Market insights and analysis

How dynamic, risk-managed investment solutions are performing in the current market environment

1st Quarter | 2022

Market insights and analysis


Updates on how dynamic, risk-managed investment solutions are performing in the current market environment.

It’s been 51 years since we have brought a new puppy into our household.

Don’t get me wrong. We love dogs and have had quite a number over the years. But it took five decades—during which we rescued many young adult dogs—before we decided we would try adopting a six-month-old puppy again.

Mandy (at right in the photo above) has not disappointed. She is every bit as challenging as we remembered puppies to be. She has incredible energy, and the chewing has yet to subside. And our 11-year-old dog, Molly (at left in the photo), seems on the verge of telling us that if Mandy’s staying, she’s leaving.

I’ve learned that we are not alone in bringing home a “pandemic puppy.” I have heard similar tales from my fellow Flexible Plan employees, and the media is filled with stories of families welcoming a new companion into their homes during the continuing shutdown.

Kim Kavin of the Washington Post reports,

What began in mid-March as a sudden surge in demand had, as of mid-July, become a bona fide sales boom. Shelters, nonprofit rescues, private breeders, pet stores—all reported more consumer demand than there were dogs and puppies to fill it. Some rescues were reporting dozens of applications for individual dogs. Some breeders were reporting waiting lists well into 2021. Americans kept trying to fill voids with canine companions, either because they were stuck working from home with children who needed something to do, or had no work and lots of free time, or felt lonely with no way to socialize.

Like training a puppy, developing a new investment strategy requires preparation, repetition, and time

There is no doubt that my wife, Pat, has taken on most of the burden of our new family member. And she will tell you that the puppy was my idea. In reality, Pat—a very outgoing person who is a grounded “super-volunteer”—needed a new project, especially after May. That’s when we lost our Abbey, a dog we adopted 12 years ago.

For me, the process of training a new puppy has been like developing a new investment strategy here at Flexible Plan. The challenge of helping to shape something new and different has always been my favorite part of the research process. As I’ve been participating in both processes recently, I’ve noticed that they require similar steps:

Preparation. To prepare your puppy to get the most out of her training, you have to make sure she’s well-fed, rested, and comfortable with her surroundings and the people around her—and that the environment is free from distraction.

To prepare to build a new investment strategy, you need to start with an idea of how a particular market works. What does it involve? Who are the participants? How do they behave, especially during stress? You begin by looking for an edge—a noticeable advantage that a trader can have that is significant and repeatable.

Preparing the test data is also critical. Often a third or more of the time testing is spent on preparing the data. It is important that it includes not just data on one market environment but also other different markets, and hopefully very different time periods, as well. The key is to try to ensure that the resulting system is robust. If you only test in a bull market, it’s not likely that a trading system will be able to cope with the first bear market that blocks its way.

It’s like socializing a new puppy. She has to learn to maneuver around new people and surroundings. If she is never exposed to anything new, she will bark at every new visitor.

Your trading system can’t be so fine-tuned to a limited amount of data (data mining) that it can’t work when it has to deal with the novelty of the real world. In the same way, if you don’t introduce your puppy to other dogs and pets over time, it won’t cope well with changes that inevitably appear in the future.

Repetition. A puppy certainly brings novelty and even amusement into the household.

But there is also repetitiveness to the dog-training process that matches that of creating a new trading system. It takes thousands of test runs. Each time there is just a single trackable change to make and test before you move on to the next step. In the same way, the puppy moves, after constant rewards, from “sit” to “lie down.”

Reward. We all need motivation to keep us trudging through the tedium of repetitive testing. For our little canine pal, that motivation may come in the form of treats or praise. For a researcher, each breakthrough, whether it validates or disproves our original hypothesis, motivates us to keep on trying to improve.

Real-world experience. Taking the puppy out on a leash is essential. You have to observe how she will act in the real world to gain confidence that her training was successful. In the same way, we trade our new strategies in house accounts for six months to a year before we offer them to investors. It is important that we experience any “accidents” during the test period—not in public.

Time. Housebreaking a puppy can take four to six months. Building an investment strategy can take years. Our latest creation, Multi-Strategy Core, took almost two years of constant testing to develop—and it has rewarded us with very satisfying results this year. It was built to create a turnkey approach that would select strategies from our many core offerings to maintain a robust and vibrant portfolio. We needed to do this without the constant strategy changes and adjustments our financial advisers and their clients would otherwise have to make. Multi-Strategy Core (and the Multi-Strategy Explore offerings) served this purpose.

Continual maintenance. The care, feeding, and training of a puppy never ends. It is not a project that is ever truly complete. One of the joys of pets is watching them deal with and learn from new situations. You and they never stop learning.

This is an underappreciated side of strategy development as well. Many people think that an investment strategy is like a magic potion that, once developed, is complete. In reality, since strategies are made for the real world and life is forever changing, they too must be constantly trained and retrained as new data becomes available or new needs are discovered.

Some say, “You can’t teach an old dog a new trick.” I’ve never found this to be the case. Over the years, even our oldest dogs have picked up something new when confronted by the need to change. Our older dog is going through this very process right now as she learns to live with the puppy.

With strategies, it is essential that they be designed to learn new tricks. We retrain most every year. It’s actually an integral part of the strategies. Feeding them new data from the last year, we call on them to adjust with new parameters for the year ahead as they are exposed to the ever-increasing amounts of data.

Our QFC Fusion 2.0 strategy is a good example of this in practice. When our original Fusion strategy became available in 2013, it did well for a while and then hit a long sideways market that caused it to struggle. Over three years, we made improvements to help it cope.

As it began to respond and register strong returns, we added a whole suite of new risk and opportunity management tricks to its repertoire. We focused it on using its management talents exclusively on our 30-plus QFC strategies. The returns of the improved QFC Fusion 2.0 strategy have been superb this year, outpacing the old Fusion’s catalog of tricks.


During a pandemic, adding a puppy into a household may seem difficult, but, like adding a new strategy to an already well-performing portfolio, it can also reap rewards as it helps us cope with the “new normal” and brings new opportunities for joy into our lives.

All the best,


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