Why Bother with Strategies?
Why Bother with Strategies?
It is a fair question, and no doubt people wonder the same every time the S&P has a strong run. If you had simply bought the S&P 500 in 2009 and not checked thought about how you were invested, you would have earned something like 14% a year. Most tactical strategies did not beat that. So why bother?
My honest answer: because the period from 2009 to today is the exception, not the rule, and the rules you invest by should be built for the rule.
The last fifteen years were unusually kind
Since the bottom in 2009, the S&P has had remarkably few deep drawdowns. Measured month-end to month-end, only one of them went beyond 20%, and just barely. Every dip has been bought, and every recovery has been fairly quick.
That is a wonderful environment for buy and hold. It is also an environment where a strategy that steps aside when trends break will look like it is costing you money, because the breaks rarely turned into anything serious. You pay a small premium for insurance, and for fifteen years the house mostly did not catch fire.
It is easy to forget that this is not normal.
What "normal" has looked like
Go back one decade earlier. From 2000 through 2009, SPY returned roughly -1% a year. Ten years of holding the most popular index in the world, and you ended up with less than you started. The S&P did not get back above its March 2000 high for good until 2013.
That decade contained two drawdowns of roughly half the market's value. Neither one was a brief scare.
Over that same 2000 through 2009 stretch, the DMS strategies returned between 11% and 25% a year, and the DMS model portfolios between 11% and 20%. Here is what that difference looks like on $100,000 invested at the start of 2000:
| Annual return, 2000 - 2009 | Ending value |
|---|---|
| -1% (SPY buy and hold) | about $90,000 |
| 11% (low end of DMS range) | about $284,000 |
| 25% (high end of DMS strategies) | about $931,000 |
Even the low end roughly triples the money while the index loses ground. That is not a rounding error you make up with a few good years later.
The math of losing money
The reason drawdowns matter so much is that losses and gains are not symmetric. The deeper the hole, the harder the climb out:
| Drawdown | Gain needed to get back to even |
|---|---|
| -10% | +11% |
| -20% | +25% |
| -33% | +50% |
| -50% | +100% |
A 50% loss needs a 100% gain just to break even. At a 10% annual return, that takes about seven years, and that is seven years of compounding you never get back. Avoiding the worst of a big drawdown is not just about feeling better in the moment. It changes where you end up ten and twenty years later.
The part nobody talks about: staying invested
There is a behavioral side to this too. Backtests assume you hold on. Real people, watching half of their retirement account disappear over eighteen months, often do not. Many sold near the 2009 bottom and missed the recovery entirely.
A strategy that keeps drawdowns smaller makes it much more likely you will actually stick with the plan, and a plan you stick with beats a better plan you abandon at the worst possible moment.
Turning drawdowns into opportunity: Smart Leverage
Avoiding damage is only half the story. The other half is what you do after the damage is done.
DMS Smart Leverage arms itself after the market has fallen meaningfully from its high, then waits. It does nothing until momentum turns back in favor of stocks. When it does, the leveraged versions of the strategies step into 2x or 3x S&P exposure for the recovery, the stretch of time when the odds of further upside are historically on your side.
So a big drawdown is not just something to survive. For the Smart Leverage strategies, it is the setup for the strongest part of the cycle. You can read more about how it works in the FAQ: What is Smart Leverage, and how does it work?
The honest cost
None of this is free. In a long, smooth bull market, a strategy that rotates out when trends weaken will sometimes step aside at the wrong time and lag the index. That has been the story for much of the last fifteen years, and it can be frustrating to watch.
I feel that frustration too. But I would rather give up a little in the easy years than give up a lot in the hard ones.
So, why bother?
Because the next big drawdown is coming. It may start in a few months or it may be years away, and nobody can tell you which. But markets have never gone a full generation without one, and when it arrives I expect to make up a lot of ground: first by losing less on the way down, and then, with Smart Leverage, by leaning into the recovery on the way back up.
That is why I bother.