A New Market Environment Calls for a New Strategy
Is the traditional 60/40 portfolio dead?
If it’s not dead, it sure is doing a great job at playing opossum.
Financial advisers have been recommending the 60/40 portfolio strategy for a long time. Many people have banked on it to help them fund their retirements.
But folks with that investing profile are taking a beating.
The idea has always been easy to explain. Owning stocks (60% of your portfolio) in good times helps grow your wealth. When stocks have a bad year, bonds (40% of your portfolio) perform better and help keep overall portfolio losses to a minimum.
A story in Thursday’s The Wall Street Journal brought the issue to the forefront again.
Higher (for longer) interest rates and prolonged sticky inflation have changed the dynamic. And more and more signs are pointing to that climate being dominant for the near future.
The market is going to look a lot different than it did over the last 20 years. Or, as my colleague Jeff Remsburg phrased it earlier this week:
You’re investing at a historic disadvantage.
The Wall Street Journal story summed it up nicely.
The tried-and-true 60-40 portfolio lost 17% last year, its worst performance since at least 1937, according to Leuthold Group analysis. Even with a 14% gain in the S&P 500 helping the strategy recover in 2023, stocks and bonds have moved in tandem, more over the past three years than any time since 1997, Standpoint Asset Management analysis shows.
If they move in tandem … where is your protection? The idea was to hedge your risk, not exacerbate it.
Compared to the last two decades, market uncertainty has never seemed greater. All at once the market has to deal with several crises:
- higher interest rates in long-term bonds …
- a war in the Middle East threatening to spread …
- sticky inflation …
- higher-for-longer interest rates …
- a housing market crippled by those rates …
- oil prices that also are probably higher for longer …
- the continuing debasement of the dollar and …
- political vitriol and uncertainty.
How are investors supposed to respond?
Investing legend Louis Navellier has developed a NEW way to stay ahead.
An investing edge with technology and math
For newer Digest readers, Louis has a long track record of using quantitative analysis to scour the market and pick winning stocks.
As a graduate student at Cal State Hayward some 30 years ago, Louis’ professor gave him an assignment that would change his life: Create a model that would mimic the S&P 500.
His professor wanted to prove that indexing was the best way to invest. Using Wells Fargo’s powerful mainframe computers, Louis completed his assignment – but there was one little problem.
He didn’t just mirror the S&P’s performance – he actually beat it!
Since those days, Louis has devoted himself to improving and enhancing his system. After all, why simply do as well as the S&P when you can beat it … year after year.
But in the last year, things have changed.
Artificial Intelligence has changed everything
By now, we all know how the debut of ChatGPT in November 2022 altered the tech landscape. For analysts like Louis, the question was how this new, powerful tool could be used to improve investing.
Jeff and I have written repeatedly about the pace of technological change. Many people still do not appreciate that using AI and other advanced tech gives companies the opportunity grow faster than ever before – at a fraction of the cost.
One question every investor needs to ask is whether the companies they invest in are making strides to take full advantage of these new tools. If they are not – they are falling behind.
And that doesn’t mean just looking at companies in the tech sector. Every market sector – including health care, materials, energy, financials, retail – will have winners and losers based on how effectively they integrate AI into their business.
That’s why Louis worked with TradeSmith – the best fintech firm in our industry – to develop a product using their best artificial intelligence software, Predictive Alpha, to find short-term trades.
Here is Louis talking about why he decided to create this new product – AI Advantage – for his readers.
My Portfolio Grader is a great tool for finding long-term big winners – but it’s not as good for short-term trading. My system looks at eight factors at a time – which means it’s impossible for me to analyze all the permutations that affect a stock’s price, especially in the short term.
In AI Advantage, I’m combining it with the New Intelligence – also known as Predictive Alpha – an AI system that can predict the share price of almost any stock 21 trading days into the future… with up to 82% accuracy.
To be clear, Louis has not abandoned or changed his existing quantitative based system. Essentially, he has supercharged the results by layering on an AI-based tool.
AI Advantage combines his proprietary stock-picking system – with a 30+-year track record of beating the market – with Predictive Alpha to find the best stocks to own over the short term.
Louis’ new product is perfect for this market environment.
AI Advantage subscribers don’t have to gamble on what the market will look in a year or two when they can simply use AI to project the price of certain stocks over the next 21 days… and do that over and over, every week, and make just as much as money as a long-term growth investor.
Maybe the 60-40 portfolio isn’t dead – but investors need to ask themselves if the days of allocating assets by one formula and sleeping well at night are over.
“Uncertainty” seems to be the new normal. And short-term trading can help keep your goals on track.
Enjoy your weekend.
Luis Hernandez
Editor in Chief, Investor Place
