Tactical Asset Allocation (TAA) adds strong diversification alongside a Buy & Hold investment strategy. I compare the two strategies and highlight their differences.

In my 20s, I consulted for Accenture out of its Milwaukee office. One highlight of working at a big firm in the late 90s was the sometimes extravagant employee perks.

The greatest perk took place one day in October every year. To reward us for a job well-done, Accenture leadership would rent out Six Flags Great America… in its entirety. I would always bring my girlfriend (now wife).

Imagine showing up at Six Flags just north of Chicago, parking in the front row, and walking into an empty park. It wasn’t as empty as Wally World when the Griswolds visited. But close…

Our small group would ride Iron Wolf and American Eagle and our favorite, Raging Bull. At times you needn’t get off to get back on! One year, I think I went on 50 rides in a day.

My wife and I bonded over our shared love for roller coasters and these incredible days at Great America.

In 2018, twenty years later, she and I were living in the Bay Area. That year, we hired a sitter and drove 30 minutes to Six Flags Discovery Kingdom in Vallejo. We got there early. With excitement, we boarded our first ride.

When we got off, we looked at each other and said, almost in unison, “I don’t think I can do another one.” We pushed through it, tried one more, and both nearly lost our breakfast. Dizzying.

The roller coasting chapter of our lives had closed.

My investing roller coaster

I felt the same way when watching my 80/20 investment portfolio crash in March 2020. What hadn’t bothered me in 2001 and 2008 now did. I could no longer stomach the steep losses. Why?

I looked at my now greater savings as the collection of 20+ years of hard work. Watching $300K vanish was hard to take. I remember thinking, “I’ve just lost 6 years of savings…6 years of sacrifice.”

At least I didn’t pass out like I almost did at Six Flags.

Now, let me fast forward through 18 months when I read everything about investing that I could get my hands on.

I had found an investing strategy to complement my Buy & Hold portfolio.

It’s a great diversifier, without dilution. Meaning, it enhances my investment returns. And, best of all, it reduces my risk of severe loss and helps me sleep better at night.

Tactical Asset Allocation (TAA). It’s the investing strategy I teach at FastFollowInvestor.com.

Comparing two strategies

To learn TAA, I checked much of what I already knew about investing at the door. Like Adam Grant recommends in Think Again, I had to 1) unlearn and 2) relearn.

Take a look at these comparisons I’ve drawn:

There is a lot here, I know. It took me almost a year to understand TAA. It’s new and different. And it doesn’t always align with popular beliefs.

So, this is my challenge: How can I best share this strategy so everyone benefits?

Expanding the analogy

Derek Thompson, one of my favorite podcasters, speaks in analogies.

It can help new ideas stick. So let me try one.

I think of Buy & Hold investing like that ride on a roller coaster.

A roller coaster entertains riders with steep climbs and steeper drops.

You must put your trust in the ride because you have no control.

For long stretches, there is a lot of up and down, but you make no vertical progress.

But, riding is easy. You get on the ride and go (think: set it and forget it).

Tactical Asset Allocation (TAA) is more like a mountain trek.

Hiking a mountain takes preparation and, sometimes, training.

You choose your path, and so control your destiny.

While you may need to backtrack, it’s minimal if you plan your route well.

When you reach the summit, you’re exhausted but feel great given the achievement.

Use both for strong diversification

Buy & Hold and TAA are valid investing strategies.

You can expect positive returns from both. But, one may work better than the other in certain situations.

One obvious use case: the new saver has time to reap rewards from Buy & Hold. The soon-to-be retiree does not have the time and should tilt her/his portfolio toward TAA.

Buy & Hold and TAA are excellent diversifying strategies.

Together, they reduce your portfolio’s overall volatility and don’t dilute investment returns. Diversification, not diworsification.

And how fortunate this is! Take a small piece of your Buy & Hold portfolio and try it out. Dipping your toe in the TAA waters is a good way to learn something new and manage risk at the same time.

When you’re ready for more, you can watch my trades monthly in real-time at FastFollowInvestor.com.

