will only be recognized by economists in hindsight. At this point in the business cycle, if you try to follow the advice of investment advisors, you would probably be labeled as schizophrenic. However, there is a much better way…
No Opinion On the Economy or the Market
The ETFOptimize Team entirely ignores this content and avoids forming a personal or professional opinion on the subject of a recession – or making predictions about the economy in general. Our year-round opinion about the economy and the market is this: "We have no opinion."
Instead, we rely on Rules-Based investment strategies to determine the optimum time to switch to defensive positions – always based on a pre-determined 'weight-of-the-evidence' approach. By using a carefully crafted quantitative model, investors can avoid stressful decisions about the optimum time to switch to defensive positions in the face of a difficult-to-define start of a bear market.
We advocate that our clients avoid forming economic opinions – which are always the result of incomplete and often erroneous data consumption. and making financial decisions based on those opinions. Instead, our approach is for investors to allow carefully crafted quantitative strategies to make those hard decisions for us. We have 100% confidence in our strategies – a confidence based on year-after-year of success since 1998.
Our five models have never experienced a money-losing year – collectively, that's 77 of 77 consecutive winning years – while producing an Annualized Return that's more than quadruple the return of the S&P 500 over the same period, with an average annual Max Drawdown of only -11.05%. For example, our Optimized Equity/Fixed Income (4 ETF) Strategy, with performance profiled below, has an annualized return of 62% for 2019 and an AR of about 50% for the last three years. This model provides an example of what's possible from following an evidence-based, quantitative investment strategy rather than the discretionary opinions of advisors.
The profound beauty of a systematic investment approach based on robust quantitative indicators is that it allows you to ignore all of the noise generated by other market participants (including professional investment advisors). Investors who do otherwise – that is, the vast majority of investors – are often unwittingly biased in one direction or another by the many influential voices that are part of the ceaseless market noise pervading cable-news airwaves and the internet's financial blogosphere. Often these influential voices have a hidden agenda that is in conflict with your financial goals. Moreover, the media as a whole is motivated to stir emotions – primarily fear – to generate viewership, traffic, or clicks.
Emotions Affect the Short-Term, Fundamentals Define the Long-Term
Investment markets demonstrate waves of prices, driven by investor emotions that are classically characterized as fear and greed. These emotions are the short-term driver of prices, moving in regular waves of highs and lows, bouncing from one extreme to the other and back again. A more substantive driver of financial markets is the principle of reversion to the mean – which is the tendency of prices, bouncing from the extremes of fear and greed, to always center on their longer-term moving average. The trend of this average or mean reflects the longer-term influence of macroeconomics and stock fundamentals.
Chart 1 below shows a six-month daily record of price moves for the SPDR S&P 500 ETF (SPY) during one year is the past. You can clearly see how prices bounce between highs and lows (blue arrows) – driven by investor's emotions of fear or greed – but always stay centered around their mean (in this case, the 20-day moving average is indicated by a dotted red line) – driven by macroeconomics and fundamentals.
Chart 1: Stock and ETF prices regularly ping-pong between
highs and lows based on the investor emotions of fear and greed.
We have added Bollinger Bands in gray, indicating a range that is two standard deviations above and below SPY's 20-day mean. These bands serve as guardrails for prices about 92% of the time. Notice how the price of SPY almost always stays within the guardrails of two standard deviations from its mean. When prices move outside the gray bands – i.e., more than two standard deviations from their mean – it's always a sign that investor's emotions have forced prices to move too far, too fast.
We have highlighted an instance (in yellow) in early Augus when the price of SPY closed below its lower Bollinger Band (black bar). The following day, the ETF both opened and closed below the lower Bollinger Band. Experienced traders know that this is an excellent set-up signal that indicates the ETF is about to begin a significant rally.
In this case, the rally is identified by green arrows which show that the price of SPY initially gained about 5% in two weeks as it came off its oversold early-August low that established a lower-low. With that move overdone, SPY dropped right back to its mean, then bounced between the upper band and the ETF's dotted-red mean for five weeks. This two-month price series is a good example of the effect that occurs when emotions run too hot and prices get overdone, in this case too low out of fear.
Many investors follow the market closely, giving them constant exposure to the market's short-term noise (represented by the blue arrows). This exposure can also cause subconscious biases and neglect of the more substantive trend of the long-term mean (represented by the dotted-red line). These subconscious biases often cause investors to make emotion-laden, seat-of-the-pants decisions at the worst possible time – decisions that have caused the average investor to attain a long-term return of only 2.6%, which is only slightly better than inflation.
For anyone experienced with the accuracy of quantitative ETF selection systems, it is flabbergasting that the majority of investors intentionally pursue market noise. Alas, those investors are likely convinced by the media that consuming the noise they publish or broadcast is necessary to gain an advantage over the market.
