Most stock portfolios today are manged with a "buy and hold" approach — what we call passive investing. Most investors didn't choose that, it just happened, usually by default. But, given today's extreme valuations and growing market instability, the timing couldn't be worse.
This "buy it and forget it" approach to investing our retirement savings is actively enouraged by the Federal Goverment, financial academics, and, of course, by the giant Wall Street banks.
Buying and holding has become hard-wired into the system. After all, it's worked for over forty years . . .
Keeping our Eye on the BigTen
Wall Street's mechanical implementation of passive portfolio strategies is creating poorly under-stood feedback loops that significantly distort the market value of the largest ten mega-cap companies that dominate US equity portfolios.
As a group, we label these issues the Big Ten. They've done extremely well for the last ten years, but that is highly likely to change.
The problem is a growing disconnect between price and value for these issues, and it is becoming a threat to the viability of the financial system. Really.
Your investment strategy needs to monitor and manage this threat . . .
The KP Trend Model is a proprietary "regime filter" that seeks to identify the trend condition of US equities markets.
Our goal is to dentify the ongoing regime, not to predict it.
After remaining in Green status for an almost all (86%) trading days in 2025, the model shifted to Yellow in December and remains Yellow today. On average, the Yellow condition has character-ized 34% of all trading days over the past quarter century.
During those intervals, Yellow has experienced a positive annualized return of +8.5%, but with considerably more annual volatility (21%) than the Green condition (13%).
Looking for the Next Black Swan
The performance of your retirement port- folio is dominated by market trends, not by individual investments.
Identifying these trends is hard work, as one would expect. But still, even a partially successful effort to manage the threat of the next "Black Swan" will significantly reduce your portfolio volatility and your exposure to a significant drawdown . . . . .