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On January 3, my Fast Follow Investor (FFI) model made some portfolio adjustments:

January 2023 Allocations

• ~35% International equities (tickers SCZ, VGK)
• ~25% Gold and commodities (tickers GLD, DBC)
• ~40% Cash

A “Santa Rally” never materialized, and December was a down month for U.S. equities. The S&P 500 was down over 2.5%. The Nasdaq ended down almost 5%. Fortunately, I held only a 3.3% position in U.S. equities.

The FFI portfolio was up and down all month, closing the month down 0.3%.

Most January portfolio adjustments were minor tweaks.

The most significant change: FFI’s cash position increased by 15% after reducing my investment in one international equity ETF (EFA).

My 2022 Performance

For most, 2022 was a difficult (and down) year. It was no different for the Fast Follow Investor portfolio. 2022 ended down 13.1%.

The only good news, if you can call it that, is the standard 60% stock/40% bond portfolio was down 17.6% for 2022.

So, yes, the FFI portfolio fared 26% better. It’s nothing to write home about. But, it does reflect the downside risk protection that Tactical Asset Allocation offers.

When the markets do recover, growth will compound from a higher low. This is rewarding over the long term.

And always remember: The FFI portfolio will never be the top-performing investment strategy in a given year. By design, it cannot be since we wait for an uptrend to buy back in.

Yet, many 2nd and 3rd place finishes added up make for staggering and consistent success.

If you know someone who could learn from my monthly investments or commentary, please point them to fastfollowinvestor.com.

Thanks!

This offer is in no way financial advice. Rather, it is very important financial education!

Spend one weekend alone to make plans for a full and well-intentioned life.

In 2022, I spent a December weekend in Alameda’s beautiful Gold Coast neighborhood.

What started during Covid-19 as a need for some “me time” has become an important, life planning event.

Some do it at the turn of the year. Others do it close to their birthday. My birthday is January 8, so I guess I do both!

I spent a recent December weekend at a local Airbnb reflecting on 2022 and making plans for 2023.

It was an entire weekend for me. An entire weekend not stuck in the daily grind. An entire weekend spent appreciating 2022 and dreaming about 2023.

Think of it as a strategic planning offsite…for you.

I recommend you do it.

Now in my 3rd year, I have insights.

One insight I didn’t expect is how the weekend helps me segment years. Before taking my annual trip, the years ran together.

Now, my life has chapters. The chapters help me fight time which has accelerated as I age. How is my son 11 years old, already?

My second insight tackles how to make the trip’s significance stick.

I propose keeping your life’s plan for the year simple. I prepare 4-5 goals for the year in a Google doc or in Word. You might even choose to handwrite your plan.

Either way, make a hard copy and display it at your desk. Don’t tuck away your life goals for the year!

Please feel free to use my template. I call it my “One Year Life Planning Guide”. You can access it here.

My life’s 46th chapter (2022) started at this humble Airbnb in Forestville, CA.

And one final insight. I find it helpful to create a personal theme for the year. For example, looking back…

My 2021 theme was Lay a solid personal financial groundwork. This translated to 1) Prepare a wealth plan, 2) Learn to invest better, and 3) Become tax efficient.

My 2022 theme was Simplify life by targeting the best opportunities. This translated to 1) Work on the right things and 2) Keep stress-levels low.

Looking ahead, my theme for 2023 is Live a full life and try out retirement. Our family is making a concerted effort to do new and memorable things. I’m going to take some time off work.

Happy planning! Here’s to a great 2023!

After you grab my “One Year Life Planning Guide”, you can check out some other freebies here.

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In the past 40 years, we’ve seen only two types of U.S. economy. A new and different economy could be right around the corner. What is it?

If you’re familiar with San Franciso, you’re familiar with microclimates.

On a summer day, it may be 55 deg. in the City, 75 deg. in Alameda (where I live), and 95. deg in Concord (where my son goes to school).

