I made some tweaks to the Model Portfolio allocations, the Model Retire is toned down some, even the Moderate is toned down a little, and the Aggressive is still pretty aggressive.

Here is a new version of the January 2023 Reporting Deck with the new allocations. The Fact Sheets for the Model Portfolio's list the allocations and show all the associated data, that can be compared with the previous allocations in the original January 2023 Reporting Deck.

Risk Off, how often have the strategies been Risk Off as long as this current time period?

GPMv has been Risk Off for 8 consecutive months, and 9 of the last 10. The last time it was in Risk Off for 8 months or more was 11 months from July 2008 through May 2009, it was also Risk Off in March and April 2008. Those are the only two periods from now back to 1980 that it was Risk Off for 8 months or more.

The Triad trio of strategies has been 100% Risk Off for the past three months, the last time this happened for three months or more was the 4 month period from September 2008 through December 2008. The time before that was for 3 months from September 1981 through November 1981. Just three times have the Triad strategies been 100% Risk Off for three months ore more.

The Russell, Global Navigator, and the LT Gain strategies are a bit more binary and don’t scale in the way GPMv does, or bucketize investments like Triad does, there have been more times they have been Risk Off than the past 7 months. Global Navigator for example has been Risk Off for the past 7 months, this has also happened 5 other times going back to 1980, same as The Russell and LT Gain strategies.


Leverage and a persons personal allocation.

We are currently on the verge of all strategies going fully into the markets in December, and with Leverage if it is a + (2X) or ++ (3X) strategy. Are you properly allocated? For example, let’s say I was younger than I am and I have myself set to 100% LT Gain++. If the signal flips to go invested in equities for December, because we have triggered Smart Leverage, the LT Gain++ strategy would go in 100% with UPRO which is 3X the S&P. Are you good with that? If we happen to see that we are currently in a bear market rally and during December the S&P tanks 10%, would you be ok watching your investments go down near 30% for the month?

I personally had a bit of FOMO during the tail end of the rally in mid to late 2021 and levered up in some strategies that I really shouldn’t have been in, took a bit of pain when the market rolled over. The bad is, I went too risky and lost some money that I shouldn’t have. The good is, I learned from this and have over the past many months ‘come to my senses’ and adjusted my portfolios to a more appropriate allocation for my personal risk tolerance, and place in life. Just in case you are curious, here is my personal investment portfolio breakdown:

Looking at all investments, I have 38% in investment real estate (my personal home which I own outright is not included in this portion, it is my residence, not an investment.) And I have 62% in equities. Of that 62% in equities. Looking at the 62% of equites as a 100% pie, 5% of that is in a couple of stocks (which I wish I never purchased…) of the remaining 95% of equities, looking at that as a 100% total: 25% is in GPMv, 45% in Triad++, 15% in IWR, and 15% in DBMF. Honestly, I really wish I had been in that allocation for longer than this year, but I am in it now and have no intention of changing it. GPMv is my most recent strategy, a variation of Keller and Keunig’s GPM strategy, Triad is my second most recent strategy. I have lots of love for The Russell, Global Navigator, and LT Gain, however, I am happier being in the allocation that I am which still has historically resulted in fantastic returns, and also terrific risk adjusted returns. Not a lot of downward volatility which is just my style.

DBMF is a managed futures strategy in an ETF, it wasn’t long ago that you had to have big money to open an account with a CTA for a managed futures account, I like that this has a low correlation to the market and since inception has had market like returns with less volatility.

The summary is, I have roughly 40% of my investments in investment real estate, and roughly 70% of my equity investments in GPMv and Triad, strategies which are multi-equity and are both very low volatility with market like returns. And then I have 30% buy and hold, half in the Russell Mid-Cap and half in a managed futures ETF.

Should the strategies go fully in equities for December, including going into 33% of Triad++ into UPRO, I’ll be fine, knowing my overall allocation is otherwise pretty moderate. If possibly you worry about going into December's investments, maybe you are allocated too risky?

DBMF has only been around since mid-2019 so I can't chart my current allocation back too far, but here is what it looks like from 2020 through mid-November 2022.

(My allocation is the dark blue, SPY orange, and 60/40 gray.)

The next chart below is similar to my allocation, but without any DBMF and going with a 30% market allocation the entire time via IWB, the Russell 1000. It is a bit more volatile with 30% buy and hold, but you can see it still is often above either GPMv or Triad+ from 1980 through mid-November 2022, and light years ahead of the Market or a 60/40 over that time period.

