There is no one more risk-adverse than an investor with money in the market. People hate to lose money on their investments after shedding blood, sweat and tears to earn it and pay taxes on top of it. Shouldn’t a financial advisor be just as aligned with the notion of protecting your money as you are? If the only advice through turbulent times is to hold my hand and tell me to hang in there, why pay an advisory fee? There has to be another portfolio alternative than just buy and hold. If defense wins football championships, then maybe defensive portfolio strategies can mitigate losses. Maybe investors would give up a little upside potential for downside protection.
Most investors are not driver-emotive alpha dogs standing around the office water cooler boasting about how much more their portfolio generated in contrast to every else’s. No! They’re just looking for a little alpha in their returns and big on portfolio preservation. That’s what drives their emotions.
Enter the portfolio preservation strategists called “tactical investment managers.” In the past, they were Modern Portfolio Theory devotees, but they’ve found a new belief system that seems to agree with the investing public’s desire for reasonable returns and portfolio preservation. After all, defenses can “pick six,” recover fumbles for TDs and (my favorite) sack quarterbacks in the end zone for “safeties.” One tactical investor, John Dubots, puts it this way, “We work with the top institutional money managers in the country to tactically manage our clients’ portfolios, keeping them in the market when advantageous while still being able to get out of the market when the risk is too great.” Watch the interview with economist and financial advisor John Dubots on tactical investing. [URL]
One criticism of tactical investing is the defensive move to cash in downward trending markets. Is it just a portfolio not invested? But investors given the choice between riding out the downturn and preserving the portfolio by going to cash will take the cash position almost every time. Another criticism is tactical investing is nothing more than sophisticated market timing using technical models to enter the market at its lows and exit the market at its highs. But advisors who use tactical investing strategies say it’s not Monte Carlo modeling, but spreading portfolio risk among multiple money managers. With 2016 markets already behind the curve, more investors are investigating tactical portfolio strategies to mitigate losses and generate a little alpha.
Syndicated financial columnist and talk show host Steve Savant interviews John Dubot financial planner and economist. John is one of the leading proponents of tactical investing in the country and has been featured in Forbes and Fortune Magazine.