It’s no wonder that the #1 memento for a San Francisco tourist is a sweatshirt. You think California summer, and you think hot. Nope. Fog covers the City, pulled on shore by the Bay Area’s inland heat. And it’s cold.

The simple lesson? Be ready for all kinds of weather.

All weather investing portfolios

This analogy has infiltrated investment-speak over the years.

The most direct is Ray Dalio’s All Weather investment portfolio (1996). It holds roughly 30% stocks, 40% long-term bonds, 15% short-term bonds, 7.5% gold, and 7.5% commodities.

Other examples:

• Permanent portfolio (1982) from Harry Browne, holding 25% stocks, 25% long-term bonds, 25% cash, and 25% gold.
• Dragon portfolio (2020) from Chris Cole. It holds 20% stocks, 20% long-term bonds, 20% gold, 20% commodity trend, and 20% long volatility.

If this post is getting complicated fast for you, do not worry.

I name these investment portfolios for one reason. Smart investors with very long investment horizons consider all types of U.S. economies. Or as I will call them: economic regimes.

What are the four economic regimes?

Economic regimes depend on two factors that interact: Growth and Inflation.

If we match levels of Growth (positive or negative) with Inflation (yes or no), we arrive at four economic regimes:

• Expansion (real): economic growth and no price inflation
• Expansion (nominal): economic growth with price inflation
• Recession: economic decline and no price inflation
• Stagflation: economic decline with price inflation

Assessing recent history:

• For the last ~40 years (1980 to 2021), we’ve swung between expansion (real) and recession.
• 2021/2 included 18 months of expansion (nominal-with inflation).
• And, as we look to 2023, we are teetering between continued expansion (nominal) and stagflation.
  
  

Why is this important?

Consider these questions:

1. What type of investments work best in expansionary times? Stocks.
2. How about in recessions? Bonds.

This is good: We have access to stocks and bonds in our 401Ks, IRAs, and brokerage accounts.

3. What about expansionary times with inflation? Stocks, yes, but also (and more so) commodities!
4. How about during stagflation? Commodities again. And gold.

This is a problem! Most investors can’t access commodities and gold as investments.

Inflation really messes things up. If it sticks around, we need alternatives to stocks and bonds for continued investment success.

Your easy-to-understand 2x2 matrix

In my 20s, I worked for a manager who looked at life through 2x2 matrices. Every situation. Every decision. Everything could be framed by a 2x2.

Well, so can economic regimes.

The four quadrants that define our four economic regimes are defined here:

For those interested in my research, here is a link to the key chart.

And for even more excruciating details, refer to this.

All Weather portfolios make a comeback

I mentioned early on that several all-weather portfolios do exist. But few know about them, for these reasons:

• They have been out of favor because they have underperformed. We’ve experienced zero inflation in the past 40 years. So, commodities and gold have been a drag on investment returns.
• We aren’t educated on all-weather portfolios. The mutual fund industry -and the stock/bond funds it touts- has grown massively in the last 40 years. And this aligns with just two of four economic regimes. Our own short-term thinking limits us.
• Until recently, portfolios with commodities and gold have been hard to set up. Only hedge funds, family offices, and other “big money” played in these assets.
  

Portfolios that accommodate all economic regimes may have been out of favor for 40 years. But, they may soon make a comeback.

2022 and 2023 appear to be years of economic change. It’s time to learn more!

And, wouldn’t it be cool if there was a more fluid all-weather portfolio?

What if you could move money to the best performers when economic regimes changed?

That’s what I do at fastfollowinvestor.com.

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Humans are not wired to think long-term; yet it’s required to invest well.

Eddie Izzard, of stand-up, film, and TV fame, quips that:

“He grew up in Europe, where the history comes from.”

Like Eddie, I find it difficult for Americans to grasp “long-term”. We’re a young country. Our history is short. It’s not a bad thing… simply a fact.

Later in his bit, Eddie cites a story on TV during a recent hotel stay:

“We’ve redecorated this Miami building to how it looked over 50 years ago.”

You have to see it here.

What is long-term?

Is 50 years long-term? Not to the Long Now Foundation.