However, it's not an advantage for investors – indeed, it is precisely the opposite!
Exposure to a bearish narrative – with articles often composed by individuals who have a vested interest in promoting a defensive investment product (such as gold bullion) can often convince you – perhaps only subconsciously – to have a bearish bias lurking beneath the surface of your determination to remain agnostic and data-driven.
The negative article you read may not have its intended effect of making you immediately purchase the defensive investment in which the author as a vested interest. However, with this bearish influence onboard your subconscious, when stocks take a temporary dive downward, some quantitative model users will imagine the worst outcome, and their fight-or-flight fear instinct will skyrocket.
Worried about significant loss – some investors will override their winning model and enter a sell order that will salvage their principal. However, this single action eliminates all the advantages that they were accruing from their systematic approach and can result in canceling out the profits accumulated in the months or years prior.
Many investors succumb to irrational fears hinged on the bearish narrative that is in the back of their minds, panic-sell their shares, and lock in losses just before a rally. Upon self-examination, many realize in hindsight that their false assumptions were planted in their subconscious by the bearish noise they recently consumed.
Reading a convincing bullish article can have the opposite effect – prompting an investor (in hopes of further gains) to override their quantitative strategy when it signals to switch to defensive ETFs in the face of mounting evidence of an imminent downturn. The result of holding onto their long positions, against the advice of their model, can be substantial losses when a rapid selloff gets underway.
Selloffs are usually of the classic 'taking the elevator down' variety, and it can require a long period of 'climbing the stairs upward' to recover those losses. For example, the Financial Crisis entailed 18 months of loss (-56% for the S&P 500), followed by more than five years of slowly climbing higher to recover those losses. The ETFOptimize strategies lost nothing during the 18-month crash and produced (on average) a 348% gain while the S&P 500 produced 0% over five years.
There is a critical element that occurs when an investor is tempted to override their quantitative strategy. It's something that equally affects both first-year amateur investors and seasoned professionals with many decades of experience. Investors usually find it strangely impossible to avoid the subconscious voice in our heads that tells us that 'its' judgment is better than the sophisticated quantitative strategy upon which we have been profitably relying for some time!
Warren Buffett has referred to this influence as "the super-contagious emotions that swirl about the marketplace."
"An investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace."
– Warren Buffett(Chairman, Berkshire Hathaway)
This swirling force – call it the 'collective consciousness' if you wish – is incredibly persuasive in convincing us to do precisely the opposite of what we should. We buy high and sell low. We sell in a panic after a sharp decline – locking in losses just before a robust recovery. We zig when we should zag.
The times when the market's extreme fear or rampant greed are at their most contagious are also the times when your ETFOptimize systematic strategy will provide its peak value to you. For this value to see fruition, it is imperative that you not override the decisions of the system with rash judgments.
Our Recommendations for Success with a Systematic Model
Step 1: Follow the trade stipulations of your quantitative strategy – 100% to the letter.
Step 2: No additional steps are required.
Investing as an Enjoyable Intellectual Pursuit
Many investors have found analyzing the market and individual stocks to be an enjoyable intellectual pursuit – but the market is a cruel mistress. To be successful with a quantitative strategy, it would be best if you disregard the temptation to master the intellectual challenges of the market. To avoid the swirling, super-contagious emotions mentioned by Buffett, avoid investment -related articles/stories in the media and thereby prevent their mysterious, unavoidable influence.
That influence is almost always detrimental. Let's face it; the authors of 90% of the investment content that's published aren't doing anything more than guessing about the future. Moreover, the vast majority of them are basing their conclusions on false assumptions – such as the assumption that news events affect stock prices (they don't, at least for no more than a day – if that).
Like a drug addict with friends who are bad influences, the best advice is to stay away from them! Instead, spend this freed-up time productively, pursue a life's passion, or share quality time with your family and loved ones.
The ETFOptimize Premium Strategies utilize a composite of as many as 38 different data sets – each weekend analyzing billions of bits of the highest-quality, point-in-time information to make informed decisions that are far and away superior to any conclusion drawn by the most experienced human analyst. Just like chess, investing is a game in which a 100% emotionless player – i.e., a computer – is far superior to their human counterpart.
The content published on ETFOptimize doesn't attempt to convince you of a position one way or another for the direction of the economy or the market. Instead, we educate you on the intricate drivers of our model's success, and the signals those drivers are currently providing. We'll tell you the probabilities of an outcome – based upon the collective decisions from our Composite Indicators but we will never try to convince you of an outcome. Our models are about 70% accurate on individual trades, but if we look at the big picture, they are 100% accurate in providing one winning year after another – and almost always beating the S&P 500 in performance.
To help you better understand a counter-intuitive recommendation by your strategy, we often analyze our model's indicators, which come from the realms of macroeconomics, stock fundamentals, sentiment, and technicals. Most of our subscribers find the articles help them understand the decisions made by their ETFOptimize Premium Strategy.
