How Good Is Gold?

Like most investment options, gold can be a really good or a really bad investment -depending on when you buy and sell. In this video, I will try to add some important context to the conversation about gold.

Tailwinds of Progress, 1871 to 2022

Overview

When in doubt, zoom out! Let’s zoom out to the last 150 years or so of stock market performance!

In times of crisis, it is often tempting to bet against the market by going to cash. Unless you are going to cash to fund spending, match your risk tolerance, or to follow a preset algorithm, it is best to just stay the course. When you see bad economic news or returns you should remember that the majority of the market is seeing it or too. You wouldn’t walk onto a NFL football field and try to outplay professionals. Don’t try to outplay the market based on news or short-term returns. If you don’t need money for many years then invest it. It is that simple!

Again, there are definitely times it makes sense to reduce stock holdings – such as to fund spending, rebalance a portfolio, or to follow an algorithm. But all investors and strategies should take into account the massive tailwind they are giving up anytime they decide to reduce their stock exposure. Of course, the same concept applies to any appreciating asset such as bonds, gold, real-estate, or dare I say cryptocurrency.

Why Has It Grown So Much?

The most significant reason for the growth in stocks is that businesses are always working to become more efficient, open new markets, grow, and increase profits. It is easy to be pessimistic and think business won’t progress forward. Few people could have predicted how railroads, oil companies, cars, planes, telephones, smartphones, the internet, green energy, or a thousand other things would grow the economy. We don’t know how things will change, but we know people and businesses are always trying to push things forward. With enough time they likely will. Statistically there is a high probability that owning large numbers of business will be one of the best investments you can make over the next 10 to 20 years. So keep calm and carry on!

If You Don’t Have Time

For any number of reasons you may not have enough time to wait for the tailwind of business to push you forward. When that happens it can often feel like the best thing to do is get more aggressive. Unfortunately, the best thing to do when you don’t have time is to accept a lower rate of return with more stability. There are many different ways to go about doing this, but one way is through purchasing government bonds. The 10 year US treasury bond is one of the oldest types of US government debt. If we graph it we can see how it is much more stable at the expense of lower growth.

Blended Returns

Say half your money can be left alone for 10+ years and half needs to be spent within 10 years. This is a great example of a simple 50/50 portfolio and how well it did historically.

Bottom Line

If you don’t have some spending need or some algorithm based on a large dataset, don’t mess with trying to time the market based on news or fear. Tines Capital does market timing within our active algorithms, but we highly encourage investors to trust the data and not try to time the market or our algorithms which are already using data to do so. We encourage patience and consistency!

Nerdy DETAILS

If you want to geek out click through the images below and read the captions. If you do I am sure you will see why it is best to just go with the flow of the market the vast majority of the time.

The data in this post was pulled from these publicly available sources then combined to get the necessary charts.

15% Annualized Return?

Overview

Two posts ago we discussed how you might simulate the effects of a hypothetical leveraged ETF from the 1980s to today. Then in another post we discussed increasing diversification by using leverage to free up portfolio funds for other assets. In this post I want to combine both of those concepts with a simple active trading technique. Most of the time active trading causes lower overall returns. However, by adding a trading rule, we will see this hypothetical portfolio improve to an annualized return of 15% with a maximum drop in value of just 23% – even during the flash crash of 1987, the dotcom crash, the 2008 financial crisis, and the COVID-19 crash. Then we will discuss when we think it may make sense to use leverage and active trading.

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67% Cash Portfolio with A 10% return?

Summary

Leveraged ETFs have opened the doors to many unique options. Many of these possibilities are overlooked by advisors and investors. In this post I want to discuss whether it is possible to increase overall returns, while also reducing maximum drawdowns by using leveraged ETFs and diversification. We will also discuss a hypothetical asset allocation that may have returned 10% since 1986, while maintaining a 67% cash position.

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When Leveraged Etfs didn’t exist

Summary

Today leveraged ETFs and inverse ETFs can be found for all sorts of markets such as stocks, bonds, and commodities. Before 2010 there were few leveraged ETFs in existence. For example, the 3X leveraged ETF for the S&P 500 with the ticker UPRO didn’t start until 2009. Fortunately, we can make some reasonable estimates as to how UPRO would have done during 2008, the dot-com crash, and the flash crash of 1987. This post will discuss a simplified method of analyzing how a leveraged ETF may have performed prior to its inception date.

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The Worst Combined Market in 45 Years

This year has been an atrocious year for Tines Capital’s algorithmic portfolios. Stocks and bond have in unison had a terrible year. There has not been a year like this in at least the last 45 years. I want to discuss what the algorithms could have done better and how they are being improved. Despite the abysmal returns so far this year, I believe that Tines Capital’s algorithms are actually better than ever and one of the best choices for long-term investors.

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Bonds and Rising Rates

Summary

When stock markets are not doing well, ETFs tied to long-term US treasuries (loans to the US government) are one of the next best options available in the Tines Capital algorithms. Unfortunately, the use of long-term US treasuries over the last year has been a drag on the Tines Capital algorithms. Naturally this raises the question of whether the algorithms should be modified to eliminate US treasuries or reduce their use. In short, I don’t believe they should be removed. There seems to be a lack of evidence for that change.

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Trend Following 1900-1949

Summary

The last 12 months have been a particularly hard time for Tines Capital’s active strategies. When strategies of any type are performing poorly, it makes sense to get nervous. Of course, patience and consistency are often the appropriate choice. One of my personal antidotes to getting nervous is diving into what has happened in the past. Though past performance doesn’t guarantee future results, I still find history important and helpful. Though history doesn’t repeat itself, it often rhymes.

Today, I want to take a look at a simple trend following strategy and how it might have performed from the period of 1900-1949 which includes WW1, Spanish Flu, The Great Depression, WWII, and many other important events most of us don’t remember learning about.

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Tax Forms For Retirement Accounts

Summary

In regard to tax forms, keep a copy is the best policy. There are two important documents that most retirement account users will receive over the years, forms 5498 and 1099-R. You may not receive one of these every year. If you receive one, it is a good idea to keep a permanent copy in a secure location. You can get a copy digitally from most custodians like Interactive Brokers. If you don’t keep records of these forms you may limit your ability to take full advantage of your retirement accounts.

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