From its website:

The Long Now Foundation is a nonprofit established in 01996 to foster long-term thinking. Our work encourages imagination at the timescale of civilization — the next and last 10,000 years — a timespan we call the long now.

Contrast the long now with:

• now (3 days)
• nowadays (3 decades)

I like these definitions. And nowadays is all that the human mind can consider comfortably.

I remember 20 years ago: leaving grad school, getting married, and moving to San Franciso.

I can imagine 10 years from now: my son graduates college, I’m working part-time, and traveling in Europe.

Try it yourself. Pushing beyond a 30-year window is difficult.

Longest standing businesses

If asked to name a long-standing business, the first that comes to mind for me is General Electric.

GE launched in 1892. It’s 130 years old.

Not many make it that long. It’s quite impressive, as GE is having its own issues right now.

But, 130 years is nothing.

Staffelter Hof Winery in Krov, Germany opened in 862.

That’s 1,160 years ago!

I find it hard to wrap my head around that. The winery has been around for ~45 generations.

For a list of the oldest business still operating, check out this site.

Of the oldest companies, the industries with the greatest longevity:

• Banking (36)
• Alcohol (18)
• Postal services (16)

Money, drinking, and communication. In that order. That seems about right.

What this means for investing

Experiences from our own adult lifetimes influence how we invest.

Take me. I started investing in 1997, the year I got my first real job.

My biases (good and bad) stem from the period 15 years prior, when the finance books I read were written, through now.

As a whole, 1982-2022 has been a period of strong growth, low inflation, and a helpful Federal Reserve enabling asset growth.

Stocks and bonds have performed well.

But what if I was born 40 years earlier, in 1936?

A look into the more distant past shows a very different situation. Economic depression, war, and high inflation.

What performed well then? Real assets like gold bars, oil, and other commodity products.

The key takeaways

• The human mind is challenged to comprehend time beyond nowadays (30 years).
• Economic regimes are long (the current one is 40 years) and slow-moving. They trick us into thinking the current one will last forever.
• The truth is, we can’t predict what investment will always perform well. It’s because we can’t predict when an economic regime will change.
• And a lot of bad things can happen. When you expand your frame of reference to 1,000 or even 10,000 years, “once in a lifetime”-type events happen all the time.
  
  

As Eddie Izzard points out in jest, we must elongate our thinking.

And we must translate that long-term thinking into how we invest.

A lot of bad things can happen over the course of many lifetimes.

This means we need to weather a lot of tragedy within our investment approach.

Don’t fret. In my next post, I’ll share how we can do just that. I’ll help you keep your investments performing well throughout your lifetime and beyond.

And the solution is far easier than starting a German winery… which is good news for those of us who don’t live in Germany.

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If you’re curious, here’s my thinking about the name and logo (or should I say mascot).

Fast Follower Technology

The “fast follower” in the name stems from the technology strategy.

A fast follower is not an innovator.

But when innovation takes off, the fast follower quickly jumps in.

The master of this is Microsoft. Its success speaks for itself.

Microsoft has been in the top 3 in market capitalization for over 20 years.

No other company can match it.

Credit Visual Capitalist

The Wall Street Journal again named Microsoft its top-managed firm.

How does it do this?

• Microsoft doesn’t have the biggest cloud business (Amazon Web Services) but they are #2 in market share.
• It isn’t Facebook or Instagram, but Microsoft owns LinkedIn.
• Its Xbox is #2 behind Playstation in gaming consoles.
• Now, Microsoft is moving into video gaming content with its proposed Activision Blizzard acquisition.

Of course, a fast-follower strategy doesn’t work in every situation.

Have you “Binged” anything online lately? Where is your Zune player? Some misses are inevitable.

But…a lot of 2nd place finishes, when added up, make for staggering and consistent success.

Translated to Investing

Fast Follow Investing aims to do the same thing:

• Find the trend that is working, buy into it, and grow with it.
• When the trend becomes unfavorable, get out.

A FastFollowInvestor.com portfolio is never the flashy 1st place finisher.

