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This year has proven frustrating for short-term based strategies like our flagship “the One” strategy. The strategy is very quick to respond to weakness and protect your investments, but as we have seen this year as we have defensively moved to cash the market each time would stabilize and continue higher, leaving us in the dust.
Obviously these types of resilient markets do not come around often otherwise we would have no need for a defensive approach. It is important to remember this point and never get too bullish in your approach.
In fact, looking over the past 40 years, there were a handful of years where our strategy did exactly as we are seeing occur this year, but obviously over time those underperforming years are more than made up for when we are protected and the market proceeds to have massive declines. The two most recent examples of this were in 1999 when our annual return was less than 3% while the Nasdaq returned over 80% and in 2009 when the market returned 44% and we returned 15%. Both of these underperforming years over time were mitigated.
To use 1999 as an example, at the end of four years we ended up with a total gain of 4.8%, while the Nasdaq lost over 39%. If you had invested $100,000 in the Nasdaq during this period, at the end of 2002 you have been left with $60,907 while investing in Resnn’s “the One” would have grown to $104,798.00
1999 2000 2001 2002
Resnn’s “One” 2% 0% 7% -3%
Nasdaq 86% -39% -21% -32%
I realize this doesn’t make one feel much better when they miss out on the nice move we have had this year, but I have absolutely no doubt through the years of data analysis we have performed that even in these resilient times, it pays to remain defensively focused even if that means you miss a large up move.
The market remains incredibly elevated, but as I have mentioned previously … it can remain this way for months longer. Investors Intelligence reported this week that bullish sentiment was at an astounding 59.6% while bearish sentiment was at 14.1% bears. According to Investors’ Business Daily, “this indicator is signaling a market top, but sometimes the top comes weeks or even months after the signal occurs.”
For now, our “One” strategy signals caution as we continue to sit out of the market.
In light of this strong market, we are officially introducing two new strategies that are designed to catch the longer term trends. Where our “One” strategy is designed to catch shorter term “swing” trends in the market, these two new strategies are designed to stay invested longer and catch the medium and longer term trends.
As an example, our longer term strategy has only exited one time this year (in June) and as a result has caught the bulk of the up move during the year. These two new ‘longer term’ strategies in a sense move slower and require a little more effort to move in and out of the market, which can be good but also bad.
Year to date, the longer term strategy has returned over 32% while our medium term strategy has returned just under 25% and our shorter term “One” strategy has returned slightly less than 9%. In strong trending up markets like we have had this year obviously the longer term slower strategy will do better, since doing nothing has really been the best course of action, but these longer term strategies will be slower to move to cash when the market truly does correct and therefore will have a larger negative impact in those years.
Unfortunately, we can’t have one strategy that is the “Holy Grail” and can outperform in all markets. There are certain times where one strategy is optimal and other times where it will underperform. Yet, over time if you can wait out the frustrating moments, I think our “One” strategy is as close to a “Holy Grail” as you could find. It’s defensive nature will protect your investments when the next major correction occurs. With that said, if you would prefer to catch more of the up moves, at the expense of potentially catching more of the down moves, then a combination of our three strategies might serve you well.
I have already spoken to a number of you about our two newest strategies and will continue to introduce them to all of you via email and phone. They certainly are something you may want to consider adding, either putting 1/3rd in each of the three strategies, or moving 50% into one of the two new strategies and leaving 50% where it is now.
I will send you more information in the coming weeks on the subtle differences between the three strategies, so you can make an informed decision as to where you will feel most comfortable.
In the mean time, I wanted to thank you for your continued support and look forward to protecting your investments in 2014.
Hope you have a wonderful and safe weekend.
Resnn Investments, LLC