Market Map: Staying the Course for the Long Term 2015

As we head into Spring 2015 with the model in a cash position, we look back at the model’s performance in 2014 and note it as a year of “underperformance” vs. the S&P 500 (as the model produced a return of 8% and the S&P500 benchmark produced 13.5% ). From time to time, it is possible for an occurrence, such as this, to happen and for us to react with skepticism, uncertainty, and doubt, especially when it involves our investments. We are “hard wired” and  persuaded by societal cues into thinking in terms of “short term” results and we tend to define the equity market in terms of “winning” and “losing” ( we are much more sensitive to “losing”).

We are fortunate to have 9 decades of  historical model performance with which to analyze and review past occurrences of when the model “underperformed” the S&P 500.


ScreenHunter_540 Apr. 07 17.52


Model underperf years

As we can see in table 1 and the chart above, these years of underperformance have happened occasionally and are evenly distributed over the sample with “consecutive” years of underperformance occurring in sporadic fashion.




ScreenHunter_539 Apr. 07 17.43

Table 2 shows the ratio of outperforming vs. underperforming occurrences and cum % performance.

The stock market’s price is the discounted present value of it’s future earnings and the market  can “overshoot” this present value for periods of time. During this part of the investment cycle, this “overpricing” can be caused by: 1) portfolio analysts’ upwardly adjusted revisions in earnings estimates and  2) investors’ optimism and “fear of missing out”  as the market rises or has, in retrospect, produced many consecutive positive years returns. We must expect that these periods will exist and can expect to leave some “gains on the table” with the knowledge that we are accumulating and compounding assets over the “long term”. We can gain perspective by examining the “long term” performance statistics, and adjust our reactivity and concern accordingly . 

We can also gain perspective by viewing, in a graphic sense, how much equity exposure towards historical market up moves or down moves has been realistically “captured” by the model in order to achieve portfolio alpha (in this presentation) :




Asset allocation since 01/20/15 = cash
Probability of allocation into TLT (iShares 20+ Year Treasury Bond ETF) on 7/13/15 = 5O%






Market Map update 01/05/2015

In the current market environment, in order for us to make tactical decisions and define and manage the risk in our portfolio, we use component 1 and 2 identify and measure the annual returns of “overperformance” of the S&P500 index versus it’s 40 year compound growth rate. Further identified are consecutive years of “overperformance”and 2014 represented the 3rd year of “overperformance” by this quantification.  The chart below shows previous occurrences of of susequent returns after the consecutive years of “overperformance”:

Subsequent years

This gives us preliminary knowledge towards “mapping” risk to reward in the upcoming market environment.  As shown above, statistically, odds of consecutive years of overperformance leading to negative returns are slightly more than 50% since 1924. Another way of stating this would be “the odds on which price will revert back to the “mean” in relation to past occurences”.

To be conclusive in our decision making process, we look next to component 3, which defines risk outcomes derived through an analysis from data contained in the months of Nov, Dec, and Jan and segregated into “risk profiles”. These “risk profiles” further refine statistical insight towards actionable tactical allocation decisions with final risk profile readings being calculated in the 3rd week of January ( 01/16/2015 ). In the present case, since the consecutive years of outperformance regime has occurred, we look for the following:

1) a “neutral” or “high” risk profile reading will shift the portfolio allocation towards a “cash” position or

2)  a “favorable invest 1st half of year” risk profile will keep the allocation  in equities /  Powershares QQQ ( QQQ ) until the first week of Jul.  The charts below reflect past risk profile return outcomes. 

The chart below illustrates historical returns from the ” Favorable Invest 1st Half ” and “High” risk profiles:

Favorable Invest 1st HalfHigh risk profile

Stay tuned for update on weekend of 01/16/2014 …

For further explanation on the model see post :

The recent performance of component #4 ( 4th quarter of 2014; when which we allocated to QQQ from TLT  ) was again positive contributing to further statistical significance and long term alpha. The charts below show all historical returns for component 4 “select 4th quarters” since 1924, including the 4th quarter of 2014 :

ScreenHunter_428 Jan. 05 19.48

ScreenHunter_429 Jan. 05 19.49

Market Map update 09/15/2014

As the Market Map model’s current allocation is longer dated U.S. bonds ( TLT ), we again look ahead to the predefined allocation schedule and to the model’s components in preparing for the next tactical allocation action. On 09/29/14, component 4, “4th quarters characteristically showing statistically significant probability of profitability”, will come into play.  The allocation will shift from TLT, to the SPY or QQQ  etfs, with the QQQ achieving higher alpha historically.

Allocation 4th Q  2014

This table and graph show  the previous instances and performances of component 4.

4  quarters  table

4th quarters graph

We examine the performance of the above table and graph and the historical performance table here: for the purposeful reminder of staying with the model for a long term, multi year asset accumulation process through time diversification and compounding, and not for the purposes of developing pride and arrogance and the turning of quick profits.

The next predetermined asset allocation date will be: 01/16/2015

Review of Allocation Dates ( Objective 3 )

One of the pitfalls of active investment management is the inability to follow the rules of one’s investment discipline. This could be because the investor / manager uses subjective means to determine asset allocation ( thereby “anchoring” off of the “purchase prices” of assets) or because the signals produced by their process’s algorithm occur in a random fashion and can’t be “anticipated” with precision. These biases, along with a lack of robust historical testing and trustworthy empirical results, ultimately lead to cognitive dissonance and uncertainty in many investors’ asset allocation decisions. 

