Adapt Strategies for the Current Cycle
Michael J. Chapman, CFP®, CIO
Adopting Tactical and Absolute Return Strategies, which use risk management can, under the right circumstances, out perform and potentially reduce losses more than traditional buy and hold / benchmark strategies during weak cycles.
The past 200 years of stock market history show that weak performance periods follow strong periods. We may be witnessing the completion of a strong cycle here in fall of 2020.
Strong Cycles
Time Period Annual Average Return Duration
1815-1835 10.0% 20 Years
1843-1853 13.7% 10 Years
1861-1881 12.0% 20 Years
1987-1902 15.2% 5 Years
1921-1929 25.2% 8 Years
1949-1966 14.0% 17 Years
1982-1999 14.9% 17 Years
2009 - 2020 16.1% 11 Years
Average 14.8% 13.5Years
Weak periods have lasted up to 20 years
Weak Cycles
Time Period Annual Average Return Duration
1802-1815 +2.7% 13 Years
1835-1843 -0.6% 8 Years
1853-1861 -3.0% 8 Years
1981-1897 +3.9% 16 Years
1902-1921 0.0% 19 Years
1929-1949 +0.8% 20 Years
1966-1982 -1.4% 16 Years
1999- 2009 -8.4% 9 Years
Average -0.75% 15.1 Years
We are 11 years into a strong cycle, Valuations are stretched to levels not seen since 1999, the end of the dot com period. Now would be a good time to consider adding a absolute return and or tactical approach to your investment portfolio.
Past performance does not guarantee future returns. The success or failure of a tactical and absolute return strategy depends upon many factors including but not limited to the managers's ability to avoid large market losses. There can be no guarantee that PCM will be able to avoid such losses or that PCM will be able to identify periods of week performance in the stock market in the future.
Weak and Strong Market Cycles is research by Robert Powers and Sy Harding Market Cycles Study. The Table above summarized Powers' interpretations of strong and weak cycles, along with average annual returns adjusted for inflation and duration of the cycle