In fact, it will likely NEVER have the highest return in a given year.

Though stack up many high-place finishes year after year (especially in down years), and you become the winner.

The FastFollowInvestor.com portfolio will be the highest performer over 5 years.

Let’s Make This Fun

My second reason for the name is that Fast Follow Investor simply sounds better!

It’s a catchier name than “Tactical Asset Allocation” or “TAA” (or “T&A” as it’s often misheard.)

In my view, the strategy needs better marketing.

TAA is THE best strategy out there for investment success over the long haul.

Hands down.

But nobody knows about it! And this needs to change.

So maybe a little rebranding will help.

And That Cute Dog

Now, for my beloved mascot. The dog featured everywhere is my pup Izzie.

She follows me everywhere.

I think it has to do with her hearing loss in old age. For fear of being left behind, Izzie follows me all around my house. Upstairs. Downstairs. Inside. Outside.

Izzie puts a lot of trust in me to guide her.

And I know those who follow me do as well.

My wife and I have had Izzie since 2007. She’s almost 15 1/2 years old. :-(

As my mascot, Izzie gets to stay with us a lot longer.

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This month’s trades are in!

On December 1, my Fast Follow Investor model made some big moves:

December 2022 Allocations

• ~50% International equities (tickers SCZ, EFA, VGK)
• ~25% Gold and commodities (tickers GLD, DBC)
• ~25% Cash

“When it comes time to buy and it’s the right time, you will not want to. When it comes time to sell and it’s the right time, you will not want to.”

Remember: Just like Buy & Hold, Fast Follow trend investing requires fortitude to stick with it.

One last point: Notice that last decade’s top performers are completely absent: US equities and big tech! Has the tide turned? Only time will tell…

If you know others who might learn from my monthly investments or commentary, please direct them to fastfollowinvestor.com.

Thanks!

This offer is in no way financial advice. Rather, it is very important financial education!

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Use these quick calculations to determine your savings at a future date…

You can put away your spreadsheet(s). :-) Instead, jot down your:

• Existing savings balance
• Investment rate of return (expected)
• Long-term inflation rate (estimated)
• #years your savings can grow

In this post, I’ll walk you through an example.

In doing so, I’ll introduce you to the Rule of 72, how to calculate real rate of return, how doubling simplifies the compounding calculation and sensitivity analysis (as a bonus).

We’ll use these values:

• Existing savings: $1.75M
• Investment rate of return: 12%
• Inflation rate: 4%
• #years to grow: 45 years
  
  

The Rule of 72

The Rule of 72 is a “back of the envelope” approximation used to estimate the years required to double an amount of money at a given rate of return.

The rule: 72 / “rate of return” = “# years to double”.

Using my #s: 72 / 12 = 6 years to double.

That sounds great. But six years isn’t realistic.

We need to adjust the 12% rate, which is a nominal rate.

Calculating Real Rate of Return

The real rate of return is the annual percentage of profit earned on an investment, adjusted for inflation. The real return rate indicates money’s actual purchasing power over time.

Nominal means that a dollar now is worth a dollar later (years later)…

Given the inflation of late, we can understand why this isn’t realistic. A dollar six years from now won’t buy as much.

So, to account for inflation, we need to use the “real” rate of return. We take the “rate of return” from above and subtract the inflation rate.

For nearly 40 years, inflation hovered near 2%. Right now, it is around 8%.

Many experts believe it will settle around 4% over the long term.

72 / (12 nominal rate - 4 inflation rate) or 72 / 8 = 9 years to double.

Therefore…

The Tactical Asset Allocation (TAA) model I follow doubles my money in real purchasing power every 9 years, assuming a 4% inflation rate.

Power of the Double

The compounded return is the rate of return of an investment over a cumulative series of time. Doubling is a single case of the compound return equation: An initial investment is multiplied by 2 raised to the power of the number of doubles. Such as: $1,000 investment x (2)^5 doubles.

I’m 46 years old, almost 47. I’m also an optimist and expect to live to at least 92.

