After the drop in March 2020 the markets went pretty smoothly up through late 2021, it was a long run which made for large gains. An investor with a more risk averse portfolio would have been more modestly invested than the market, and possibly feeling a bit of FOMO during that boom time. However, we have had a bit of a drawdown since late 2021 and now that more moderate portfolio is looking pretty good and there is currently no FOMO when you are not going down nearly as much as the markets.

When putting your portfolio together, it is a good idea to take the full market cycle and the possible swings that you may incur into account, consider both the good and the bad times. For example, it would be easy to look at the LT gain 3X strategy and it’s excellent risk adjusted metrics, say to yourself - that’s for me! 100% allocation to it (I had somebody tell me this in email just the other day.) And while the use of Smart Leverage improves the chances of not suffering a massive drawdown - it is still entirely possible. Think back to 2008, we had a period of time that did well in the middle of the drawdown. The DMS strategies happened to not go back into equities until around May 2009 but let’s play devils advocate and say that maybe the market had enough of a rise in the middle of the huge down trend that it triggered a buy signal and if you went in at that time with 100% at 3X leverage and let’s say for arguments sake that the market dumped 20% the next month, you would now be looking at a 60% drawdown in your portfolio in just one month. This is an entirely feasible possibility even though in all the many years of backtesting it never has. Let’s face it, as we are this year seeing the largest drawdowns in bonds that have ever happened, shit does happen.

I find backtesting strategies to be a really good idea to see how events of the past effect the strategy, going back in time to kick the tires. But a backtest doesn't mean that the worst is behind us. To paraphrase Meb Faber, "your largest drawdown is always ahead of you." And while on the topic of backtesting to kick the tires, I have stated it before but be want to reiterate that I do not tweak the strategies so that it they handle past events better. I have no interest in trying to make them look better over the backtest, I put my money into these strategies and am not trying to fool anybody, myself included. Enhancements to the strategies evolve over time, adding Smart Leverage and Treasury Duration Limiter, "Necessity is the mother of all innovation" comes to mind. I have added these items with the goal of improving future performance and reducing volatility. What I do not do is tweak things to avoid a certain drop in the past, or take advantage of something - that is not what these strategies are about.

I appreciate low drawdowns and high risk adjusted metrics. This is why all of the Model Portfolios now shown in the Reporting Decks (even the current Model Aggressive Portfolio) has an allocation to Triad+, it is a low volatility strategy with superior risk adjusted metrics. There is a larger allocation to Triad+ in the more conservative Model Portfolio's, but still a 30% allocation to it in the Model Aggressive Portfolio. For all the Model Portfolios I show the average leverage and the maximum leverage. The Model Aggressive Portfolio currently shows an average leverage of 114% (from 1980 forward) and a maximum leverage of 220%. These two numbers tell you that on AVERAGE the strategy is not usually leveraged, but when it is, it has a 220% allocation which is significant. Don't allocate to this thinking the leverage is 114%, that is the average, normally there will be no leverage at all, but at times it will be nearly 220%.

The Model Portfolios are not intended to be a one size fits all, but an example of how the strategies can be combined for an improved overall allocation. One person my look at the Retirement portfolio and say it is far too aggressive for them. Maybe they want 70% Triad and 30% cash. Another person maybe with large retirement balances may be see the Model Aggressive Portfolio as not nearly aggressive enough since they have a large buffer. If you want to see the stats for a specific combination of strategies shoot me a note and I'll run it if I have a minute.

Risk tolerances are very personal, only you know what is too much risk for you. I have a rather modest risk tolerance, which is in part how I ended up looking to systematic strategies and developing the DMS strategies - I don’t like the volatility and large drawdowns that come along once in a while when holding the market. Even holding a dozen or more individual securities can have far more volatility than say IWB. I don’t think that individual investors (or professionals) can sustainably pick companies that outperform the market. This is why most professionals and virtually all retail investors are substantially outperformed in terms of raw gains by the market over time. I am also very results oriented, so if the strategies are underperforming the market - I have to remind myself that this will happen, we will catch up in the bad times, and accelerate with smart leverage after the bad times, this isn’t a daily, monthly, quarterly or even annual game - we will win it over the longer run.

With the bond bull market over (or nearly over), the S&P being too much for most people to buy and hold, and the 60/40 looking very out of favor in the current bond environment - a systematic investing approach, like the strategies offered here at DMS seems more rational than ever.

Please reach out with any questions, share with your family and friends, allocate appropriately.

MAX PAIN is a strategy that was billed accurately from my perspective, I described MAX PAIN on the website as:

I don't believe I ever sugar coated the strategy with it's impressively high returns, the Ulcer Index is insane and the risk adjusted metrics terrible. When talking about MAX PAIN I have been up front and open about the nature of the beast. Recently I posted that the strategy was on the bubble, meaning that I was considering pulling it from the line up. This months impressively terrible results have pushed me to remove it. MAX PAIN is down 22.58% this Month to Date, and currently is in a 42.38% drawdown. While the current drawdown is not out of the ordinary when looking at the history for MAX PAIN, it simply isn't something that I think has broad appeal, or should have broad appeal, and I do not feel that it is responsible for me to "promote" it by including it in the strategy line up.

I take pride in the excellent risk adjusted returns for all of the other DMS strategies, this is what I focus my energies on, not on the gonzo MAX PAIN type strategies which ultimately has delivered amazing returns, but not without insane volatility along the way. It is time to reflect that in the reporting and strategies that are presented.

