The Navigator | February 2020 While the first weeks of the year saw equities continue the same positive trend of Read More
President & CEO Dan Kraninger reflects on the third quarter of 2018 and provides insights moving forward.
“Is now a good time to invest?” This is the most common question I hear – nearly every day for many years. Why? Because it lies at the very center of the market’s never ending tug-of-war between hope and fear. Although that question often comes from an emotional place, it doesn’t have to, and the NorthCoast Navigator is our answer to that question and the focus of this post.
Our ability to research and implement good, long-term investment models is what distinguishes us from others, and core to that is a fundamental belief that data and consistency will win out over time. One example of this is the Navigator. It guides all of our tactical strategies and it’s included in every newsletter (see right) and e-mailed to you every month. What is it? It’s our proprietary probability model of whether a significant market decline of more than -20% will occur over the next six months. We do this by combining 40 indicators from four broad categories into one number between -1 to +1. -1 means many negative market factors are present and we should hold 100% cash. +1 means many positive market factors are present and we should be 100% invested in stocks. Today (as of 9/30), which is like most days, has more positive metrics than negative ones so we are 83% invested in our tactical domestic strategies and 17% in cash. It’s generally good to stay invested.
One important concept to share about the Navigator is that we are not trying to solve for the -10/-15% declines. Why? Because they happen every year, are likely surprise events (I call them trap doors), and often don’t have long term implications. That’s the key to the Navigator – distinguishing between the routine -10% decline and a nasty bear market. Every year has declines (see below). In fact, the average intra-year decline for the last 40 years is -13.8% (see chart below), and yet a majority of those years still turn out to be positive. Whenever I hear people concerned about -10% declines or trying to avoid these trap doors, I know they rarely ever make any money because they are always hiding in cash.
Balancing the desire to make money and the fear of losing it is what we have tried to help clients with for over 20 years. The good thing is you have access to see or hear what the data is forecasting. Give us a call or read the monthly update if you want to further understand the process. Unfortunately when it comes to money, I believe we need to offset an ounce of emotion with a pound of fact. We have terrific advisors who have more than a pound at their disposal. Decision making can then turn into higher quality, probability investments as opposed to how one feels about the market today. The Navigator, our outcome of a systematic and thoughtful process, has done a good job over the years and more importantly, doesn’t allow emotion to creep into the equation.