In that case, I expect to get another:

92 - 47 = 45 years of life.

45 / 9 years to double = 5 more doubles.

Starting with savings of $1.75M:

$1.75M x 2 x 2 x 2 x 2 x 2 = $56M in real terms, at age 92.

I’ll take it.

Pressure-Testing the Outcome

Sensitivity analysis determines how different values of an independent variable affect a particular dependent variable under a given set of assumptions.

In this case, I’ll vary the real rate of return to see its impact on my savings growth.

But first…

What is absolutely necessary to make the $56M outcome possible?

• I need at least a 12% annual return (nominal). This is where my Fast Follow Investor.com TAA strategy comes in.
• I need at most a 4% long-term inflation rate. I must count on the Federal Reserve to help control this!

What happens if my 8% real return drops to 6%?

Perhaps my nominal return comes in at 11% with a long-term inflation rate of 5% (11-5 = 6).

Adjusting the real return from 8% to 6% increases a 9-year double to a 12-year double.

45 / 12 = 3.75 doubles.

3.75 doubles reduce my savings at age 92 from $56M to $23.5M.

It’s certainly less, but I’ll still take it.

So, in Summary

• Investment return minus inflation rate = real return
• 72 / real return = # years to double
• Remaining years of life / # years to double = # of doubles
• Existing savings x 2^(# of doubles) gives you your savings target, in real dollars

Knowing your # of doubles keeps those spreadsheets at bay!

Thank you for supporting Fast Follow Investor.com.

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Like many of you, I am fascinated by the collapse of FTX and its founder, Sam Bankman-Fried. The juicy details will make for a great Netflix series.

But, beyond the high-profile storylines, I have been thinking a lot about how everyone missed this… including me. Why did I miss this?

I have watched crypto from the sidelines for the last 3 years, often thinking I had missed out.

To console myself, I read about the sketchy characters, the crypto bros, and the money laundering. That’s why I’m not in this.

But I couldn’t ignore Sam Bankman-Fried.

He came from traditional finance. He was smart. He (seemingly) supported regulation. He was relatable…a normal guy. He kept me interested enough to think crypto might be for me.

It is human nature to get wrapped up in a one-sided story.

Up until Sunday, Nov 6 these are the headlines associated with Sam.

• The next Warren Buffett? Fortune
• The mogul who mastered Washington. Forbes
• The JP Morgan of crypto. Jim Cramer

And, since Nov 6, he is:

• The Bernie Madoff of crypto
• Sam Bankman-Fraud

The negative articles are coming fast and furious.

Here is one: 8 More Disturbing Revelations About Sam Bankman-Fried By Kevin T. Dugan and Matt Stieb

We love heroes, and we love villains.

But, I have to remind myself: the truth exists somewhere in the middle. It always does.

Life is messy.

“If you only hear one side of the story, you have no understanding at all.”
— Chinua Achebe

I will try to apply this lesson to my own beliefs.

• Seek out counter-arguments
• Assess both sides of the story
• Only then make my judgment
• Find my truths (not blindly adhering to the tribe’s truths)
  
  

A related note about Tactical Asset Allocation (TAA)

This is new. Be open-minded. It will conflict with certain investment beliefs that you may hold.

But also be critical. TAA cannot erase investment risk. The 60/40 buy & hold portfolio doesn’t work in inflationary times. TAA falters when markets whipsaw or experience steep intramonth declines.

The result of learning more?

• At best, I’ll open your mind to a new investing strategy.
• At worst, you’ll consider my evidence and it will further validate your existing strategies.
  
  

Thank you for reading. And for supporting FastFollowInvestor.com.

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Save. Invest.

It’s as easy as that.

Slightly more complicated:

Save a lot early. Transition to investing well later.

More on that here.

Within saving and investing, there are building blocks:

The many ways to build wealth

There are a lot of great personal finance and investment blogs out there.

This one serves a specific niche.

Fast Follow Investor.com teaches Tactical Asset Allocation (TAA).