If you want to follow MAX PAIN moving forward you can do so from this PortfolioVisualizer link, free accounts will be able to view monthly results after the fact.

Not long ago I did a post about how TAA does against fixed allocation strategies like 60/40 and Golden Butterfly. It is time to update the data now that we have Triad+ in our arsenal.

In the original post I said:

It is easy to see why people like allocations that are rebalanced annual. Whether you invest in a 60/40 allocation, All Weather, Permanent Portfolio, Golden Butterfly or others - the appeal is near market returns over time without the highs and lows. We prefer technical asset allocation which generally may have a change of investment at the end of any given month. Are we rewarded for the more 'fiddling' with our investments than those who invest in an allocation that is only rebalanced annually? Let's take a look.

I ran results on PortfolioVisualizer for Golden Butterfly, 60/40, and Permanent Portfolio, results here. From 1992, as far back as I could get the results, through Jan 2022, Golden Butterfly has the best combination of returns and maximum drawdown. Because Golden Butterfly took the Gold out of these three, I will compare it to the DMS strategies which never use any leverage, that is Triad and The Russell OG. These two DMS strategies may have a change of investment at the end of every month, Golden Butterfly is a buy and hold that is rebalanced annually. How do they compare?

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In this updated post I am comparing the traditional 60/40 balanced portfolio and Golden Butterfly against a single DMS Strategy, Triad+. Let's see how it looks over the long run. And please keep in mind that Triad+ was really designed to outperform going forward, it was pure joy to realize it outperformed in the past as well.

The metrics and chart speak for themselves, Triad+ is a really special strategy which I am rather proud of. Not only is the downside and volatility limited, but the upside is more unbridled, it makes for a terrific strategy on it's own, or used in a combination of strategies.

All respect to Tyler for his Golden Butterfly, and understanding that there are people who don't want to have to potentially change their allocation at any given month end, however, we see that there is a nice upside for that small barrier to entry. Do not forget that going forward, as Golden Butterfly remains in long term treasuries, the spread in performance may continue to increase because Triad+ never uses long term duration treasuries, ever!

There was a recent post about Bear Markets and Major Pullbacks, showing how the strategies did and comparing to the S&P 500. My general take away is that the short term pull backs of a few months are a coin toss, these DMS strategies may or may not do any better, if even as good, as the general market does. But it is over the longer drawdowns like 2000 and 2008 where we see a massive improvement to the market results.

What with the recent inversion of the yield curve, and people talking of a recessing looming in the next 6 to 24 months, I thought it was worth re-posting the same article of Bear Markets and Major Pullbacks but this time showing it with TDL, Treasury Duration Limiter, in effect.

All of the charts, and data, in this post are with TDL in effect.

Reminder that Triad and Triad+ do not use Treasury Duration Limiter, they don't need it because of how these strategies were designed originally. Neither does MAX PAIN have TDL as a part of the strategy - and as mentioned a few days ago, MAX PAIN is on the bubble and may be dropped.

I mentioned in the monthly email with the release of the March 2022 reporting deck, subscribe here if you don't receive it - I mentioned that I have implemented Treasury Duration Limiter to all the strategies except the Triad Strategies, and MAX PAIN. The two Triad strategies don't need it, they inherently avoid duration risk. MAX PAIN - I was struggling what to do with this strategy. It does not deliver supercharged results (with supercharged volatility) without going into TMF and EDV which are 3X long duration, and extended duration treasuries. MAX PAIN is a strategy that has benefited from the bond bull market for all these many years, and I am quite concerned for it's performance in the years ahead. Do I leave it and know that MAX volatility and MAX drawdowns are just part of the game, or do I deprecate it and let LT Gain 3X which has stellar returns and stellar risk return metrics be the top dog.

Thoughts?

Welcome the new DMS strategy, Triad+. It is very simple to explain, because it is Triad with the addition of Smart Leverage the way the LT Gain strategies implement it, instead of using IWB, if there is a month end drawdown of 15% or greater, the next time the strategy would go into IWB, instead it goes into SSO. It will hold SSO for as long as Triad would be staying in IWB, if that time period exceeds 12 months, SSO is exited after 12 months to lock in long term gains and the strategy switches to IWB to de-leverage and de-risk the strategy.

The results are really great. No worse Maximum Draw Down from 1980 forward, and a nice improvement in the returns with a slight increase to the risk profile. I have been working on evidence based retirement withdrawal rates, and Triad+ is a mainstay in this model portfolio allocation, it is also a great addition to any portfolio, not just for retirement.

The FactSheet for Triad+, and Triad, are shown below through February 28, 2022.

I am leaving Triad as it is and adding Triad+, instead of replacing changing Triad to include Smart Leverage because I know there are people who will want nothing to do with leverage whatsoever, and that is why Triad remains. Do understand that the amount of leverage with Triad+ is very modest. In a "Fully Invested" allocation, Triad would be 1/6 Gold, 1/3 Russell 1000, 1/3 Russell Mid-Cap Value, and 1/6 in Bonds or Treasuries. By adding Smart Leverage, the 1/3rd position in the Russell 1000 would be 2/3rd via SSO instead of IWB. The "Fully Invested" allocation would then be 1/6, 2/3, 1/3, and 1/6. If we don't consider the Bonds/Treasuries, the equity allocation would max out at 116%. This makes a meaningful addition to the returns, but is a modest amount and does not induce too much volatility or risk to the strategy.