The Market Map model was designed to alleviate these pitfalls with the application of “predefined” dates used in asset allocation decisions, which we spell out as “objective 3″ in our list of model objectives. In this way, instead of letting ambiguity and purchase price control our decision process, we let “date” control it.   In previous posts, we have charted the course of the model’s asset allocation process in real time and have published actionable reminders ahead of the actual allocation dates. The tables below show the definity of the method. The first table shows the historical Equity allocation dates and the second table shows the cash and bond allocation dates. In a perfect world, it would be nice to predefine 100% of the equity allocation dates yet, as shown in the first table, the model comes up with 77% predefined.

Equity Allocation predefined dates

Cash Bond Allocation Predefined dates

…. Model remains in TLT until 9/29/2014

“Start small and disrupt to make something useful to people”

Market Map Allocates To Long Bond

As another predefined date for asset allocation action as defined * by the Market Map model has been reached, at this time the model is indicating an allocation from cash (position allocated on 01/24/2014) to a 75% allocation in the iShares 20+ Year Treasury Bond ETF (TLT). The model identified 15 previous instances of allocation to long bonds in the investment timeline since 1924.

BOND record

ScreenHunter_174 Jul. 07 21.27

The long bond allocations within the full record of model allocation changes can be seen here

* Objective # 3. To make infrequent asset allocation changes occurring on fixed, predefined dates during the course of market cycles. See objectives

Market Map: Style Diversification With Dividend Growth Portfolio – Retirement Withdrawal Rates study

In this article we examine withdrawal rates from a portfolio style blend as constructed in previous articles using the Market Map model. It is instructional to read the previous MM articles to get up to speed on the topic at hand.

As each individual has their own investment needs and goals, we find the Market Map model useful as a multi purpose tool for application towards tax deferred retirement portfolios during different periods in an individual investors’ life cycle. For example, in the post, the model is presented as a possible solution towards accelerating the “accumulation” phase pertaining to investors who may be “slow starters” towards their retirement asset accumulation.

For those who qualify for the withdrawal process from their retirement funding, their asset base may not be large enough on which to generate sufficient income from the conventional offerings often cited in the financial literature that are either reliant on staying fully invested and riding out the cycles of the market and/or on the “ceiling” of dividend yields. These offerings include buy and hold of index funds that mimic the S&P500 index, blends of “low expense” international, domestic, and bond funds (target date products), dividend growth portfolios, etc. The Map model can conceivably be used to provide an income stream that is sourced from a higher annual portfolio total return (because of the exposure to the “growth” universe of mid/large cap stocks included in the Powershares QQQ Trust ETF (QQQ)) and simultaneously grow the account balance.

In order to ascertain the rate(s) of income withdrawal that could be expected from the Map model and portfolio blend, we subjected the portfolios to a fixed, inflation adjusted withdrawal during two of the most difficult 14 year investment periods in the last 45 years. We did the same with data for 14 of the most recent bull market run years of 1983-1990. Hence, we adjusted the withdrawal amounts according to the market environment: less withdrawal in difficult “cyclical sideways” periods and more withdrawal in a secular uptrend.

Our choice of withdrawal process in this analysis was that of “selling shares” for income as opposed to “taking the dividends”. We realize that a “selling shares” process is a controversial topic, yet with combination of the outsized portfolio growth, conservative annual withdrawal amounts shown, and personal experience, deemed it to be the best choice for this study. In the future, we will explore an analysis using a process combination in generating the income stream by “selling shares” from the growth allocation of the blend and “taking the dividends” from the dividend growth allocation of the blend. At present we chose the former.

Charts 1,2, & 4 depict fixed withdrawals from three different portfolios with starting balances of $1M over the two most recent “cyclical sideways market periods and the most recent “secular uptrend” market environment. These portfolios were introduced in the previous article and include: 1) the “growth” portfolio (the QQQ ETF) utilizing the tactical allocation of the Market Map model and 2) a “buy and hold”/ dividends reinvested portfolio of popular dividend growth stocks*. The 40% 60% “style” blend performance analysis and logic that we use for this study was presented in “Style Diversification With Dividend Growth Portfolio”, charts 13 & 14.

Chart 1
$ withdrawal1970 -1983

Chart 2
$ withdrawal 2000 - 2013

Chart 3 shows the fixed annual $ withdrawal amounts adjusted for 2% inflation growth applied to the portfolios during “cyclical sideways” market periods in charts 1 & 2.

Chart 3
withdrawal 1970 - 1983

Chart 4
$ withdrawal 1983 - 1996

Chart 5 shows the fixed annual $ withdrawal amounts adjusted for 2% inflation growth applied to the portfolios during the secular uptrend market period in chart 4 .

Chart 5
Withdrawal 1983 - 1996

As we can see above, when subjected to fixed withdrawal processes, the “individual” style portfolios’ growth during the different market environments were affected in a vastly dichotomous fashion, and the “combined” portfolio (in black) provided sufficient income streams accompanied by stable growing portfolio values and diversification throughout the 3 different diverse market environments.


Investment literature may lead us to believe that as an investor gets near the retirement withdrawal stage, they should gravitate away from the growth stock universe and concentrate largely on a portfolio leaning towards the quality large cap arena with consistent dividend growth universe and yield based products for their income needs. Yet as shown in this (and previous articles), with innovative, sound tactical asset management applied towards a growth stock universe, an investor can generate a decent income using a combination of two universes. And hopefully, in the not too distant future (if not already), there will be ETFs (exchange traded funds) that can cost efficiently replicate the performance and dividend payouts of a portfolio of quality mid and large cap companies with consistent dividend growth and thus alleviate and replace the tasks of managing a multiple individual stock portfolio.

* comprised of: 3M (MMM), Exxon (XOM), Merck (MRK), Johnson & Johnson (JNJ), McDonald’s (MCD), Procter & Gamble (PG), ConEdison (ED), General Electric (GE), Altria (MO), Coca-Cola (KO) (with a switch of Wal-Mart (WMT) for GE on 01/02/08 for performance optimization)