As shown above:

• It’s on the invest well side of the wealth-building equation…
• Focusing on financial markets, and…
• Primarily for individual investors who are buy & holders
  

Are you a buy & holder? If yes, you should learn more about TAA!

You can do that in one of two ways:

• Follow my writing here.
• Sign up to track my personal investments (made monthly) here.

On Nov 13, the Wall Street Journal published

The Classic 60-40 Investment Strategy Falls Apart. ‘There’s No Place to Hide.’

(the article may be behind a firewall)

My 5 takeaways from the article:

1. Market losses impact real people. There is a community in this, and you are not alone.
2. The article buried the lead: Why isn’t 60/40 working? Inflation. What has worked for the last 40 years will likely be different in the future.
3. Individual investors need a system beyond 60/40 that can adapt to varying economic conditions, not just a disinflationary one.
4. I disagree with blind commitment from financial advisors to stick with 60/40. We can’t know the future. Will it be inflationary or recessionary? Or both? Or neither?!
5. We are resilient. I would be doing exactly what Johnathan Bowden is doing in his situation. I wish everyone featured in the article good fortune, prosperity, and happiness.

Inflation hurts everyone.

And getting it under control must be the Federal Reserve’s highest priority.

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Despite popular belief, you need NOT accept market risk.

Last week I shared that Meta would need to double two times over (grow 300%) to recover from its 75% loss in 2022.

I have been thinking a lot about how to better convey the sheer tragedy of this fact.

Imagine that you are two years to retirement. You’re only two years away from “hanging it up”… “living the good life”. You have $2M in savings and are feeling pretty good.

Then, over the next six months, your investments drops to $500K (75% loss).

How would you feel?

I know how I would. Lots of tears. And then back to work.

Thankfully, you’re not dumb enough to put $2M of retirement savings in Facebook stock alone. (Neither am I.)

Severe losses, though, aren’t limited to individual stocks!

Let’s take a look back at some inopportune years to retire:

2008: The Subprime Mortgage Crisis S&P 500 loss: 57% Time to recover: 17 months

2000: The Dotcom Bubble Nasdaq loss: 77% Time to recover: 15 years

1973: The Oil Crisis and Economic Recession Market loss: 48% Time to recover: 21 months

1929: The Worst Crash in History Dow loss: 89% Time to recover: 25 years.

Entire markets can drop 50%+. And the road to recovery can vary: from 17 months (when the Fed gets involved) to 25 years (when it does not).

Significant market drops are normal.

But accepting market risk is not required.

Fast Follow investors cut our losses. In doing so, we manage market risk.

Take control and never utter “It’s bad timing, I guess. I’m heading back to work."

I hope that you’ve enjoyed my short series on minimizing loss.

In summary:

*Entire markets can drop by 50% or more, setting you way back.

*Investment losses are asymmetric and compound exponentially. Losses take a long time to dig out from.

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This month’s trades are in!

In November, my diversified Fast Follower TAA investment model redeployed some cash:

• 13.5% was allocated to the DBC Commodities ETF. Let’s see how this trade fares given OPEC’s decision to restrict oil drilling and Russia’s exit from the Ukraine grain deal.
• The model inched into the SPY S&P 500 Index ETF. The S&P gained nearly ~8% in October, but the TAA model isn’t convinced we’re in a new bull market.

November 2022 Allocations

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This year (as of October 27), six companies together have lost one trillion $$ in market capitalization. They are Apple, Microsoft, Alphabet/Google, Amazon, Tesla, and Meta/Facebook.

Meta has crashed, losing nearly 75% of its value on the year.

Instead of discussing the merits of Facebook’s business or how much money it’s spending on Second Life 2.0, I’d like to highlight the math behind this 75% loss.

The math behind crashes is brutal.

When asked what gain is required to recover from a 75% loss, most people will answer a 75% gain.

Unfortunately, that is not correct. The answer is a 300% gain.

For example, if you lose $75 of an initial $100, you are left with $25. To recover, you must make $75 back (obviously). But, $75 is 3x your (now) $25 investment or a 300% gain.

