Investing during market turmoil

Maybe the best thing about quant or automatic investing is the peace of mind it provides during times of market turmoil. While I would by no means characterize the recent market action as ‘turmoil’, many investors seem to think it is. It always amazes me how short term the investor memory is. Has everyone forgotten the corrections of 2010 (16%) and 2011 (19%)? Of course, in theory, the buy and hold investor should be in a state of peace, confident in the long term, and ignoring the short term fluctuations of the market. But as that wise man, Yogi Berra said, “In theory there is no difference between theory and practice. In practice there is.” As evidenced by the abysmal historical record of the average investor. This is where automatic or quant portfolios shine by having built in automatic decisions and risk management. So, lets look at some examples of what quant investors are doing today.

First, I’ll start out with the automatic diversified ETF portfolios like the IVY varieties. This also includes the Permanent Portfolio and many others but I’ll focus on the IVY versions. Below are some screenshots of what and investor in these portfolios would be doing today. Lets start with the basic IVY portfolios. The status of the GTAA5 and GTAA13 portfolios is shown below. I keep spreadsheets for these portfolios that update automatically which you can access here and here.

GTAA5 status oct 2014

GTAA13 status oct 2014

A GTAA5 investor would be 60% invested and 40% cash right now. A GTAA13 investor would be 55% invested and 35% in cash. Due to the recent market pull back some of the riskier assets have triggered their risk management provisions and commodities have been in cash mode for a while. No thinking required, automatic decision making once a month. Now for the more aggressive portfolios, GTAA AGG3 and AGG6. Their status is shown below.

GTAA AGG status oct 2014

Both GTAA AGG3 and AGG6 are still fully invested. Notice how the GTAA AGG portfolios have shifted more to risk off assets (bonds) during the recent turmoil. In general, the AGG portfolios stay more invested than the basic GTAA portfolios because they always seek the assets classes that are moving higher the fastest. It is quite quite rare for these portfolios to move completely to cash. In fact, in the last 10 years these portfolios only spent 3 months at 100% cash. Again, automatic decision making.

The IVY portfolios are just a few examples of the many types of diversified portfolios out there. The same risk management, automatic decisions can be applied to other portfolios as well. Below are some of the other portfolio choices out there (from Meb Faber). By the way, if you are a die hard buy and holder then the Permanent Portfolio is the easiest to implement and due to its low volatility and drawdowns has shown that is probably the easiest portfolio to stick with.

Diversified portfolio examples oct 2014

Now what about the individual stock quant portfolios that I’ve presented here? Those quant portfolios are buy and hold portfolios with a holding and re-balancing period of 1 year. As I detailed here you can then use a bond allocation to manage risk and drawdowns. For example, you can target a max drawdown of less than 10% by choosing a 30% quant stock portfolio with a 70% bond portfolio. Otherwise, there are methods to implement automatic risk management into individual quant stock portfolios. It is something I’m using myself and will have some posts on the topic in the future.

In summary, it’s times like these where automatic investing really shines. Having a systemtatic investing process takes much of the worry out of wildly gyrating markets and the investor uncertainty that comes with it.


Full Disclaimer - Nothing on this site should ever be considered advice, research or the invitation to buy or sell securities. These are my personal opinions only.

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8 Responses to Investing during market turmoil

  1. doug nashif says:

    Thanks for all that you do Paul. I’ve followed you for quite sometime now and very glad that I have.

    I would like to follow a quantitative model for part of my portfolio but do not feel confident enough or qualified to create and follow my own list of stocks. I have looked at the lists provided by AAII as well as those being “rented” by members at P123. One of the P123 members has created an extensive service they are charging a fee for at Would you mind commenting on the options available to someone in my situation?


    • libertatemamo says:

      Hey Doug, nice to hear from you. I think the Vrbas do some good work. I follow their writings on Advisor Perspectives. Their economic models are quite good I think. I’ve even been considering using their MAC-US system as a potential risk management tool for some of my quant portfolios. I haven’t looked into their individual stock systems but some of their ETF systems look decent.

      Before I can give you an answer I would ask for example what you find ‘wrong’ about the AAII stock lists? Those seem to me the cheapest and easiest to use.


  2. rxy33 says:

    Hello. Paul thanks for this great info and site.

    I have been interested in Ivy and trying to execute it using a great sheet posted by I think user Bryce at:

    That said, am new to this and since starting in Dec (Aggressive 3) not progressed much and not sure if executing correctly.

    Wanted to ask if there already is or if someone would share a more detailed spreadsheet of actual buys and sells each month with Ivy – Agg 3 and others.

    Of course I know there will be differences in exact execution price, but would be more confident comparing to such data.
    Thank you.

    • libertatemamo says:

      I think Bryce’s or my spreadsheet (derived from his) are the most detailed you’ll get anywhere for these systems. You can take a snapshot (screenshot) at the end of each month and keep it in your records to keep track of the monthly changes in the portfolio.

      The IVY GTAA 3 portfolio has not done much this year. By my analysis it is up approx 1.6% for the year. So, it sounds like your results are similar to this which would mean you are implementing the system correctly.


  3. Fabio S. says:

    Hi Paul,
    thanks for your always interesting posts, and thanks for introducing me to the Ivy Portfolio. You are right: these methodology of investing give peace of mind to the investor. One year ago I create my Ivy P. whith 5 asset class. Now I would like to increase the amount allocated on it (double the capital).
    In your opinion, what is the best way to do this? Everyting at once? Waiting for some particular event?
    Thank you again.

    • libertatemamo says:

      Fabio, thanks for the comment. In the long run, it won’t matter how you add capital to your account. You could just add the appropriate $$$ to the ETF that are on buy signal right now: VTI, IEF, VNQ. Or you could wait until the ETFs on buy signal go to sell, then back to buy. But you could be waiting a while. I usually go with the first approach.


  4. aparcan1 says:

    This is such a great blog. I’m gonna be reading a lot more this weekend and in the future. I actually started my own but I am a looooong ways from you, both in blogging and investing experience. But its great to see what I hope my blog to become one day. I’d like to link to yours from time to time if that’s okay. My blog is here:

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