Break the Cycle

Break the Cycle

October marks one of the largest capital inflows in many years for Auspice. Perhaps this will explain why.

I had a debate at month end with a partner about market performance. His argument was that people fall in love with investment strategies when they perform well but have to face the reality of periods of underperformance. He called this “Fake News” versus “News” – an obvious political reference.  Moreover, it was his thesis that this was the justification for not including a strategy if it’s recent “News” period was lacking performance (versus S&P). 

Unfortunately, this line of thinking is flawed on many levels.  While almost every investment strategy has underperformed the S&P500 recently (and likely for many years), it is a mistake to focus on recent performance. Here’s why:

We can see that the equity market makes a significant correction every 5 to 10 years. As depicted on the chart, the small correction in October does not likely count.

Break the cycle oct 2019 image.png

This quote applies: “The definition of insanity is doing the same thing over and over and expecting different results.”  This seems crazy, but this is exactly what many investors do:

  1. The market corrects significantly and the investor is unprotected.

  2. Investors lick their wounds, and look to protect themselves with alternatives (or do nothing).

  3. Equities start to perform again.

  4. Investors grow weary of the underperformance of the alternatives and get out at the wrong time (and those that did nothing start to think they made the correct decision).

  5. Repeat!

We have seen this movie before. While none of us have a crystal ball, it is important to recognize a few things. In investments, trying to time strategies is difficult. It is why asset allocation is important. However, because of this, it is also important to remain steadfast and stick to the plan. If your investment plan calls for X when Y happens, it is mission critical to execute unemotionally. There is no use getting to the starting line and changing the plan. It also doesn’t matter how you did in the last race.

Without historical knowledge (past), commitment to following the plan and control of your emotions (now), you have no chance to perform in the future.  Here is what we know: when the stock market struggles over time, alternative strategies like Managed Futures (CTAs) have done well. 

You remain calm and let it unfold – you are prepared.

For more about the Auspice philosophy and the potential portfolio benefits, please give us a call.

Disclaimer

IMPORTANT DISCLAIMERS AND NOTES

Futures trading is speculative and is not suitable for all customers. Past results is not necessarily indicative of future results. This document is for information purposes only and should not be construed as an offer, recommendation or solicitation to conclude a transaction and should not be treated as giving investment advice. Auspice Capital Advisors Ltd. makes no representation or warranty relating to any information herein, which is derived from independent sources. No securities regulatory authority has expressed an opinion about the securities offered herein and it is an offence to claim otherwise.

QUALIFIED INVESTORS

For U.S. investors, any reference to the Auspice Diversified Strategy or Program, “ADP”, is only available to Qualified Eligible Persons “QEP’s” as defined by CFTC Regulation 4.7.

For Canadian investors, any reference to the Auspice Diversified Strategy or Program, “ADP”, is only available to “Accredited Investors” as defined by CSA NI 45-106.