Tuttle Tactical Management, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission. You should not assume that any discussion or information contained in this letter serves as the receipt of, or as a substitute for, personalized investment advice from Tuttle ...
Each week our investment policy committee meets to discuss different market scenarios and what we are seeing and hearing.
Stocks entered July strong with a nice rally yesterday. We are still long term bullish but the market is looking overbought over the short term. We wouldn’t be surprised to see a shallow selloff with perhaps a low around 1919 on the S&P 500 (Currently 1973) bottoming mid month. Our counter trend positions are no mostly in cash waiting for a selloff to be put back to work.
We are also concerned about the jobs number as the GDP has about a 5 month lead time and the revised decline could also translate into the upcoming jobs report.
The traditional process for determining suitability, what portfolio or mix of assets to put clients in, in the financial services industry stinks. In this approach there is typically a risk tolerance questionnaire that asks a client how they would feel if they lost money. Then a financial plan is created that figures out what return a client needs to reach their goals. Finally, the risk tolerance score is melded with the needed return to determine the appropriate asset allocation.
On the surface it seems to make sense. Who wouldn’t want a portfolio that was appropriate for their risk tolerance and gave them the best change of reaching their goals? However, there are a couple of major problems with this approach:
1. Risk tolerance is a moving target. A client’s tolerance for risk at the end of 2008 was probably different than it would be today. People always believe the most recent past will be the future.
2. Nobody has any idea what return a client actually needs to reach their goals. If you can’t predict what will happen in the next five minutes how can you predict then next 5 years or longer?
3. If you could accurately figure out needed return there is no way you can predict what a specific asset allocation will do in the future. Again, people believe that the most recent past will reflect the future. So they assume an asset allocation that averaged 10% in the past will average the same return in the future. Good luck with that.