The objective of the ETFOptimize content is to make our quantitative ETF-selection systems less of a black box and to provide you with the confidence you need to rely on your model's decisions through thick and thin.
Quantitative Model Track Record
There is only one definitive way to avoid the emotional roller-coaster of the investment world, and that is by using a quantitative investing strategy – and sticking with it). This sytematic approach offers you a proven method to avoid the stress of highly complex choices between one stock and another, and allows you to entirely ignore the financial media and the talking heads who seek to manipulate your emotions and wallet.
Our Optimum Equity/Fixed Income (4 ETF) Strategy gained approximately 110% over the last two years, which means that the funds invested were more than doubled in a two-year timeframe. Moreover, since its inception, the strategy has recorded 13 consecutive money-making years and 13 consecutive years of being the S&P 500 as well as its benchmark (70-30 blend of SPY/BND).
In 2018, the model attained an Annual Return of 19.3% with its worst drawdown being -8.76% – despite 2018's often wild turbulence and the S&P 500's loss of -5.25% that year. This year (2019) the model has seen even better performance, with a return of 63% YTD (Annualized Return of 79%) with a Max Drawdown of only -6.9%. You can see performance charts sicne inception and for other time-frames, with complete strategy details at this link.
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As of November 11, 2019
KEY: The blue line shown is the benchmark: a 70%-30% weighted, buy-and-hold of the S&P 500 ETF (SPY) / and Total Bond Market ETF (BND).
The red line shows the "Optimal Equity/Fixed Income (4 ETF) Combo Strategy's" performance for 2019, with a return to Nov. 11 of 63.39% and a CAGR of 78%.
• See MORE Performance Charts and ALL Details for the Optimal Equity/Fixed Income (4 ETF) Strategy
Since its inception, the Optimal Equity/Fixed Income (4 ETF) Strategy has produced a return of 2,710.90% (30.93% AR). However, its performance has increased in recent years, with an Annual Return of about 54% in the last two years and an Annual Return of about 56% over the previous 12 months, (and don't forget that 78% Annualized Return year-to-date)! Click here to learn more about this model.
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The ETFOptimize quantitative investment strategies have a proven track record of consistently high-performance success over long periods. Our premium model strategies have provided an average annual return of 30.53% since the inception of our first model in 2000 – and that performance is a multiple of more than quadruple (415%) the annual return of the S&P 500 over the same period, and more than eight times more than the index' return since 2000. The ETFOptimize strategies, collectively, have beaten the S&P 500 in 77 of 77 years (100%)!
The ETFOptimize strategies operate using our proprietary, quantitative financial-analysis programming that has been continuously upgraded and refined over the last 25 years, accompanied by high-speed computer servers and high-quality, point-in-time investment and economic databases. As ETFs have become increasingly popular over the last 20 years, we've embrace these products, which offer investors instant-diversification – eliminating the individual company risk inherent in stocks.
Why not look over our strategy lineup now and see which if there's one that's a fit for you? It's actually very affordable to put a high-performance, quantitative investment strategy to work for you every week of the year. The ETFOptimize models are available by subscription starting at just $9 per month.
We even offer a Complimentary S&P 500 Conservative Strategy for those with no experience with our firm or with systematic investing, and who would like a long-term, 90-day trial before subscribing (with no credit-card required to register).
Do some research; we don't think you'll find a superior approach to investing – offered at such an exceptionally low cost, and making consistently high-performance investment results affordable for even the smallest investor. You control your money in your own account and follow our clear instructions for trades, which occur an average of only about three-six times per year. We provide you with weekly updates of your strategy and an analysis of the market that always tells you what's critically important.
Plus, you can subscribe without risk because each model is backed by a 60-day, 100% Moneyback Guarantee if you decide that algorithmically based strategies are not your cup of tea. Our firm, Optimized Investments, Inc., has an A+ Rating with the Better Business Bureau and a perfect record of satisfied customers – nary a single complaint since the BBB began reviewing our firm in 2004.
Take a moment to sign up for the strategy of your choice now – while all the benefits of a quantitative investment approach are fresh in your mind. You can get started for less than 50-cents a day with a very low-risk, high-profit investment strategy that produces solid performance through thick and thin – in any type of market environment.
Moreover, remember that you have nothing to lose – if you change your mind anytime in the first two months – for any reason (or no reason at all) – just let us know and we'll return every penny you paid! Visit our ETF Investment Strategy Suite today and select a quantitative strategy perfect for you:
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(Complimentary 90-day model is for inexperienced investors only, please. Please select our S&P 500 Persistent Profits Strategy if you would like our most conservative Premium Strategy with all paid-subscriber benefits for only $9 per month.)