The essence of portfolio management is the management of RISKS, not the management of RETURNS. All good portfolio management begins with this premise.[i]

Following the market lows of March 2009, the S&P 500 has generated an average gain of 18.6% per year, which is well above the long-term average annual gain of 9.7% since 1927. This statistic alone suggests that the U.S. stock market cannot continue at the pace of the last 12+ years. There will be a reversion to the long-term average gain, and a reversion to the long-term average means there will be years in which the market produces returns which are significantly less than the long-term average, including negative returns.

People somehow think you must buy at the bottom and sell at the top. That's nonsense. The idea is to buy when the probability is greatest that the market is going to advance.[ii]

Our Market Environment Indicator (MEI) turned negative last week, resulting in a reduction of market exposure and an increase of cash allocations in our tactical strategies. It is too early to tell if this is a false signal, if the market has entered a short-term correction, or if it is the beginning of a long-term bear market. For now, we are managing risk and patiently waiting for the MEI to signal that “the probability is greatest that the market is going to [continue] to advance”[iii].

Sean Gross, CFP®, AIF® | Co-Founder & CEO

[i] Benjamin Graham, The Intelligent Investor

[ii] Martin Zweig, fund manager and author

[iii] Ibid