April 11 2014 Signals a Move to Cash

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Our TSP portfolio is at least 11 years away from being tapped, so we have a longer-term view than many who read these notes.  This being stated, I have a number of signals that I employ on the short-term, intermediate-term, and long-term basis that help me to move in and out of the fund.

Back in March I published on my sister blog that my intermediate timer was moving to CASH.  The short-term timer had already transitioned a few days earlier.  The short-term timer is not appropriate for TSP fund management -- we are only allowed 2 transfers per month, and any third transfer would have to be to the G-Fund, which is effectively a cash position.  The short-term timer is literally that -- it can move in a few days in and out, and this is counter to the design and goals of the TSP program.

The intermediate-termed timer is more applicable to the TSP program, but note, even it can move in and out a few times per month, although this rarely occurs.  When it does though you're at a bit of a disadvantage, as you have to wait until the first of the next month to move back in to the long side, and this can miss the initial burst off the bottom that occurs with a new long signal.

I used the March 2014 intermediate signal to reallocate with a higher percentage of CASH in the TSP -- some of you may have moved to 100% cash -- I don't know.  I've watched the account drop about -2% since the signal and a bit more than -3% since the March 6 peak, and while I hate any form of giving up gains, to make money you have to have money in play.

With the events of the recent week we've seen a slightly different behavior, and the result is that my last safety net -- the good ole "13d MA crossing the 65d MA from above" has occurred.

What does this mean?

Well, first, it means you need to pay attention.  If you are retired and you are living on a fixed income, yet have money in the market, you should most likely think about how much risk you're willing to take.  Right now risk is high, and the potential reward for taking that risk, at least in the short term, is pretty poor.  This is not the way you make money in the long haul.

When I was doing my GGT seminars for folks, I used to cite the following statistics:

"If your stock falls X, you need Y gain just to break even"

X            Y
-5%         +5.3%
-6%         +6.4%
-7%         +7.5%
-8%         +8.7%
-9%         +9.9%
-10%       +11.1%
-15%       +17.6%
-20%       +25%
-25%       +33%
-33%       +50%
-50%       +100%

The above should help you dial in what you need to be doing in terms of your individual risk profile.  How many of you have made 10% consistently in a year?  If you've been in the broad market you're looking at having to make this amount over the next year just to return to the March 6th high level.

The GGT index is down -8.3% since it's March 6 high.  I've been 38% in cash in the TSP account since mid-March, so I've only seen a portion of this decrease.  Nevertheless, it's still a decrease. Management is key from this point forward.

This 13d/65d timer is my safety net.  If you have something that can beat the following figure, I'm all ears (eyes, whatever):

Right-click on the image to open in a new tab or window.

What is crucial here is that downdrafts are swift, while grinding to the upside takes time.  Yes, if you're out of the market you'll miss the bottom and the turn.  Yes, you'll miss the rise off the bottom.  Eventually, the markets will turn, and trend-following systems will get you back in.

Whipsaws, or going back-and-forth in the signal, is common.  We whipsawed Feb 3 - Feb 14th with this timer.  It could happen again.  Note though that the absolute shortest long-cash-long or cash-long-cash whipsaw was 8 days, and this is since September 2008.  I imagine we'll be here at least this week, and maybe for several weeks or months.  My crystal ball is as good as yours.

I have placed an order to move 100% of our TSP funds to the G-Fund.  This is CASH.  This will execute on Monday, independent of whether the market is up +3% or down another -3%.  It doesn't matter.  I follow the signal, and as my last safety net, this one is saying get out.

For now, I'm out.

Regards,

Paul

End of Month Allocation Change

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It's the end of the month and I'm reallocating our TSP as follows:

I'm dropping the cash (G-Fund) component by 10% and allocating more heavily to the S&P 500 (C-Fund) as well as the EAFE (I-Fund).  What we're seeing in this downturn is a shift away from faster-moving small-cap stocks (S-Fund) into more traditional blue chip stocks (C-Fund), where greater safety typically resides.  The reduction in G-Fund is simply because I want to play a bit more in the market as we've dropped a few percentage points from the last time we made an adjustment.  As the market drops, you should buy the dips, especially if your horizon is longer-termed.

While my crystal ball is as good as yours and I have no idea if this recent pull-back is temporary or will continue, I want to take advantage of the "free" shift that we get at the end of the month.  If you make the transfer by noon on 3/31 you'll start April with your two-allowed-transfers available.

