Premium Market Analysis, Trader Education, Software, and Trading Strategies. Thirty Years Of Skin In The Game

Asset Allocation

The Market is Like a Large Movie Theater With a Small Door

Photo by Monica Silvestre

When corrections start in the markets, everyone rushes to the exit door. Those who are late panic as they see their portfolio’s value plummeting.

“The market is like a large movie theater with a small door.”

The above is a quote from Nassim N. Taleb’s book Skin in the Game: Hidden Asymmetries in Daily Life. We highly recommend this book to our blog readers.

We saw the panic in 2022, with investors in the 60–40 portfolio facing large losses due to a bear market in both stocks and bonds.


Performance of a 60–40 portfolio in SPY and TLT ETFs

For many years, investors enjoyed high risk-adjusted returns with strategic allocations such as the 60-40 portfolio in stocks and bonds. From 2004 to 2021, the 60–40 portfolio in SPY and TLT ETFs with annual rebalancing delivered a Sharpe ratio of 1 at half the maximum drawdown of the SPY ETF buy and hold. The 2022 event was a real shock.

The era of free money may be coming to an end.

There is an inextricable relationship between the performance of the stock market and the rising public debt.


Public debt and the S&P 500

As we approach a point where deficits must decrease or even be eliminated, strategic investing will face challenges from headwinds. In other words, the risk of investing in strategic allocations has increased.

We do not know when the next bear market will arrive. What we know is that investors who are not prepared will face unexpected losses.

Market timing has the potential to minimize risks. With that in mind, we have developed a dual approach to market timing: hybrid asset allocation.

Hybrid asset allocation (HAA) employs two strategies: asset cross-sectional momentum and strategic allocation. Both strategies use ETFs to generate signals.

The asset cross-sectional momentum strategy (CSMOM) and the strategic allocation strategy (MOMMF) generate signals in the monthly timeframe. The rebalancing of MOMMF occurs annually and includes both tactical and passive components.

On top of that, we have also developed a dynamic momentum strategy. The Dynamic Momentum Strategy (DYNMOM) is a proprietary timing algorithm that trades the SPY ETF. Its objective is to maximize the Sharpe ratio and avoid market corrections. The signals have a monthly frequency.

The signals of both HAA and DYNMOM are available with a monthly subscription. After the last trading day of each month, subscribers receive an email when the updates are available. Then, subscribers can log in and view the updates and whether there are new entry or exit signals.

We provide precise entry and exit signals.

No ambiguity, no buzzwords, no fundamental analysis, no obscurantism: well-defined entry and exit signals for major and liquid ETFs. Click below for more information about the monthly signals.




Specific disclaimer: This report includes charts that may reference price levels determined by technical and/or quantitative analysis. No charts will be updated if market conditions change the price levels or any analysis based on them. All charts in this report are for informational purposes only. See the disclaimer for more information.

Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.

Charting and backtesting program: Amibroker. Data provider: Norgate Data

If you found this article interesting, you may follow this blog via RSSEmail, or  Twitter.