Here is another way to look at it:

You must double your money twice over: turn $25 into $50, and then $50 into $100. Using an estimated 10% stock market return, it will take you 14.5 years just to break even.

Facebook investors who bought on January 1, 2022 and continue to hold have a long road ahead.

This table shows gains required to recover losses ranging from 5% to 90%. As losses steepen, the pain accelerates.

It makes sense why Warren Buffett’s two rules of investing are:

“Rule #1: Never lose money. Rule #2: Never forget Rule #1.”
-Warren Buffett

Severe losses really set you back.

It’s the math of it!

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I guess it’s better to learn your lesson early in life, when you have less money at stake…

In 1985, I was nine years old and joined my dad for a 45-minute drive to an A&W restaurant in a neighboring town.

The A&W is still there. In fact, I drove through Wautoma, Wisconsin and saw it this summer.

My dad had a business meeting with a man named Vern Taggatz. While the two men spoke, I wasted time in the restaurant parking lot kicking rocks.

My dad was a “businessman”. He worked for Speed Queen, an appliance company, as a middle manager.

On the side (a side gig!), he and my mom invested in a couple of houses, flipping them. I helped paint. And I stayed out of the way.

At the A&W, my dad was discussing an opportunity to invest in a new apartment complex in Plover, Wisconsin.

I thought it was pretty cool.

Little did I know at the time I was part of something that is now all the rage: a commercial real estate syndication.

It took about an hour. Finally, the meeting was over.

On the drive home, I learned that my dad and Vern did the deal.

Years later, I learned that my dad invested about $20,000.

Even more years later, I learned that Vern defrauded my father.

In 1985, several small investors cut checks to Vern Taggatz who ran off with the money.

Ouch.

My dad was smart. He is still smart.

I try to be like him in many ways. Too much, in fact.

I’m in management (management consulting). I’m entrepreneurial. I love investing.

I bought a high-priced, whole life insurance policy right out of college that I did not need nor could afford.

Double ouch.

The lesson?

When presented with an investment opportunity, really question it.

• How exactly does it work?
• Where is the value?
• What is the downside?
• How well do I know this person?

If the investment opportunity doesn’t feel right, it probably isn’t!

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Hello!

I look forward to meeting everyone as I create a new community of do-it-yourself investors.

To start, let me introduce myself.

I’m a husband of 20+ years, father of 10+ years, and management consultant/ business owner.

Born and raised in Wisconsin, I now live in the San Francisco Bay Area.

I’m fascinated with investments and the economy. I have recently become intrigued by purpose and passion.

Why fastfollowinvestor.com? That’s easy… I’m introducing do-it-yourself investors to a personal investment strategy called Tactical Asset Allocation (TAA).

TAA generates investment returns for you to achieve financial independence. And it protects against losses so you can sleep well in this wonderful, new stage of life.

More DIY investors should know about it.

At fastfollowinvestor.com, I want my posts to show some personality and prove enjoyable to read.

If I do it right, we’ll also learn together and have fun doing it.

A little more about me:

1. Friends tell me that I’m great to watch a comedy with. They laugh at me laughing at the movie.
2. A storm in New Orleans flooded my car up to the steering wheel. A total loss.
3. You will want to cook dinner for me because every meal I eat is the best meal I’ve ever had.
4. I love swimming, skiing, and other fun on the lake. My grandparents owned a cabin in Northern Wisconsin, and now my wife and I do too!
5. My sister competed in the Miss America pageant!
6. My spirit animal is a dog. I’m a dependable and trusted companion, and I always live in the present (both good and bad).
7. Our terrier, Izzie, is over 15 years old and still escaping from the yard.
8. One regret I have in life is not traveling for long periods overseas when I was younger. I want to make up for that soon.
9. Life granted me a great many privileges and only in the last several years have I realized it.
10. I have been thinking about writing for a long time and now simply must do it. I’m very excited to start this adventure with you!
    
    

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I can’t wait to get to know you better.

I look forward to hearing your thoughts and feedback! What interests you?