Performance has been slightly negative over the past 45 days, but if we're not in the market, we can't play the market.

Adjust your percentages according to your risk tolerance.  Kari and I have many years before we can tap these funds so our risk tolerance may be higher than yours.

Remember, you are responsible for your investment decisions and I am not.  Take ownership of your actions.

Regards,

pgd

Moving Long Feb 13 2014

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Please make sure you take time to read my other entry here.

With the close of markets on Wednesday, February 12th, my medium-termed TSP timer has transitioned to LONG status.

I am moving TENTATIVELY (with care) into the markets in my TSP account with the following allocations:

I'm not too optimistic about this signal, but then again, my crystal ball is as good as yours.  I follow my timers, as they are better than my intuition.

The historical performance of this timer is simply okay.  Not stellar, but better than buy and hold by a long shot:

Market exposure is roughly 50% for all equity positions, so historically, being in the market 50% of the time has produced the gains you see above since 8/29/2008.

My high concentration in G-Fund is because my LONG TERM TIMER is in CASH.  This may change in the next few days, or it may not.  Since we have a restriction in the TSP world of 2 transfers per month, today's change will burn any re-balance hopes until March 1st.  C'est la vie.

As always, do your own diligence, and take ownership for your actions.  I am not responsible for any decisions that you make with your own accounts.

Regards,

pgd

Jumping back into the market on Friday, 11/15

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Another whipsaw, this time back into the market.

I don't make the signals, I simply follow what the signals tell me to do:

Here we go:

C-Fund:  58%
S-Fund:  28%
I-Fund:  14%

This is an aggressive move.

The conservative approach only has a 4% addition to the F-Fund, so you can move the values above to add 4% as you see fit.

Here is the performance to date.

Here's the overall performance since 11/25/08:

Remember, you are responsible for your own decisions, and I am not.  Please do your diligence, and please take ownership of your actions.

Regards,

pgd

Moving to Cash Effective 11/8/2013

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All,

Effective today, I'm transitioning to the G-Fund (100% Cash).  With last night's action I received confirmation that market internals are rapidly dropping support of the leading stocks and consequently, it's time to protect the foundation.

This signal has not been profitable, but the last rolling 12 months has been:

Of course, I don't know the final numbers on the existing signal because I won't get the closing numbers until tonight, but it appears that the C-Fund is up 2.7%, the S-Fund is down -1.7%, and the I-Fund is up 1.5% from our last entry.  We were heavily weighted into the I and S-funds, so net is probably a wash.

Place your orders by noon EDT today at www.tsp.gov and they'll be effective tonight.

Regards,

Paul

Moving Long on 10/15/2016

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Whipsaw?

I don't know.  It doesn't really matter in the big picture.

With the close of markets on 10/14 my timer system is telling me to get back into the market.  Hence, here I go:

Conservative:

F-Fund:  23%
C-Fund:  11%
I-Fund: 34%
S-Fund:  32%

Aggressive:

C-Fund:  15%
I-Fund:  45%
S-Fund:  40%

I'm going to use the Aggressive numbers, which you can see do not use the F-Fund.

Note that this will be the 2nd transfer this month so the only thing left is a move to G-Fund if conditions warrant.  I've loaded my change into TSP.GOV and since it's prior to noon EDT on Tuesday, tonight's close will be the numbers that are used in the allocation.

Regards,

Paul

Moving to Cash on October 8, 2013

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All,

Effective with the close of markets on Monday, October 8th, my master timer is indicating that we should move to cash.  I am moving 100% to the G-Fund, effective on Tuesday October 8th.

I will not know what this latest signal resulted in with respect to gains but they are modest at best.  As of tonight, since the entry signal on September 11th (enter next business day), the account is up as follows:

C-Fund:  +1.4%
S-Fund:  +1.4%
I-Fund:  +4.3%

Every little bit helps.

Due to the rolling nature of the 12-month reporting statistics at the TSP.GOV site, performance ended down about -0.5% for the month:

The differences in gain versus the drop in reported account value are partially because we've been weathering the storm overall fairly well, but as I said, I won't know the final values until close of business tomorrow.  If we have another down day on Tuesday we may break even for the series of trades, or even worse (but obviously, not THAT much worse).

Not every trade always works out to our benefit -- the key here is to live to fight another day.

Regards,

Paul