Several people have written nice "Thank You's" the past couple of weeks, it was really nice to receive these comments.

Given that these DMS strategies are for a DIY investor who appreciates the strategies, understands how they work, and appreciate their goals, pros and cons. I really appreciate that these strategies strike a chord with some investors. :)

When I glanced at the Finviz.com heat map this morning, I was reminded of the saying "All correlations go to one in a bear market."

Housekeeping: Swapping out DBC in favor of PDBC in the strategies which use Commodities, GPMv and the Triad trio.

Thanks to Garrett B for alerting me to PDBC. Both DBC and PDBC are fund from Invesco they have extremely similar results, PDBC has the advantage of no K1. DBC is structurally a Commodity Pool (managed futures), while PDBC is an ETF. Both trade easily and similarly, but PDBC does not issue a K1 which is simpler at tax time.

For more information on the distinction between Commodity Pools and ETF's: Investopedia link

You can see in the chart below of returns for both DBC and PDBC, they are virtually in lock step.

It is common for people to use leverage, whether in the form of leveraged ETF's, margin, or futures as a way of enhancing returns when things are going well in the markets. The problem is that leverage cuts both ways, it can dramatically increase your gains, and it can also dramatically increase your drawdowns.

It is not only retail investors getting 'greedy' using leverage either, did you know that not only do Hedge Funds use a lot of leverage, but even Berkshire Hathaway is usually using leverage? I didn't dig into it, but it appears that they often use 1.2x to 2.0x leverage, and they are generally considered to be conservative. You may recall how Long Term Capital Management blew up from using too much leverage, when things went against them.

Having looked at the risk adjusted returns for holding leveraged ETF's for long periods of time, it is shocking how much volatility and drawdowns they can incur. But Fear Of Missing Out, FOMO, still taunts people to try and enhance returns.

I got more aggressive in 2021, not long before the market rolled over and got stung as a result. Not a mortal wound, but a good lesson to not leverage up too much. The truth is, I was leveraged more than I was comfortable with, but it didn't rear it's ugly head until things turned downward.

Many of the DMS strategies take advantage of Smart Leverage, which is designed to only leverage up when the odds are in our favor for doing well, however, this doesn't mean that being 100% invested in LT Gain++ is a terrific idea because there will be times when you are 300% leveraged. Certainly some people can handle that volatility, not me!

With less than a week to go before June has completed, it looks like we may trigger Smart Leverage this month. As a reminder, Smart Leverage looks at drawdowns in IWB from the month end high water mark to the current month end results, when this reflects a drawdown of 15% or greater, Smart Leverage is triggered, and when we go back into equities we do so with leverage. The "+" strategies use 2X, SSO, the "++" strategies use 3X, UPRO.

Triad only has a maximum allocation of 1/3rd to IWB, the Russell 1000. So even if you are in Triad++, the maximum leveraged position you have to the market is 100% for the IWB portion (1/3 x 3X), and it could still have 1/3rd in either Russell Mid-Cap Value, or Foreign, and also up to 1/6th position in either Gold or Commodities. This is an amount of leverage that I am personally good with. At this point in my life, I don't want the volatility or risks that come from being overly leveraged and my recent fall from grace was an excellent reminder of this. If you don't learn from your mistakes, you are likely to repeat them.

If you are investing in the DMS strategies, please consider the leverage you will be taking when we go back into equities if/when Smart Leverage is triggered. It would not be out of the question whatsoever to see a 20% loss in a month for the overall market, and if you are 100% in 3X leveraged strategies, that would equate to near a 60% loss for the month. That would be a significantly huge loss in the span of one month. Caution is advised. Consider your allocation, and not just how you will do if things work out as we hope, but please also consider the downside possibility and what that would mean for your portfolio.

My personal allocation is similar to the Model Portfolio Retirement allocation as shown recently in the Reporting Decks. Which is 35% GPMv, 50% Triad++, and 15% IWR (Russell Mid-Cap). As shown in the reporting deck, this allocation has a backtested history of terrific returns that are above market performance, with far less volatility and drawdowns. Seems like a great path for me to follow. Note that I do have my kids more aggressively allocated, but not too much maximum leverage. The Reporting Decks show both the Maximum and Average Leverage for each strategy and Model Portfolio. While the Average Leverage is important to note, it is the Maximum Leverage that one needs to pay the most attention to.