Market insights and analysis

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

1st Quarter | 2024

Quarterly recap



Current market environment performance of dynamic, risk-managed investment solutions.

By Jerry Wagner

I have tried to balance my life by respecting the lessons of the past, planning for the future, and making the most of the opportunities in the present. Yet, I realize that one of my lifelong passions—active management—is indeed governed by the philosophy of living in the moment.

What’s your investing approach: Respond to the present, or “buy and hope”?

While active management draws on history as the basis of each active strategy, it is continually focused on what is happening now. Active management strategies cannot see into the future—they can only seek to realize what the present provides. They are based not on forecasting, but rather on the probability of favorable outcomes—and they seek each day to profit from them.

Buy-and-hold investing does not relate much to the here and now. You buy and wait. You invest and hope. Rather than seeking to profit from what’s happening in the present, buy-and-hold investing considers the present—the moment—irrelevant.

Yet we know from experience that even if active strategies do not return more to investors over a given period, what happens each day is relevant to even the buy-and-hold investor. Every financial market goes through peaks and valleys. Investors get euphoric, and they also get despondent.

When stock prices fall day after day, when the percentage of the daily decline moves from decimals to single and then to double digits, even the most ardent buy-and-hold investors have had second thoughts. Many have abandoned the approach, and their investments, at the very worst time—near the bottom. They begin to live in the moment, and it becomes very relevant.

It’s easy to understand the fear. Fear comes from our past, but it can influence our actions in the present and our plans for the future. It clouds our judgment.

But we can use computing power to test active strategies in advance. And we can use it to track and carry out high-probability trades in the present. Fear does not enter the picture or cloud a computer’s view of the present.

Invest for the moment, but be prepared when the moment changes

Living in the present may promote happiness, but it does not guarantee it in the short term. Active management is not a panacea. Like every other human endeavor, any strategy can be out of sync with the current market environment.

That’s why we urge clients to diversify among strategies and not expect a truly diversified portfolio to contain only winning strategies. If every strategy is going up together, they will likely fall together. This lack of diversification will provide no protection.

It is fine to prune underperforming strategies, but usually they should be replaced with strategies from the same category to continue to be diversified. Of course, this assumes your portfolio was well-diversified in the first place.

Active management is designed to provide relief during really bad periods. After all, responsiveness is an advantage that active management has over the buy-and-hold approach in most markets.

Investors using active strategies for the first time have got to shrug off the buy-and-hold mindset. I know you have seen your buy-and-hold investments in the past rise to new heights and then be dashed when a major bear market arrives on the scene.

Sooner or later, you get tempted to sell, even though the market may be down 50% by then. Fear can eventually do that to you. That same fear may keep you from buying back into the stock market when it finally turns around.

When you sign up for an active management strategy, you are no longer a slave to your emotions. The strategies are automated. They are developed on computers and run daily on computers. There are no emotions. They just carry out trades that years of research have identified as having an edge over buy-and-hold investing.

Each strategy has high-probability trading parameters. These can move your investments to safety when historically tested sell parameters are met.

It’s all about living in the present. Your investing decisions no longer need to be the result of your fearing the past or worrying about the future.

Comments are closed.